As an angel investor, I get at least an email every day from someone who promises me riches and glory if I am just to part with money and spend my time and attention in supporting them. I have invested in very, very few of these people and made many of them sad and some even angry.
Still, I have done over 50 angel investments (and in NordicMakers we have done way over 100) and love helping startups. There is a lot of info out there on how to do a great pitch deck, understanding that investors are busy and how to get their attention. But people still seem to fail to understand that investors are people and that finding your investor is like finding a co-founder. It is not “a numbers game” and about terms or money.
#1. It is a people business
If I don’t invest in those who emailed me, who have I then invested in? There is a magical word: Referrals. Ask someone I trust to introduce you to investors you think will be great.
If you can’t get a referral you are probably, honestly, not investment-worthy. I know this sounds very harsh, but most angels are very public and high-network individuals and they hang out with a lot of entrepreneurs, with people who run accelerators, and university professors. They are out and about and have Twitter, Instagram, GitHub, LinkedIn accounts that are public that you usually easily can find joint acquaintances.
Otherwise, you need to build these shared connections. If you can’t relationships and get into fortified castles with social skills, you will never succeed with your business anyway, so get started now.
Summary: Never cold email investors. Get an introduction.
#2. It is more like dating than visiting an ATM
When you talk to angels, you have to remember that they are people and not ATMs. Most of their value is not in their money but their network and skills. That is what you want to leverage.
It is not a transactional but relational business. You need to grow from every date and feel like you want to meet the angel again. That also means that starting the conversation with an NDA (Non Disclosure Agreement) or even a massive business plan is like sending a prenup and a CV before the first date. Relations are not built upon agreements and paperwork, but trust.
Investors shouldn’t be the evil money people who are now your bosses, but part of your alliance to change the world. If they aren’t, then you don’t want them as investors. Remember to do some due diligence on your potential investors too.
Summary: Angels are your business partners. Trust them so they can trust you.
#3. What does the right investor have?
Not only is the right investor someone who will help out, but it is also someone who can help out. I usually sort useful investors into three types:
- People-people who know what you are going through. These are usually ex-founders and recently ran a startup. They know the ups and downs of running a startup and are happy to be your psychologists. These are the people you call when you feel down, stressed, worried or just stuck. They help you sort out your mind, challenge you and help you grow. Their network consists of people that could be your peer support group.
- Product-people who know the product, technology, or people problems. These are knowledgeable about your kind of problem, and understand how to craft, design, and build cutting edge products, how to get the best talent on board, distributed teams, how to raise money in your kind of vertical, etc. They don’t have to be founders, they could be product managers, or engineering managers, designers, or similar, but in a company whose projects have similar budgets and constraints. Their network consists of people you can hire.
- Industry-people who know the industry and route to market. These know how to think about patents, the route to market, monetization, or what the cutting edge research is. They can be working at big corps or institutions, but they need to be able to lecture you when you are doing something that would create dissonance or stupid risks with the market, if that is not what you want. Their network consists of people who you can sell to or as partners.
You can rarely pick and choose among investors and build dream teams, but don’t just sign with the low hanging fruit that offers you money, or even the best terms.
Summary: Your angels are as important as your business model. Don’t choose people for their wallet, but for how you can leverage them.
#4. The right investor means you have to match
You might have a dream investor, but you must remember that it is a partnership. The investor must have you as their dream investment. An investor might be famous and all, but if they don’t invest in early stage, your sector, or geography it is not a match. They have nothing against you; you are just not compliant.
Do some research on the investors and see if they have done similar investments. When you talk to them, ask them how much money they usually invest and if they are ok with your industry. Otherwise, you risk wasting both of your time. They might be happy to refer you to someone else if you do a good impression.
Summary: Investors have focus areas and interests. If you are not in that, you shouldn’t bother.
#5. You have to believe more than anyone
When you meet investors, you have to realize that you are the conduit of their skills, network, and money and you will channel that to impact and change the world. That means you have to believe and be passionate about what you are doing. What is called “having skin in the game”. Not having quit your job, not being a nerd about the subjects, not constantly wanting to learn more are appalling traits. The best founders are maniacs and live in their little bubble and believe everyone else will live there too.
To learn, you should of course not be a Mr. Know-It-All and afraid of asking questions and being vulnerable and risk seeming stupid. Your job is to be the best at what you do, and the best people ask to learn and never, ever, say that they know things when they don’t. And naturally, you are not drunk on your own cool-aid but know that your beliefs are hypothesis and love them to be challenged.
Remember that you want to be a thought leader in your subject so keep your LinkedIn, GitHub, Dribble, Twitter, etc. updated.
Summary: You should be a thought leader and the biggest investor in your own startup, even if the currency you are investing with is life and not necessarily money.
I hope you feel you are better armed now with who to reached out to and how to build relationships with the right people.