If you want to sail around the world, you better make sure you’ve got the right people with you in your boat. If you want to start a company, the strategy is much the same. Every start-up needs to find an investor, but finding a good one can be tricky. Many investors are just looking for a quick return on an investment, and have little to bring to the table beyond cash. Here I share what I learnt from the What Every Angel Investor Wants You to Know.
What Every Angel Investor Wants You to Know by Brian S. Cohen and John Kador, you’ll learn
- why an investor is like a spouse;
- why you should learn to take “no” for an answer; and
- how a start-up founder got an angel investor to wear his underwear.
What Every Angel Investor Wants You to Know: Setting Sail with the Right Crew
The Importance of Finding the Right People
If you want to sail around the world, you better make sure you’ve got the right people with you in your boat. Starting a company requires a similar strategy. Every start-up needs to find an investor, but finding a good one can be tricky. Many investors are just looking for a quick return on their investment, bringing little to the table beyond cash.
The Value of Angel Investors
A smart entrepreneur should look for an angel investor. Although many angel investors are not as wealthy as billionaire Bill Gates, they are motivated by making dreams come true for hard-working start-ups worldwide. Do you have a dream that needs a financial boost? Then this book summary will help you find your own angel investor!
What Every Angel Investor Wants You to Know Key Idea #2: Smart Entrepreneurs Look for Smart Money
Understanding Angel Investors
Most people consider starting their own business at some point, whether it’s mowing lawns or starting a multimillion-dollar business. Regardless of the idea, they all have one thing in common: start-ups need capital to get started. For most entrepreneurs, this means finding an investor, and if they’re lucky, they’ll find an angel investor.
The Unique Value of Angels
An angel investor funds start-ups with her own capital in return for partial ownership. Typically, angel investors have significant assets and income, with only three percent of Americans qualifying. Angels differ from regular investors as they offer more than money, contributing time, experience, and valuable connections. They often gather together, and finding one committed angel can lead to introductions to other potential investors.
What Every Angel Investor Wants You to Know Key Idea #3: Be prepared to answer tough questions when courting angel investors.
Developing the Perfect Pitch
Successful entrepreneurs have no patience for shyness. You need to get out there, talk to people, and inspire them to believe in your business as passionately as you do. Angel investors have heard it all before, so you need to approach them in a way that speaks to them personally.
Crafting an Effective Elevator Pitch
To approach angel investors, preparation is key. Research your potential investor’s past investments and interests. Develop a concise elevator pitch, no longer than 150 words and 30 seconds, highlighting the problem your product solves. This pitch should grab their attention immediately.
What Every Angel Investor Wants You to Know Key Idea #4: You have to be able to take “no” for an answer with grace. Yet don’t be afraid to ask for feedback.
Be Ready for Rigorous Inquiry
Angel investors won’t invest unless you can demonstrate how your business will work. You’ll need to provide extensive information about your business to convince them it’s worth their time and money. Put yourself in their shoes—would you invest in a thin or underdeveloped idea?
The Importance of Due Diligence
Investors minimize risks by asking due diligence questions to uncover potential liabilities. Be prepared to discuss everything from pending patents to team dynamics. Being upfront about issues demonstrates honesty and integrity, increasing your investment possibilities.
What Every Angel Investor Wants You to Know Key Idea #5: Accepting Rejection Gracefully
Embracing the Quick “No”
After pitching, you might hear a “no.” Appreciate a quick “no” as it saves time. Accept that not everyone will invest in your business. Press for a clear “yes” or “no” and accept both with grace. Ambivalence wastes your time.
Seeking and Utilizing Feedback
Sometimes a “no” can be positive if accompanied by feedback. Listen carefully to the reasons behind the rejection and adjust your pitch accordingly. Don’t be afraid to ask for feedback as it can provide meaningful insights for improvement.
What Every Angel Investor Wants You to Know Key Idea #6: Demonstrating Integrity and Entrepreneurial Skills
Demonstrating Integrity and Entrepreneurial Skills
When pitching to an angel investor, your business plan and personalities are your assets. Prove your team’s integrity and entrepreneurial skills. Investors need to trust you and believe you have the skills to implement your idea.
The Importance of Team Dynamics
Investors look for teammanship—a united team working towards shared goals. Show that your team can work well together, sharing responsibilities and resolving conflicts.
What Every Angel Investor Wants You to Know Key Idea #7: Balancing Vision and Practicality
Dream Big but Stay Grounded
Impressing an angel investor requires balancing big dreams with practical execution plans. Demonstrate your belief in your enterprise and back it up with a strong plan. Don’t ignore profit margins or managing bank loans as they are necessary for bringing your vision to life.
Case Study: Tommy John
Tom Patterson of Tommy John innovated men’s underwear and backed his vision with a solid understanding of the market. His financial acumen impressed investors, leading to significant revenue growth.
What Every Angel Investor Wants You to Know Key Idea # 8: Planning for an Exit
The Importance of an Exit Strategy
Start-ups need an exit strategy, either being bought by a bigger company or going public. An exit plan shows investors you’re thinking about their interests, crucial for their investment decisions.
Aligning Interests with Investors
Investors seek to cash out, so demonstrate that you understand this. An exit strategy is a primary motivator for investors, showing you’re taking their interests into account.
In Review: What Every Angel Investor Wants You to Know Book Summary
The key message in this book:
Angel investors don’t just write checks – they also can provide start-ups with powerful insights, experience and networking opportunities. Grabbing their attention means approaching them on a personal level and building a company that takes investors’ interests into account.
Actionable advice:
Be specific about what the money is for.
When you’re pitching to an angel investor, get specific about how the money she’ll give you will be used. Is it for employee salaries? Research and development? Or something else entirely? Not only will this demonstrate that you’ve got business sense, but it will also help the investor feel the difference she’s making. After all, no one wants to give you money to pay your bank loan!
Suggested further reading: Venture Deals by Brad Feld and Jason Mendelson
Venture Deals offers insider insights into the mechanisms that govern venture capital deals as well as tricks that will help you get the most out of negotiations with investors. It lays out the nuts and bolts of venture capital deals in a way that is both easily understood and will give you an edge at the negotiations table.
Wanting to 2x, 5x or 10x your Profits? How will these principles help?
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