Angel investors explain how to prepare so that you have the best chance of success when the time comes to pitch.
Here are six key takeaways from a live event hosted by Barclays entitled Raising Angel Investment in the current landscape, with panellists and angel investors Peter Cowley, President of the European Business Angel Network (EBAN); Mark Dowds, Managing Director at Anthemis; Pam Garside, Partner at Newhealth; and Rhona Campbell, Director at Rhona Campbell Associates.
Don’t seek investment too soon
Maximising your valuation before going into a pitch is the best way to get a good deal, says Cowley. Try to survive using grants, money from family and friends, and money of your own. That way, your valuation will be higher in the long term.
“If you've got a minimum viable product that's got some traction, that'll help. If you've got some early customers, that will help. If you've got a patent on the way—even if it has been filed but not granted—that will help.
Test the market
Show you've validated the market, that there is a demand for your product and that people want to pay money for your product,” says Campbell, who also advises founders to seek all of the support available before a pitch. “There's lots of aid out there to help you develop a solid pitch that's ready for investors.”
Show that you’re resilient
A successful pitch will be one that shows your business can last, says Garside. “Because of lockdown, angels may have to get to the point where they write that first cheque having not met the team. I happen to be in HealthTech, which is booming.
There are a lot of startups piling into the sector, but you have to look to see that they’ve got enough money to be resilient over the next year. You have to challenge all of their assumptions about how much money they will need because they often underestimate that.”
Set a realistic valuation
The majority of angels continue to attend pitches and are writing cheques, says Cowley who suggests that valuations may have decreased by around 20-30% because of Covid-19. Startup valuations had increased by a factor of three or four over the past decade, so Cowley says it’s likely they were already overpriced.
“On top of that, the uncertainty of the new normal means it’s very difficult to find a valuation… So, my message to entrepreneurs is ‘don't be greedy’. The more you put people off in the pitch, the less likely you are to gain investment.”
Target your pitch and be aware of lead times
Identifying an angel investment company that invests in specific sectors will increase your likelihood of gaining investment, says Campbell, adding that syndicating with several angel investment groups is often a wise approach. “I would certainly do your homework in terms of the group and then find a warm introduction.
Just pick up the phone and go and speak to the investors. But it takes between three to six months to raise money, so you need to bear that in mind.”
Show your team dynamic in the pitch and beyond
Angel investors often rely upon pitches and face-to-face meetings to get a sense of whether they should deploy their cash. For Dowds, online calls are an effective way to build rapport with a founder and to draw out enough of their personality to make a judgement call. But he says the process falls down when trying to get a sense of the team dynamic.
“Understanding the team dynamic is core to an investment, which is very difficult to see outside of a dinner, drink or a coffee. That has been one of the tougher things about operating during the current disruption, but in high stress and crisis situations we can still make big decisions.”