Perhaps not as glamorous as VC funding, nor does it guarantee a TechCrunch headline, but raising angel funding is probably my favourite round in the startup funding journey. Yet it’s a stage which can intimidate a lot of founders.
It shouldn’t be.
Unlike a venture round, which comes with a stack of lawyers, multiple meetings, and rigorous due diligence, an angel round is scrappier, more agile, and in many ways a purer way to turn conviction into the cash your business needs.
Angel capital makes it all possible, it’s the first proper external investment nearly all high-growth businesses take, but despite being highly accessible to most founders, the process can feel more like an art than a science. And by art, I’d put it somewhere between horse whispering and wizardry. Fortunately there are some proven ways to approach an angel round which make the chances of success significantly higher.
Here are some thoughts around my experience on the UK angel circuit, a path I’ve now trodden across five angel rounds, which has included securing investment from from over 40 angels.
Angels know angels
Angels move in networks and often invest together. If you impress one, it’s likely that you’ll have impressed a few. A great start is finding those who have personal experience in your sector. Angels like to back businesses they understand and can add value to - so seek out those people early.
This is possibly the most overshared piece of investment advice, but here it is all the same. “Ask for money and get advice, ask for advice and get money.” Asking for advice builds the relationship. The stronger the relationship the more likely the investment. Also, by not asking for money right away you redress the assumption that all you’re interested in is the investor’s cash. That alone is a powerful trust builder.
Finding your first Angel
Put simply, just about all of my favourite angels are entrepreneurs. This means you can find them running successful companies. Reaching out and offering to meet for a coffee on their terms is a great way to get face time, and even if they don’t invest you’ll get the chance to learn from brilliant people who know their space. I’d like to share a few stories from the Goodlord angel raise to give an idea of the sort of stuff we got up to back in those early stages.
“Put simply, all of my favourite angels are entrepreneurs.”
Angels are busy and hard to get in front of, so get creative. A little research goes a long way. Here’s how we closed a meeting with a prolific London angel a few years ago.
After a little online stalking we discovered this guy was passionate about two things. Tottenham Hotspur, and fast cars. So we stuck a Spurs logo on to the bonnet of a radio controlled sports car and couriered it to him. We got an email back almost immediately, and two days later we had a brilliant face-to-face session and the offer of backing. Full disclosure, we didn’t take that funding in the end, but it proved to us that we could get in front of anyone if we hustled hard, and face time is where everything starts.
As it turned out the first Goodlord angel raise actually happened by mistake. We’d been hammering away trying to close the round for over 3 months, and were getting nowhere. We had some hefty invoices looming and were basically out of money. We figured that without any cash the business was in trouble so in an attempt to bootstrap we decided to start looking for clients. In the end it was pitching for business that actually landed us our first outside investment. The valuation was painful, but now the business had cash and we were on our way.
You might be too early for a VC, but many partners at VC funds also invest individually as angels. Reach out to them away from their funds and, you guessed it, ask for advice on what you’re doing. The added bonus here is that you’ll build a VC network well before you actually need it for real.
Many founders start angel investing after their own Series B raises so consider optimising your search towards the founders of well established startups that have been around for a while.
A quick comment on public pitching and angel events. I’ve pitched publicly over a 100 times, ranging from regional angel networks to the main stage of Web Summit. (AKA the most terrifying but brilliant stage in startup land) Although we’ve never directly received funding from an attending angel, I believe they can provide a valuable platform to refine and improve your message. As with so many opportunities, your energy is super valuable so be sure to assess the return of anything that consumes it.
It can often feel like there is a serious asymmetry of power in the investor-founder relationship. They have money, you need it, they know that… etc. This assumption should be challenged. Of course you need them, but if you’re serious about what you do and hustle hard, you’ll get the angel funding. Thanks to SEIS and the wider startup ecosystem in the UK, the reality is that there are more angels who want to invest in smart teams tackling real problems than the other way around. So value yourself, and be aggressive around urgency if a round is dragging.
Often an angel will say they’re in if you find a lead investor to set the share price, draft the docs, and generally make sure the deal checks out — this is known broadly speaking as ‘leading a round’. But I know a growing number of founders who have driven rounds themselves - without that elusive lead, so don’t assume this is make or break. Running a round is actually not that tough. I’ll mention a great tool later in this post that makes it easy.
“Offering a discounted share price to early subscribers can be a brilliant way to get your round started.”
Achieving momentum in an angel round can trigger something of a domino effect, so put your energies into kick-starting that initial backing. Offering a discounted share price to early subscribers can be highly effective. Equally, offering a discount to well known players in your space can carry equal or greater weight than finding a lead investor. Deciding who gets your precious £150K SEIS is another great negotiation lever a founder has when attracting the first few to a round.
What are angels looking for?
Energy, inspiration, and something they can believe in. Any angel looking for a safe bet should probably top up their ISA instead. You’re still building value and figuring out the absolute basics; good angels know that, so be honest about where your business is and how they can help. There are also some practical factors, which include track record, current progress, and your ability to impress and instil confidence. So although angels expect a high degree of risk, anything you can share that begins to prove out some of your core hypotheses will really help.
Bring the team on the journey
It’s a personal choice, but I’ve always involved the full team in the funding process and feel strongly that there are a number of benefits to doing so. Transparency and honesty shows how much value and trust you have for them. Raising investment is a core part of the startup journey, and exposure to this side of the business not only demystifies that, but also equips the core team emotionally and intellectually for inevitable future rounds.
“Transparency and honesty shows your team how much you value and trust them.”
Consider putting the current total pledged on the office wall or on Slack, and tell them about successes and setbacks. Empower and enfranchise them. Indeed, for every startup where I’ve raised angel or seed, a member of the team, or someone close to the team has ended up investing. You never know where the next angel will come from! With any raise it’s worth optimising for serendipity, and bringing your team in on the process not only shows how much you trust them, but also opens up to their networks.
When the round gains momentum you’ll want to close it quickly. It’s absolutely worth registering for SEIS and EIS advance assurance. Most angels will take your word for it, but some will definitely want proof before they offer up any cash.
Legals can be a pricey even for this type of raise, but there are ways to keep the costs under control. I’d fully recommend platforms like SeedLegals who have automated a lot of the simple stuff like Shareholders Agreements, Articles of Association, and Cap Table calculations. The team there are great, and they’re a startup too, so totally feel the pain and want to help. This will help reduce overheads and dramatically accelerate the process.
Why I love angels
I have the greatest respect for angels. They take risks that few others would, and have a beautiful, often inspiring level of optimism. The prospect of meeting them may feel intimidating, but so often they are fellow entrepreneurs willing you to succeed.
The angels you meet and work with will become your financial network not just for this business, but for the next one, and the one after that. Treat them well and they’ll become one of your most valuable assets.
What should we talk about next?
For the next post I wanted to offer a choice of topic. So please let me know via comment if you would prefer ‘Raising Seed funding in London’, or ‘Finding a co-founder and building your early team’.
Finally, thank you so much for reading the post, I know it was a long one!