How to Encourage Angels to Invest - Advice for Entrepreneurs

After a fairly short but traditional crawl through big company management structures, I decided someone else's rat-race wasn't for me. I wanted to try my luck at creating my own. So at the age of 29 I became an entrepreneur. How hard could it be? Think of an idea, borrow some money, make lots, pay it back, invest in more ideas. Several decades later I can look back and compress my experiences into precisely that chain of events, but oh boy it was neither as easy nor as fast as I ever imagined. But in a way, if I'd been more prepared, I either wouldn't have bothered or I wouldn't have experienced the pitfalls that helped me meander my way to where I am today.  

What doesn't kill you makes you stronger.

This post is not about how to come up with ideas that stand a chance. I've written plenty of posts discussing that - click here to read them. After a series of decent successes (and some failures), I reached 50 and decided to start investing in other people's start-ups as well as continuing to explore a few more of my own ideas - but this time recruiting others to run them as soon as possible. Why do all the really hard bits again if you can afford to pay others to do them?

So I became a professional business angel (professional because I've done a lot and don't have time for much else I can call an occupation). Recently I was appointed the chairman of an angel network and as a result see a large number of pitches from ambitious entrepreneurs, some of whom I now own (it's a somewhat revealing habit of investment people who talk about 'owning' a company, implying it's all theirs, whereas in fact they only own shares in it).

But the vast majority of pitches I see, perhaps 95%, don't attract my money. Why do I reject them, and what persuades me to buy into others? This post looks into the mind-set of a typical business angel (hopefully typical) with a view to helping entrepreneurs achieve better chances of investment - or perhaps not bothering at all and settling down to a safer career instead.

What many pitching entrepreneurs I meet fail to understand is that they have two markets they have to work equally hard. There are of course the customers for their products and services (as well as all the influencers they need to win over to attract those customers), but there's also the market of investors - another group of people who need targeting, marketing communications, lead acquisition, lead management, requirements qualification, objection countering, sales closing, and especially after-sales management. So entrepreneurs not only have to develop a clear sales strategy for their business output, they also need one to sell their shares. And the way to develop a sales strategy for both cases is the same.

• Who are your targets? 
• How do you find them? 
• How do you attract their interest? 
• How do you develop their interest? 
• How do you close the sale?
• How do you keep them interested (because you're probably going to have to ask them for more money before you run out)?

The key point to remember about potential investors is that THEY DON'T HAVE TO INVEST. Unlike, for example, a house buyer who needs a house, my wife who always needs new clothes, or someone who needs to eat something, an investor can just as easily sit on his/her money and not bother. There's no compulsion and it's not about choice. So the entrepreneur needs to work a lot harder to sell shares - especially because angels are typically cynical, suspicious and cautious. We've seen it all before and we know entrepreneurs always predict faster and larger sales than they can possibly achieve. It's known as the 'hockey-stick' - the sales projection that shows virtually no sales today (fact) but magical exponential sales just around the corner (fantasy) - all achieved using your money of course.

Tip #1. Be realistic. We'd prefer to see achievable projections proving viability, not wildly optimistic targets proving naivety.

These are the things that attract me:

• Professional, passionate, confident people who look smart, communicate well, listen well, and with whom I can see myself having an enjoyable personal and business relationship.
• Comprehensive research - and convincing me, as someone from outside their sector, why I should believe it's comprehensive.
• Who else thinks they're great, especially...
• ...Customers. 'Traction', as it's known, from the market is hugely compelling.
• Realistic sales projections (see Tip #1 above). Better to over-perform and impress, than under-perform and disappoint.
• Practical sales channels. Too often I'm shown business plans where "5% of all of the millions of SMEs in the country" are going to buy their stuff. Selling to SMEs is the hardest thing in the world unless you've got an army of very tenacious sales reps on every high street... which they haven't, and I'm not going to pay for.
• Explanation of why not only is there a gap in the market but what's their evidence for a market in the gap. Otherwise it's called 'wishful thinking'.
• And finally proof of tenacity, which they're going to need buckets of. They will need it to sell their products, so show me they have tenacity in selling me their shares. Answer all my questions and then keep asking me if I'm still interested. They shouldn't assume if they don't hear from me that I've lost interest. I've probably lost momentum and become distracted. I need reminding and they need to be persistent without becoming annoying. Read my signals carefully.

This final point is where most entrepreneurs get scared of wealthy angels. They're probably worried we might behave like the dreaded TV Dragons and not be polite or fully supportive. No one likes being told their idea is weak or totally bonkers - and a few of us will be blunt. It's business. Man-up (can I say that these days?). But most of us are normal courteous people waiting to be sold to and we need cajoling just like anyone else buying an indulgence.

But equally don't be pushy. Remember we don't only want a return on our money (a big return for such a high risk. At least 10x what we invest), we also want to help.

Angeling for me is about 'buying seats at the tables of the future'. Continuing to make a difference to the world, well after our 'careers' are no longer defined by others. We not only want to put some of our wealth back to work, but also our experience, our connections and our moral support. And we will only do that with people we like, and with people we believe will last the course and not give up.

It's never easy. If it was, everyone would be doing it and there'd be no need for angels.