Pennies From Heaven: How to Select the Right Angel Investors

When you’re building a business, capital and customers are the lifeblood of your enterprise. Because capital is typically needed to generate consumer interest for many (let’s be real: most) businesses, it’s tempting to accept every investment offer that comes your way in those early stages.

But resist the impulse to partner with just anyone who promises you a check. Your first investors significantly impact your company’s success, so deciding which angels to bring on board should be a strategic process.

How Do You Talk to an Angel?

Angel rounds hit a median size of $4 million last year, meaning investors are keen to work with startups, but the competition is steep. You have to make a good impression without lowering your standards if you want to access cash.

Whether you’re pitching friends, family, or seasoned Silicon Valley venture capitalists, your angel round begins with a story. Define your vision before you schedule any meetings. Knowing what you want to build will help you identify which investors are best suited to your business — and their participation signals something about your brand to the larger market. What do you want that message to be? Answer that question, and you’ll be much closer to finding investors who are natural partners for your startup.

But the search only begins there. Someone who sounds like a perfect fit on paper may not have the full range of qualifications you seek. Use the following questions to evaluate potential angels and ensure they’re going to benefit your company:

  1. What are their areas of expertise? Reflect on your team’s strengths and areas of inexperience, and seek investors who can fill in the gaps. When Truebill pitched investors during our recent round of seed funding, my team and I sought angels who were experienced in several areas. We wanted to work with people who had expertise in the online payments space, understood big data monetization, and possessed strong marketing and management skills.
    We also vetted prospective investors based on strict criteria. If someone expressed interest but then dragged his feet by repeatedly requesting information, we moved on. We ran reference checks on every investor and turned down anyone who received negative feedback. It was imperative that we found reliable investors who could inform and advance our processes.
  2. Which companies have they invested in previously? Look at your core product and which areas you might expand into if the business is successful. Use this information to evaluate the other startups your potential angels have worked with. Have your prospective investors been involved in companies with similar missions or technologies?
    If so, they’ll be better positioned to anticipate the hurdles you’ll inevitably encounter, making them immensely more valuable to you. And if they’ve helped those companies reach successful outcomes, even better!
  3. Will they act as ongoing resources? Angel investors increasingly act as mentors and advisers, not just “money men” (or women). Joshua Reeves, founder of ZenPayroll, insists that his investors be willing to help out with culture building and sales development in addition to providing capital.
    Think about the role you want angel investors to play in your business. Do you expect them to provide feedback on business plans and marketing strategies? Participate in quarterly reviews? Craft your ideal investor profile, and bring your list of wants to your pitch meeting. Anyone who shies away from these commitments shouldn’t be on your investor roster.
  4. Do they have the right network connections? You need to think long-term when considering investors. Someone might have a strong background in your field, but does she have relationships with the institutional investors you’ll want to reach during your Series A round?
    If you meet with an institutional investor, find out whether she co-invests with any larger firms. You might come across investors who were once founders themselves. Research who their VCs were to get a sense of whether their networks can support you as your company matures. Sites such as Angelist and Crunchbase provide extensive information about investors’ portfolios, so you can pre-vet candidates before you schedule pitches.

Of course, investors are evaluating you, too. If they see that you’re passionate about your company and have thought through your vision, they’re more likely to take an interest. You can demonstrate your seriousness by reaching out to those who are truly a fit for your brand and making a compelling case for why they should work with you. Asking for mentorship and speaking to their interests will inspire confidence and assure them you’re committed.

Playing the Long Game

Remember that it takes time to assemble a rock star investment team. You’ll pitch, re-pitch, get turned down, and be ignored. But if you refine your presentation and persist in reaching your target angels, you will ultimately put together a fantastic group of investors who are as excited about your company’s future as you are.

My team and I went through this whirlwind cycle. We got rejected and went out to pitch another day more times than I can count. We ended up securing investments from executives at Facebook and Square, financial technology founders, marketing gurus, and institutional investors. They’ve since helped us with our strategy and recruiting, introduced us to other investors, and aided us in gaining press coverage. Finding them was a long, painstaking process, but they were worth the wait.

Your angel investors become your partners for the life of your company, so make sure they offer more than just their cash. When you don’t compromise on your investor standards, you will eventually connect with the right people. Those investors will be your true believers, and they will guide your startup to success.