How to Find Angel Investors

Startup businesses need money to stay afloat. While you can get a business loan or a line of credit, these financial obligations must be repaid over time. Some business owners have already used these avenues to take out funds and need additional ways to raise capital. Angel investors can be your solution. If you want extra cash for your business without committing to monthly loan payments, these investors can help. This guide will reveal where angel investors hang out, along with the pros and cons of working with them.

What is an Angel Investor?

An angel investor is an individual who gives startups initial funding in exchange for a percentage of the company. Angel investors arrange the terms for their exit, such as the ability to sell their shares after five years. Many angel investors provide capital, but others also provide connections and business opportunities for the startup. An angel investor’s network can sometimes be just as valuable as the capital startups receive from them.

Best Ways to Find Angel Investors

Business owners have several places they can go to find angel investors. These are some of the ways to approach finding these investors. 

Using Personal Networks

Angel investors often have vast networks, but you shouldn’t underestimate your own network. You may know an angel investor or have a colleague who knows angel investors. Asking around and tapping into existing relationships can help you find angel investors. Having a well-structured pitch can lead to more introductions. You can also incentivize colleagues to recommend angel investors by offering a reward for each angel investor they refer.

Angel Investing Networks

Some business owners find angel investors within their networks, but angel investors make it easy to find them. Startup founders can choose from several angel investing networks that are designed to connect them with investors. Popular platforms like AngelList, Gust and Fundable connect startup founders with angel investors.

These platforms can streamline the experience and save you a lot of time. Instead of asking if someone is an angel investor or seeing if they would like to buy a percentage of your company, you already know the people on these platforms are angel investors. You don’t have to pitch these people about the benefits of angel investing. They already know, and all you have to do is focus on delivering a great pitch about your startup.

Attending Pitch Events and Conferences

Many angel investors attend pitch events and conferences. These events give startup founders the opportunity to meet with angel investors face-to-face. While you can meet more angel investors online for less effort, a face-to-face meeting can lead to a stronger relationship between you and angel investors. Many investors will feel more confident about investing in your business after meeting with you at an event instead of through a few online messages. Both strategies work for getting investors, but presenting an impressive pitch deck and answering questions at an event can create a strong impression for attendees.

Angel Investor Syndicates and Venture Capital Firms

Some angel investors pool their money into angel investor syndicates and venture capital firms. Reaching out to these larger syndicates and firms can give you access to more funds. Receiving capital from a syndicate or venture capital firm can streamline your research and help you achieve milestones. However, these entities have strict requirements, and multiple angel investors have to agree to fund your startup.

Crowdfunding Platforms

Crowdfunding platforms have become more common for startup founders seeking extra funds. Angel investors can review the opportunities on these websites and contribute to them. You can also promote your startup’s crowdfunding page and offer incentives for early investors. Platforms like Wefunder, StartEngine and SeedInvest help startup founders get in front of more angel investors. These platforms have transaction fees for inventors or startup founders, depending on how they are set up.

Advantages of Angel Investors

Angel investors offer several advantages for business owners. These are some of the perks.

• Get access to extra capital: You can use the capital to grow your business, maintain operations or achieve other objectives.
• No monthly payments: A small business loan or a line of credit immediately reduces your monthly cash flow. Business owners get money from those financial products, but with angel investors, you don’t have to worry about beginning your repayment at the start of the agreement. 
• Access the angel investor’s network and expertise: Some angel investors give you more than extra capital. These investors may introduce you to critical business connections or give advice on how to proceed with your startup.
• Your credit score doesn’t have to be great: Small business lenders often have credit score requirements. If you don’t have a good credit score, you can expect a higher interest rate on your loan. Angel investors can give you money even if you have no business credit history or a bad score.

Disadvantages of Angel Investors

While partnering with angel investors has several benefits, there are also some drawbacks to consider.

• The timing of exits can hurt your company’s finances: An angel investor may set up an agreement to exit after five years. During that exit, you can lose access to considerable capital. Some business owners have to take out loans to compensate for an angel investor’s exit.
• It takes more legwork to find angel investors: Angel investors are harder to find, and it takes more time to convince them that your startup is on good footing. If you have good credit, you can qualify for a small business credit line or loan and receive funding much sooner.
• You can lose equity: Angel investors often have the choice to convert their debt into equity. Some angel investors immediately get equity in your company. As you lose more equity in your company, you lose out on potential profits. Buyouts can become more expensive in the long run.
• Angel investors can pressure you to make adjustments: Angel investors will look at their investment and want a return as quickly as possible. Some angel investors ask business owners to make decisions that work well in the short run but hurt the startup in the long run. While you don’t have to follow through with an angel investor’s wishes, a looming exit date can tip the scales in their favor.

What’s the Difference Between an Angel Investor and a Venture Capitalist?

Venture capitalists and angel investors both invest money into startups, hoping to generate profits in the process. However, venture capitalists use capital within a firm, while angel investors use their own money when investing in startups. Venture capitalists tend to have more capital to invest, commit to longer terms and get more involved with the business.

Growing Your Startup with Angel Investors

Angel investors can give you the initial funds you need to launch your startup and reach customers. These investments can keep monthly loan payments at bay and give you more cash flow flexibility. Finding angel investors and pitching your company takes more time than approaching small business lenders, but some business owners can benefit from this direction.

Frequently Asked Questions