Not every great business is VC backable. But every business needs capital to grow. If you’re launching a great business, but you don’t plan on being a unicorn, keep reading.
“Will it return the fund?” These can be discouraging words for a founder with a solid business, one that is solving a real problem and has a healthy 3.5x exit potential. Rest assured, while most VCs build their portfolios based on billion-dollar exits that will compensate for the zeros, there are more and more opportunities for the non-unicorn-vying companies to access the capital they need.
The angel investor can be found backing just that company — the business that is not necessarily a billion-dollar phenomenon, but, in a few years, that angel will go home very happy with that company’s $40 million acquisition. And angel activity is rising. In fact, the angel-only deal increased from $800,000 to more than $1 million between the end of 2014 and 2015.
But you might find yourself spending your whole day collecting bushels of angel checks without having time to, well, run your company. And what about when you have 35 individual angels banging down your door asking for you to give them back their potential early retirement? This over-inundation of personal investors might come in tandem with a cap table resembling an MBA corporate finance exam more than a clean list of your early cheerleaders.
The solution? Angel groups. Your one-stop shop for checks, industry hook-ups and a little bit of structured pitching along the way.
So how do you get in front of angel groups?
Angel groups measure themselves on different metrics than your typical VC firm. They are not necessarily unicorn hunters, and many prefer to see their money back and then some in just a few years. These angels can invest in illiquid companies with relatively less risk and lower exit potentials, making the home-run hitting mentality less relevant.
Unlike VCs, angel groups aren’t constrained to needing the billion-dollar exit because they’re not measuring the health of their portfolios as an index in order to ensure the future financing of their firm. They’re looking at each investor’s selections on an individual basis.
While angel groups often invest in high-growth venture deals — in fact, Red Bear Angels has invested alongside the most audacious institutional VCs — every angel group decision is made based on the participation of its members, all of whom pursue varying personal portfolio diversification strategies.
The point is, there are indeed companies we invest in knowing that they will not become unicorns in their lifetime. That’s right, there are investors out there actively searching for your 3.5x opportunity. And what’s more, they’ll top their cash with 10, 20 or even 50 years of their own personal domain expertise
So how do you get in front of angel groups? We got together with a few other angel group leaders in New York to round-up your go-to guide.
First thing’s first. Get connected the most effective way possible. Source a relevant member of the group as your internal champion. By actively connecting and sharing notes with one member of the group, you automatically come in with a stamp of credibility. “Just e-mailing/applying blindly and expecting magic to happen is unrealistic,” says Humphrey Chen, board member and co-chair of marketing for HBS Angels. “Between Google and LinkedIn, all the information you need to approach an individual in a highly targeted, personalized and relevant way is at your fingertips. Good old fashion hustle still works and is necessary.”
Projections get people excited, but don’t forget to emphasize all that you have already accomplished.
Better yet, get connected through domain experts. According to Christina Bechhold, co-founder and managing director of Empire Angels, “Deals move forward because of positive group momentum, and without a strong advocate, members are much more hesitant to step forward with a specific opinion. The only way you get to yes is with a vocal champion who draws members into the discussion and pushes them to weigh in.” The relevant members are the ones who “get it” and will steer otherwise unfamiliar investors toward the relevant questions they should be asking.
In fact, at Red Bear Angels, we do not invite a company to pitch until a member with domain expertise commits to leading other members in the investment. That member will present you with the most credibility, eliminating a significant step of your diligence process. Angel groups have often been dinged for groupthink and other negative effects of voices of varying frequencies and volume in the same room, feeding off of each other. But this kind of influence in the room is the kind you want to work to your advantage.
Next, trim the fat off your deck. Delete every word from your application that does not differentiate you, drive conversation or describe exactly what you do. You won’t stick out from the rest with blanket terms like Big Data, Marketplace or literally any adverb. But add every *real* number you can to your application. Projections get people excited, but don’t forget to emphasize all that you have already accomplished. Determine the metrics that describe the momentum behind your business, and let those tell the story.
Also, get to know the groups’ operators. Better yet, get to know them before it’s time for you to fundraise. Beyond having internal champions, it’s helpful to understand the group’s dynamics and see if it’s the right fit for you. “Do your diligence on the group before applying,” says Alicia Syrett, founder and CEO at Pantegrion Capital and member of the board of directors for New York Angels. “Talk to the entrepreneurs from the group’s portfolio companies and ask them about the process for tips. Research the members’ backgrounds for potential fit with your company. Look for alumni connections. Know which members actively and regularly lead deals and seek out warm introductions.”
Getting funded shouldn’t be an “application” process.
And remember, the pitch is not the pinnacle. “The pitch isn’t about closing. It’s about getting another meeting,” says Kelsey Morgan, managing director of NextGen Venture Partners. “Get the group interested enough to want to dig in more. You shouldn’t try to answer every possible question with your deck. Figure out a way to make it interesting. Teach me something. Tell me a story. Be memorable!”
Angel groups are not just a source of capital, they are a gateway to an entire network of diverse individuals who have decades of experience in varying industries and functions relevant to your own.
“Don’t think of pitching as a binary outcome,” Syrett suggests. “If the group declines to proceed with your company, they haven’t rejected you forever! You can make progress on their comments and revisit the opportunity to pitch with them at a later date.” By engaging with members of the group throughout the office hours, in-person pitches, MD screening sessions and more, you can make the angel group pitch process into a strategic accelerator program.
In practice, getting funded shouldn’t be an “application” process. “The process is always in your control,” says Syrett. “If the due diligence process doesn’t feel right to you or you don’t think the members are a fit for your company, you don’t have to proceed.”
Yes, a founder is selling equity, but the investor is also selling capital. These tips are just a few ways to help you navigate the process so you can get to building a partnership with the investors who are your best fit.