This article was published in Callaghan Innovation’s Accelerate Ezine on December 2015
Want to know how to connect to an angel investor? Suse Reynolds gives some heavenly advice.
Angel investors are not your typical investors and for start-ups, eager to get a few runs on the board, finding them can be a challenge.
So what is it about angel investors that makes them so different?
Suse Reynolds has spent the last eight years helping to connect start-ups with angel investors and says angels look for teams that have the right culture.
“They’re looking for an energised, committed and self-aware team – a team where there is a culture that is collaborative and open and ambitious.”
Angels are a rare breed themselves – while not wanting to pigeonhole all investors in the same way, angel investors tend towards the optimistic end of the scale, says Suse.
“On a deal-by-deal basis, you’re more likely to lose your money than not, so they have to play the portfolio game. I’ve heard some say 20 is the new 10 when it comes to the number of ventures angels should back, so they will double down on the ones that are kicking in and leave behind those that aren’t making traction.”
Suse says there is a real need for investors and entrepreneurs to be fully aligned around key issues such as milestones and what success looks like.
“It varies from investor to investor, so make sure you’re transparent and open around where you’re at as an entrepreneur and a company.”
The one thing that most entrepreneurs go to an angel investor for is financial backing, but for Suse that’s only the tip of the iceberg.
“If you just want their money you are better off going to the bank.”
Suse says the people who become angel investors are the type of people who care more about you and your project’s success than they necessarily do about looking smart in front of you.
“A good angel investor, like a good entrepreneur, is self-aware. They know what they don’t know and will say so. They are courageous and connected. They are empathetic and yet will be, sometimes painfully, honest with you. A good angel investor is someone who understands you and relates well to you and ideally they will be deeply experienced in some aspect of your business – either the vertical, financials, marketing or capital strategy setting.”
Angels are more about guidance and advice than money. Suse describes it as a balance between the rational and irrational sides of investing.
“It’s a financially irrational thing to be doing because of the high risk, but emotionally it’s entirely rational. The emotional returns are high. If you want to feel you are part of creating a vibrant, growing economy for your country then it’s entirely rational to be an angel investor. You’ve got to put lots of things in the top of the funnel to get groovy things out at the bottom.”
So where can would-be entrepreneurs find good angel investors?
Suse is part of the Angel Association and its website (www.angelassociation.co.nz) is a happy hunting ground of information and connections, but it doesn’t end there.
“Accelerators, start-up weekends, even wineries are all great places to meet angel investors.”
“One of the great things about angel investors is their generosity of spirit and their creativity. They’re all about positivity and optimism and they like to travel and to enjoy themselves. They’re not all the same but most do share that eagerness to connect and they’re always networking.”
So now you know where to find them, what is it that angel investors are looking for in a venture?
“They’re looking for a disruptive product or service,” says Suse.
Angel investors want to hear your elevator pitch, but they also want you to follow it up with more in-depth information.
“The first is the hook and the second illustrates you are intimately connected and knowledgeable about your business.”
They want to know you’re serious about your business and that they will see your idea generating entrepreneurial wealth within five to 10 years. And yes, you should probably set up some kind of board with a formal governance structure.
“To receive investment you will need to establish some level of formal governance,” says Suse. “This will typically mean between three and five directors.”
But again, Suse says this isn’t about losing control of your company, or about pesky do-gooders butting into your affairs. Don’t just take their money, she says, take their advice and guidance as well.
“A classic angel is an investor who has a passion for investing in early-stage, high-growth companies and is someone who wants to actively contribute. At one extreme that can mean being on the board of the company, but at the very least it means those investors look forward to regular (ideally quarterly) updates on how the company is doing and are happy to roll up their sleeves and help by sharing their expertise, contacts and experience.”