Welcome to part two of ‘The Great Game,’ our monthly series where we share practical tips and advice from seasoned investors on startup funding. In the first part of our series, we spoke with Troy Henikoff of MATH Venture Partners about how founders can raise venture capital. In this interview, Tony Wilkins, a mentor at the Junto Institute for Entrepreneurial Leadership, provides insight on why attitude is everything when you’re raising money from angel investors.
When your company’s too early for VC and you’ve already gone to friends and family, then the best play is to secure an investment from an angel investor. But whether you’re looking for an investment from one individual or an Angel Group, you’ll have to prove that your company and your idea is worth backing -- and, as you'll hear from Tony Wilkins of the Junto Institute, that starts with your attitude. Here are a few tips to help you raise money from angel investors.
For those new to the great game, angel investors differ from VCs in a number of ways, but the most notable differences are the investment stage and investment size. Angel investors will typically invest in deals earlier than VCs. Angel investors will also typically invest anywhere between $25K - $100K, whereas VCs often will invest an average of $7 million in a company.
- Chemistry is King
Wilkins says that rapport is key when it comes to raising money from angel investors. Seasoned Angel investors want to get a sense of how founders will treat them once they get access to VC money and terms for early, smaller investors are likely to change. That’s why they need to know that they can collaborate with you on both a professional and personal level. What’s more, a good founder-investor relationship can often yield additional benefits as well.
“The worst thing an entrepreneur can do is take money from an angel investor who he or she doesn’t have chemistry with. Your typical angel investor is only going to invest somewhere around $25K but if you have a good relationship, they will provide you with a quarter-million dollars worth of contacts, connections, and experience.”
- Express Yourself
There’s no doubt that Angel Investors will take both your idea and your company into consideration when they make their decisions to invest or pass. And while any entrepreneur can you tell how important it is to put your ideas or company in the best light, founders often forget that it’s also important to highlight themselves as individuals. Wilkins says that most angel investors evaluate the founder just as much as their idea.
“If I was making an investment, the first thing I’d look for would be a coachable, resourceful, and energetic entrepreneur who can’t learn enough and is insatiable in his or her pursuit on how to solve a problem. In fact, many angel investors will look for entrepreneurs who they truly believe in, so that if the business fails, the investor knows that the entrepreneur did everything in their power to save it and make the most out of their investment.”
- Mind Your Manners
Building a business can be a taxing experience so it’s understandable if you have to vent every now and then. However, Wilkins says that there are certain traits that angel investors just aren’t willing to deal with and will quickly put an end to a potential investment.
“Dishonesty, disrespect, and a know-it-all attitude are all immediate and permanent turnoffs. If I find that someone has lied in any way, shape, or form, that’s an instant turnoff. If I find that an entrepreneur is disrespectful of their co-founders, employees, advisors, or customers, that’s an instant turn-off. This is a long-range effort that takes a lot of time and resources so honesty and good character are things that we look at.”
- Bring on the Bad News
It’s human nature to hide bad news whether we’re dealing with family, friends, and in many cases, investors. After all, it’s not easy to tell the people that financed your idea that you’ve failed or hit a roadblock. Wilkins says that many entrepreneurs will simply try and wait their problems out or attempt to solve them on their own. And though it may seem counterintuitive, he’d much prefer to hear about an entrepreneur’s ‘worst of’ moments rather than their highlight reels.
“We know that most entrepreneurs who are seeking Angel Investors are at a stage where they are going to make mistakes and we expect them to happen. That’s why I tell my portfolio companies that the worst thing that they can do is keep bad news from me and most of the time it doesn’t go away on its own and it doesn’t age well. We want to hear your problem because if I’m going to give you my high-risk money, then I demand the opportunity to participate in the solution.”
- Your Time, Your Money
On the flipside, there will be investors that you’ll want to pass on as well. If you’re grabbing coffee with a potential investor and something feels off then more often than not, the better call is to cut your losses and end the meeting. Wilkins says that many entrepreneurs waste their time trying to convince prospective investors who are indecisive or don’t entirely understand their business and mission. Instead, he recommends that busy founders guard their time by being entirely up front about what they want and when they want it.
“In the Midwest, many investors are reluctant to tell you, quickly, that your business just doesn't fit their investment criteria. They are too nice. The best thing to do is to let prospective investors know exactly what you’re about -- if they don’t get what you’re doing in just a few minutes, don’t waste your time trying to convert them. And then, set a date on which Angel Investors must make a decision; having that deadline is the best thing you can do to get potential investors to either fish or cut bait. A quick no is always better than a long maybe."
And speaking of solutions, we hope that those of you seeking to raise money from Angel Investors have taken away a number of them from this read. There’s a lot to cover in your quest to raise money, but keep your ear to the ground because next month, we’ll be sharing more tips to help you win the great game.
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To learn more about Tony Wilkins or the Junto Institute for Entrepreneurial Leadership, follow this link.