For many early-stage entrepreneurs (myself included), raising capital is the most confusing piece of the puzzle. Even though there have been thousands of articles written by professional writers, entrepreneurs and investors, the information tended to describe the endeavor in broad strokes: Raise money from family and friends, followed by angel investors, then VCs and finally you will either are acquired or grow large enough to IPO. Seems simple enough, right? Not quite.
My company Amara makes sports drinks out of raw fruit and was launched to disrupt the $6.2 billion sugary, artificial sports-drinks market. Because it was a product-focused business, we needed cash.
Having gone through a capital raise before, I want to go through what I always considered the most mysterious part of raising money: How to attract angel investors to support your endeavor.
I am sure there are plenty of different strategies for raising money -- this is just an overview of what has worked for me.
1. Make a list. Build a spreadsheet that includes a list of people or organizations you think would be interested in helping fund your business. This list may include friends and family, successful entrepreneurs in your industry, angel investors, angel groups, incubators, venture capitalists and so on. For professional investors, make sure they invest in your space. From there add columns for contact information, potential investment size, location, geographic region they invest in, examples of companies in your space they’ve invested in and any research.
2. Rank them. Look at your list and rate each source by the probability of investing and how quickly you can get them to invest. For many people this will move friends and family to the top of this list. They know you, already trust you and will likely do much less due diligence on the business.
When you approach angel investors after getting some of your friends and family to invest, it is much easier to start a conversation. (People rarely want to be the first to invest and are much more inclined to invest when you already have some level of investor and sales traction.)
3. Do your homework. Learn as much as you can about each person on your list prior to reaching out for the first time. Read their Linkedin profile and at least the first few pages of Google results on them. Learn where they have invested before, what their interests outside of work are and where they have worked in the past, among other nuggets of information. If there is any PR on the web discussing them and prior deals, read all of it. This will help you determine if you want them to invest. It will also make the rapport-building process in the first several conversations go much smoother.
4. Instead of asking for money, ask for advice. I’ve found the easiest way to approach angel investors is to take it slow. Email, tweet or call them and ask to buy them lunch or coffee to pick their brain for advice in their field of expertise. Very few people will refuse to help aspiring entrepreneurs, and your business and professional life are bound to come up in the conversation. Once you have sat down to chat, guide the conversation to a point where you can ask them to be an informal advisor. Your goal here is to steer them into psychologically becoming a stakeholder in the business. If they are providing you with even informal advice, they will want you to succeed. After having met a few times, you can either ask them if they would be interested in investing themselves, or ask them to give you warm introductions to people they think might be interested in investing.
5. Make sure everything is polished (including yourself). Just as you did as much research as possible on investors, they are going to do as much research on you as possible, maybe more. Have an immaculate LinkedIn profile, company website, and either private or professional social-media presence. Show up to meetings early, professionally dressed and well groomed. Have a business plan that is not only well written and thoroughly proofread but also is aesthetically pleasing to look at and is a living document with current information. Make sure all of your financials are up to date and balanced.
6. Don’t be afraid to ask for what you need. You are offering investors a chance to take part in the wealth you and your team are working to create. It feels great to have someone want to invest in your company. But don’t forget that you are offering investors many things as well – including a possibility to share in financial and often altruistic returns they would never achieve investing in the stock market. Ask for how much you need, not how much you think you can get. Don’t undervalue your time and effort, and don’t be afraid to ask for a larger investment or higher valuation than what’s currently on the table. It will likely improve your chances of success to have enough money to make smart medium term decisions rather than enough money to barely make it to the next investment. Remember that you are betting on yourself and you have direct control over how hard you work to succeed.
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