When I meet first-time entrepreneurs, almost every initial conversation eventually turns to “How and where do I look for angel investors”? It’s the elephant in the room. The Everest all founders looking for funding must climb, whether or not they know how to rock climb and whether or not they have experience with extreme temperatures and altitude.
Approach # 1: Utilize your network.
The first approach is the one you already know and that is obvious: go through your network. It’s the best option if you have it. Angel investors get inundated with cold emails and don’t open them. This is not a situation where the numbers game will eventually get you to the desired result. In fact, many investors firmly believe that if you can’t make an introduction happen, you can’t make a company happen.
Your course of action here is the following:
- Identify which investors fit your company’s objectives and which investing criteria you meet. Explore Crunchbase to obtain information on their past investments.
- Use your network to get a warm intro.
BUT what about all those people who DON’T have a network in the investing community, but DO have a brilliant idea and an MVP (minimum viable product) to go with it? Is there any hope for THEM to find capital? Luckily, the answer is “YES”. In this article and the corresponding video I discuss four other approaches you can use in this case.
Approach # 2: Apply to an accelerator.
Accelerators are schools for entrepreneurs that help you either to develop your idea into a minimum viable product or to grow your business further in terms of validating your business model, getting traction, etc.
Very importantly, all accelerators end with a Demo day where you have an opportunity to present your company in front of investors and raise capital. Even if you don’t end up closing on any financing then, you can still use the connections you made later, when you are ready for a funding round.
Approach # 3: Enter a pitch competition.
Pitch competitions are another great option for those entrepreneurs who don’t have many investor connections. Just like on a Demo day, you get to present your business, but this time to a panel of judges who are all early-stage investors. Furthermore, a winner usually gets a prize which is either cash, services, or both. Startupalooza is a very popular New York pitch competition.
That said, generally, you should use pitch competitions not so much as a way to raise or win money, but to practice your pitch, get feedback on your value proposition, and meet investors - not only those on the panel but other attendees as well.
Finally, there are organizations, such as The Hatchery, which host matchmaking events between investors and founders.
Approach # 4: Use crowdfunding.
Crowdfunding has become a very popular way for founders to raise money. There are a number of crowdfunding platforms, such as SeedInvest or Gust, that give you easy access to large pools of accredited investors. However, you would have to pay a finder’s fee as a percentage of funds raised and sometimes give up additional equity if you choose to accept this form of financing. For example, SeedInvest charges 7.5% of funds raised and 5% of equity using the valuation of the financing round they are facilitating.
If you have a consumer product or tackle a social issue, you can run your own crowdfunding campaign using sites like Kickstarterand Indiegogo. Those sites don’t attract accredited investors and you would typically offer products and other perks as compensation, rather than equity. These sites also keep a percentage of funds raised.
Approach # 5: Apply to an angel group.
After a review process and if selected, you will be given an opportunity to present directly to all their members at their Demo Day. Most angel groups meet monthly or bi-monthly. As the next step, a few selected companies would undergo a due diligence process and 1-3 startups per investment cycle will get funded.
To learn more about fundraising strategy, startup financing vehicles, and how to negotiate with investors, check out our Course # 5.
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