What Do Angel Investors Look For In An Online Business?
One of the biggest things to consider when becoming an entrepreneur and launching a start-up business is the financial costs that occur in the early days and how you will fund growth.
Unless you have savings yourself, you will most likely need to seek out investors to help with the finances and start-up costs. One of those options is an angel investor.
What is an angel investor?
An angel investor is a well off individual who puts capital into business start-ups. They become a financial backer, which supports the business financially right when they need it the most.
In the early days, start-ups have limited options during the early rounds of funding and you will find that most standard investors are reluctant to back businesses in the early start-up stage.
This means you need to try to get your money from wherever you can. Angel investors usually then offer help and advice to the start up business. In exchange for their financial aid, angel investors may get ownership equity or interest back on what they lent.
You could also ask family to help with the start up costs of setting up your business. If you have family that have some savings that they would be willing to invest in a business, this may be a good place to start asking for help.
What is bootstrapping?
This is when you build a business from the ground up without any external help with financial costs. It's the "doing it on a shoe-string" approach.
Entrepreneurs usually use their own personal savings in this circumstance and hope to progress financially when the first sale is made. This is difficult if you haven’t got enough savings to cover the initial costs and sustain those costs until your business breaks even.
Many online businesses do start this way - from home, working with friends to get it off the ground. Online business provides countless opportunities to start a business from home or fit it in around work and many of you reading this are probably considering, if not already on the Bootstrapping path.
What is crowd funding?
Crowd funding is another way to raise money for your business and can usually be done online via platforms like Crowdfunder and Kickstarter. It can also happen on a more local scale when you host an event where a large number of people can donate money into the start up of your business, such as a fashion show or bake sale.
In most circumstances, and where most online entrepreneurs get started, you can simply create a crowd funding page online where people can donate small amounts to help with the financial costs of your start-up.
It may be worth trying this as your first method, to test if your pitch is any good. You can then see what the reaction to your pitch is and what you need to work on before you go on to trying to seek other investors.
How to write a pitch for an Angel Investor
Angel investors receive countless pitches claiming to be the next big social network, software solutions, or consumer products. The list goes on.
They are always being targeted and persuaded to invest in many different start-ups. Therefore, you need to have a good story to get their interest.
Some key points to cover include;
- Make sure you include your personal story behind the brand - your passion and motivations for success. Your reason why.
- Clearly articulate or demonstrate your product / service so it is simple and easy for even a non-technical person to understand.
- Show how your business will drive the key work activities, which will in turn deliver sales results. For example, What action will you take to get your first sale?
- Show how your sales and profit will increase over time.
- Forecast your expected visitor numbers coming to your online business, likely conversion rates and how you expect this to increase over time. Facts and Stats matter.
- Clearly plan the marketing spend that will be required in order to generate traffic to your website via PPC, Facebooks Ads, Blogger outreach etc.
- Don't forget to talk about how your physical operations will work - your premises, your pick, pack and dispatch operations from the warehouse, the vans you may need or the couriers you will be working with.
- Make sure you have created a believable start-up team, as this will add to your credibility when you pitch. Identify the positions you need to fill and what you require from the candidates.
- Finally - The Ask: Be crystal clear how much money you are asking for as an investment and what they will get in return - usually a % share of your business.
Make sure that you have thought about all the likely questions an Investor will want answered about your business. For example, Where will your first customers come from? Who are your competitors?
Know Your Numbers
Before you switch off or run away... stop. Business maths isn't as scary as it sounds. Honestly! Numbers are one of the most brilliant ways to tell a story of what is happening in your business.
No Investor expects you to be a qualified Accountant or have vasts amounts of experience during the early stages, but they will expect you to show you've made an effort to learn.
At the very least you know the key financials of your business. This is a must before they share their hard earned cash with you!
- What price will you sell at?
- How much profit does your product make per unit?
- What is the cost of shipping your product into your country from the overseas manufacturer (your landed cost)?
