Do you need to look externally to raise finance for your business to grow?
Angel investment is an important source of early-stage finance for ambitious founders looking to build scalable businesses. But what should you look for in an angel investor and what makes them tick?
More than money Raising investment from a business angel provides so much more than just access to growth finance. The right angel investor will be a trusted business partner, a mentor, an advocate and can bring valuable connections to fast track your business’ growth. “The main thing a business owner should look for in an angel investor is someone who supports you and can bring value to your vision, not someone who wants to rewrite your vision” says Michael Blakey, serial angel investor and UK Angel Investor of the year 2015/16. “Don’t be tempted to just think about the short term funding need, you need an investor that is in it for the journey, is used to dealing with pivots, and can support with further finance as the business grows.”
Additionally, be aware that angel investors very rarely invest alone. Over 80% of angel investments closed by Grant Thornton clients involved an angel syndicate. This is consistent with national data on the angel market, presented in the UKBAA Nation of Angels report, which found approximately 7 out of 10 angel investors invest through syndicates in the UK.
We see so many founders fail to make the most from an opportunity to impress investors. Demand far surpasses supply when it comes to seeking investment, and thorough preparation, research and practice is the difference between standing out and blending into the crowd.
Chris Michael is founder of Swytch, which has created an app that allows multiple phone numbers to be used from a single device. Swytch secured investment from investors James Hilton, CEO of M&C Saatchi Mobile, and serial entrepreneur Neil Hutchinson. However, Chris found he had a lot to learn when pitching to angels.
“We attended lots of events in preparation for meeting investors to learn how to pitch and understand what should and shouldn’t be in a slide deck,” he says. But the biggest way to make an impact? “Personalise your pitch”, says angel investor Michael Blakey. “I get hundreds of approaches from entrepreneurs seeking investment every month and I get so frustrated when emails are addressed “Dear Sir”. It isn’t hard to put my name or personalise a slide deck so I don’t feel I’m getting the same presentation everyone gets.”
Pitching to an investor is essentially a sales process, and it is really the only time your investor will ever be on the receiving end of how you conduct yourself professionally. “We will assume that how you communicate with us is how you will conduct yourself with customers”, says Michael. It is crucial to demonstrate you are professional and competent. Content is key There are many ‘do’s and don’ts’ when it comes to pitching for finance.
When seeking funding for Swytch, Chris found that, as well as wanting to understand his vision and route to growth, angels he met with were most interested in the people behind the business. “You need to talk about your team. They want to know who is running your company and have confidence you can achieve your forecasts” Chris says.
I don’t want to know how great a product is, I want to understand the market opportunity and the commercial terms of the deal for me. A common mistake we see during pitch events is business owners confusing the investment pitch with a product pitch. An investor does not need to understand every detail about your product/service, but they do want to know how you will make money, who your customers are and what is in it for them.
“I back entrepreneurs who understand how I want to make money”, says Michael. “I don’t want to know how great a product is, I want to understand the market opportunity and the commercial terms of the deal for me.” And don’t even think about using the word “conservative” when presenting your financials!
During his early meetings, Chris learnt first-hand the importance of giving investors information on the addressable market for his business. “You do get feedback from investors and it’s important to listen. I learnt that investors will not believe that there is no one else trying to do the same thing as you. So we needed to be clearer about who we were aiming for and how we were going to reach them.”
Even if you have a breakthrough innovation that no-one else has invented yet, your competition is that consumers continue to use an alternative solution, or they continue to do nothing about the problem you are trying to solve. What’s in it for them? So why do business angels invest?
It is true that there are some investors who invest philanthropically, having made their fortunes and want to give back to the economy or make a social impact. But it is important to understand that the majority of angel investors invest to make money. Yes, they want to be involved in interesting projects and bring value to small businesses, but ultimately they are looking for a financial return.
Entrepreneurs that recognise this and place importance on demonstrating how they can deliver that for investors will go far when pitching for finance. And Michael? “I like the rollercoaster of investing in exciting, growing businesses. There are easier ways I could make money, but they would be a lot less fun!”
Grant Thornton are running a Funding Clinic on Wednesday, 05 April 2017 08:30 - 11:00 at Grant Thornton, Royal Liver Building, Liverpool L3 1PS
This event is free of charge.