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How to Choose the Best Angel Investor

Angel investors are a growing segment of the startup universe. Wealthy individuals (often celebrities or successful entrepreneurs themselves) are ready, willing, and able to invest sizeable amounts of cash into businesses that appeal to their sensibilities and interests. You no longer have to deal with the big, bad, scary venture capital firms. Some angels work alone, while others are part of a network or group. They cover every conceivable industry and niche, and their investment can run from thousands to a few million of dollars or more. Really, it’s just a matter of connecting with the right individual.

But, you shouldn’t just take the first bag of cash dangled in front of you. Just as a savvy investor will have questions and research you, so too should the savvy entrepreneur look into their potential backers. Finding the right investor should take time and effort.

Find Individuals with Related Experience

First and foremost, because you’re dealing with an individual rather than a company, you want to zero in on someone with a background in your selected niche or industry. These wealthy folks come from various backgrounds, so you want to find one with experience that can assist you (beyond just simply financing you). An angel investor who made their millions in software is a much better choice to invest in your software start-up than, say, someone who made their fortune in oil. Sure, they would obviously have solid business sense, and they would be a worthy mentor, but different industries have different subtleties. Find someone that intimately understands yours.

Geography Ain’t an Issue

Angel investor groups are popping up absolutely everywhere. A quick Google search will likely reveal several within your country, state, province, and sometimes even specific city. That said, you don’t necessarily have to limit yourself to finding someone closeby. Many angels actively seek out opportunities abroad. There are, of course, pros and cons for finding someone within driving distance, but you shouldn’t automatically close the door on those farther afield. Some popular angel investor networks include:

The United States

Canada

The United Kingdom

Check out a few different networks. Shop around. Find the perfect match. Some angels only invest in one particular industry, or country, or niche. Many groups host conferences where entrepreneurs can pitch their idea. Find a network that fits your general profile, and then subscribe to their email newsletter (if they have one) to stay on top of things.

Check Out the Competition

Take a look at existing companies in your niche. Who invested with them early on? It’s possible that they may still be investing in worthy projects, and you’d be one step closer to an agreement if you already know that they like and support your industry. You’re not looking for unfair insider knowledge of your competition here. You’re looking for someone who has already successfully helped others achieve in a similar market. It just makes sense. You want an investor with a proven track record, right? Likewise if you know anyone within your entrepreneur networks that could point you towards a good fit. Rather than consider each other enemies, entrepreneurs would do well to stick together and help each other out. This leads us to...

It’s All Who You Know

In the world of angel investing, if you can get a personal introduction from a mutual associate, you’re already ahead in the game. Like anyone, angels are going to trust and assess the risk differently if they are connected with you via someone they’ve already conducted successful business with. Talk to other entrepreneurs. Ask about their investors. Request an intro when appropriate. They can also warn you about potentially difficult angels as well.  

Celebrities vs. Connectors vs. Expert Strangers

They are different kinds of angels out there. They’re all wealthy, yes. But that might be the only similarity, and different types have their advantages. A celebrity, for example, is great for generating publicity and buzz surrounding your product or idea. Connectors are investors that might not be an ideal match in some areas, but they can introduce you to someone who is perfect. Experts are the aforementioned professionals with a background in your chosen industry. They're worth their weight in gold for their insight. Be clear on what is most important to you...other than just the money.

Ask Questions. Talk to Each Other.

Selecting an angel investor is about compatibility, not just money. It’s going to be a close relationship, so you want to make sure that you get along and can work together. If your gut says “no”, it would be wise to listen to it. Make sure there is a clear (and written) understanding as to the level of their involvement, exit strategy, length of partnership, and so forth. Spell out what you are looking for. Ask questions about what they expect. Everyone must be on the same page here, and if you don’t ask, you won’t know, and that can be disastrous down the road. They will likely have plenty of questions for you (and if they don’t, you should be worried), but so should you for them. Find someone you genuinely like. It’s so much easier.

The entrepreneur-investor relationship is dynamic, close, and often volatile. You need to choose very carefully, as do they. You’re working very closely together, in a pressure cooker of stress, with large quantities of money involved. Choose poorly, and that’s a recipe for catastrophe.

 

Photo by Cornelia Kopp

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