- How many volumes of product units will you have to sell to break even?
- How much money will you spend on marketing?
- How much will you spend on wages?
The quickest way to turn off any Angel Investor is if you don't know your numbers or worse you lie about them or make them sounds totally unrealistic.
"No one ever launched their business and delivered $1 billion of sales or a billion website visitors in their first week - not even Amazon.... so pretending that your online business will do that will just get you laughed out of the room."
Far better to be credible and true from the start - be realistic and write down all your assumptions you make when calculating your financial forecasts.
Also don't leave costs out of your presentation because you don't like the profit / loss making answer it is giving you! (we've seen that from so many start up businesses and Entrepreneurs too!) ... it's as if they think, "if I don't write it down that cost won't actually happen!"... write it all down and then together with your potential investor you have a truthful starting point for your numbers.
Finally practice being challenged on the numbers until you are confident you have got your business maths nailed.
Rapid Growth? And a Disruptor ?
Many Angel Investors in the Tech sector are specifically looking for business plans and investment opportunities that fit certain criteria that is often best found in online businesses. Two of these criteria are:
- Rapid Growth / Scalability and;
- Ability to Disrupt the market
With Rapid growth online businesses, the opportunity to scale fast and exit the business (sell the business) is key here.
Your plans must show how your rapid growth will be achieved - usually its about reaching a set number of website Users or Sign ups to your service. Hard targets which are clearly measurable and equate to sales volumes. For example if I reach 1 million site visitors and the average visitor spends $10 then that = $10 million sales.
Disruptive businesses are those who completely transform (or disrupt) the way traditional businesses work in an industry. A good example of this is Uber who used technology to transform the traditional Taxi business with their Car sharing / Uber driver pick up App.
Online businesses and Tech led businesses are often at the forefront of disrupting the marketplace because new technology allows start ups to leapfrog over the competition and for customers to be served in new and exciting ways.
Both rapid growth and disruptive business models will always be of interest to Angel Investors who are savvy about investing in something new that will deliver high returns. If your business fits either of these 2 criteria - make sure you call this out clearly in your Pitch.
Make sure your business plan is robust.
You need to make sure that your business plan is robust and strong enough for someone to invest in you. Is the business viable? Will the investor actually make a return? Will the competition eat you up and spit you out with the week?
You need to not only stand out and have a unique selling point and a ‘Wow’ factor, but you need to make sure that there are no holes in your business plan or pitch- particularly when it comes to a financial forecast.
It's all about you
One of the biggest things that Angel Investors will be looking for in an Online Start up is your own capabilities as the Founder.
- Are you easy to work with?
- Are you determined and passionate about your industry?
- Will you go a thousand extra miles to get this business off the ground?
- Will you stick with it - and never give up despite the challenges you will face?
All these things matter. No Angel Investor is going to invest funds into someone who is flakey and will simply give up and go home after a few months of trying.
They will also want to see skills - not just the technical or relevant skills of your chosen profession but also your Interpersonal skills...your ability to make a sale, to build rapport with your customers and share your personality to make your brand shine.
Make It Happen In Your Business
Despite wanting to attract investors, know and understand the importance of not sacrificing your integrity or vision when approaching potential investors. Your start-up business should still be your dream and passion, so don’t compromise from that too much and remember the importance of remaining in control.
- Carefully consider your growth plans and how you intend to fund that plan. Start by capturing all the activities and resources you will need to complete to make your business a success.
- How much cash will you realistically use up? Do you have that cash available today or will you need to secure a source of financing to help you?
- Consider if there are family and friends who can "seed" you some initial money to get you started and prove your business concept. Once your business is viable and has made some sales, this will help you sell your story to bigger investors with deeper pockets.
- Remember when approaching potential Angel Investors to always be professional, respectful of their time and get your Pitch presentation and story in order before you even begin the conversation with them. Gather together your data, your visitor stats and online business performance. Preparation is everything.
- Look for local networking events which bring start up businesses and potential investors together.
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