How To Find An Angel Investor? (All The Steps)

Q: Where can you find angel investors?

First Angel Investor Lists. We've made a list of the most active angel investors in the UK. It's completly free and it's a good starting point to build your network. Another way of reaching out to angel investors is to go where they hang out. There are clubs and groups of angel investors. As there is a lot of competition between investors and lone angels don’t always have the bandwidth to filter out hundreds of projects each week. So sometimes they get together and join forces in angel syndicates or angel networks. Second, Angel Syndicates. An angel syndicate is a group of individual investors who pool their financial resources to collectively invest in a start-up. The syndicate operates as a single entity, with one member typically taking the lead to conduct due diligence, negotiate terms, and manage interactions with the funded start-up. For angel investors, syndicates offer a way to participate in larger deals and spread their risk across multiple investments, while start-ups benefit from larger injections of capital and a diverse pool of expertise. Third, Angel Networks. In contrast, an angel network is more of a membership organisation, a collective of angel investors who join together primarily for deal flow and shared due diligence. Unlike syndicates, the members of an angel network typically make individual investment decisions. The network organises regular meetings or events where start-ups present their business ideas, but it's up to each investor to decide whether to invest and on what terms.An angel network serves as a platform for its members to share information, insights, and opportunities, but it does not facilitate collective investment like a syndicate. For startups, pitching to an angel network means reaching a wider group of potential investors, while the investors benefit from access to a curated selection of investment opportunities.

Q: Do investors get their money back if the business fails?

The short answer is 'No. Typically, if a business fails, angel investors do not get their money back. Angel investors provide capital in exchange for equity, or shares in the company, and therefore assume the risk of the investment. If the company does not succeed, the value of that equity can become worthless, meaning the angel investor could lose all of their investment. Unlike lenders, angel investors don't have a guaranteed return and their investment is not secured by any assets. The nature of their investment is inherently high-risk, high-reward.

Angel investor lists, networks and syndicates

How To Find An Angel Investor? (All The Steps)

John-Pierre Clark

9 min read

Finding an angel investor can be a significant milestone for startups and small businesses seeking financial support to drive their growth. Angel investors, typically affluent individuals with business experience, invest their personal funds into promising early-stage companies in return for equity.

To secure angel investment, entrepreneurs must effectively present their business concept, demonstrate its potential, and illustrate a clear pathway to profitability. This process involves a combination of networking, strategic planning, and compelling communication.

In the subsequent sections, we will delve deeper into the practical steps you need to undertake to successfully locate and secure angel investment, from identifying potential investors to crafting a persuasive pitch.

What To Look For In An Angel Investor?

When seeking an angel investor, there are several key attributes to consider. Finding the right investor isn't just about securing capital; it's about fostering a productive relationship that will support your business's growth. Here are some essential characteristics to look for:

1 - Industry Experience

An investor with experience in your industry can provide invaluable advice and guidance. They can help you navigate market trends, regulatory landscapes, and potential pitfalls, offering you a competitive edge.

2 - Financial Capacity

An angel investor should have the financial capability to provide the funds your business needs without too much risk on their end. They should also be prepared for the possibility that they might not see an immediate return on their investment.

3 - Strategic Connections

The right investor can provide access to a wide network of contacts that may include potential partners, customers, and additional investors. This network can greatly enhance your business's growth prospects.

4 - Shared Vision

It's crucial that your investor understands and believes in your business's mission and vision. They should be as excited about the potential of your idea as you are, and willing to support your long-term goals.

5 - Active Participation

While not all angel investors want a hands-on role, it can be beneficial to have an investor who wants to be involved. They might offer to mentor you or take on an advisory role, contributing their time, knowledge, and skills to your business's success.

6 - Track Record

An investor with a proven track record of successful investments in startups or in your industry can be a positive indicator. It can show they have a good eye for potential and the ability to support a growing business.

7 - Good Chemistry

Last but certainly not least, you should feel comfortable with your investor on a personal level. You'll be working closely together, so having good chemistry can make the relationship more productive and enjoyable.

Remember, every business has unique needs, and what works for one might not work for another. Consider these characteristics as a starting point and adjust based on your specific situation.

Where Can You Find Angel Investors?

Angel Investor Lists

We've made a list of the most active angel investors in the UK. It's completly free and it's a good starting point to build your network.

Another way of reaching out to angel investors is to go where they hang out. There are clubs and groups of angel investors.

As there is a lot of competition between investors and lone angels don’t always have the bandwidth to filter out hundreds of projects each week.

So sometimes they get together and join forces in angel syndicates or angel networks.

Angel Syndicates

An angel syndicate is a group of individual investors who pool their financial resources to collectively invest in a start-up. The syndicate operates as a single entity, with one member typically taking the lead to conduct due diligence, negotiate terms, and manage interactions with the funded start-up.

For angel investors, syndicates offer a way to participate in larger deals and spread their risk across multiple investments, while start-ups benefit from larger injections of capital and a diverse pool of expertise.

Angel Networks

In contrast, an angel network is more of a membership organisation, a collective of angel investors who join together primarily for deal flow and shared due diligence. Unlike syndicates, the members of an angel network typically make individual investment decisions. The network organises regular meetings or events where start-ups present their business ideas, but it's up to each investor to decide whether to invest and on what terms.

An angel network serves as a platform for its members to share information, insights, and opportunities, but it does not facilitate collective investment like a syndicate. For startups, pitching to an angel network means reaching a wider group of potential investors, while the investors benefit from access to a curated selection of investment opportunities.

List of angel networks

How Do You Impress An Angel Investor?

Angel investors often take substantial risks by investing their personal funds in early-stage companies, so they typically have a number of expectations from founders. Here are some key elements that most angel investors look for:

Vision and Passion

Investors want to see that you are deeply committed to your business and that you have a clear, compelling vision for its future. They want to know that you're passionate about your work and that you're prepared to overcome the obstacles that inevitably arise.

Strong Business Plan

Angel investors expect you to have a detailed business plan that outlines your business model, market analysis, operational strategy, financial projections, and future growth plans. They want to see that you've done your homework and understand the market you're operating in.

Scalability

Investors are looking for businesses that can scale and provide a significant return on their investment. They want to see a plausible path to significant growth.

Skill and Experience

Investors prefer to back founders who have skills and experience relevant to their business. This could be prior entrepreneurial experience, expertise in your business's industry, or other demonstrable skills or accomplishments.

Transparency and Honesty

Angel investors expect founders to be upfront about the risks and potential challenges their business faces. They appreciate honesty and transparency in communication.

Ability to Execute

An idea, no matter how groundbreaking, is worthless without the ability to execute it. Investors need to see that you can deliver on your promises and make things happen.

Resilience and Adaptability

Starting a business is a journey filled with unexpected twists and turns. Angel investors seek entrepreneurs who are resilient, can learn from their mistakes, and are able to adapt to changing circumstances.

Exit Strategy

Finally, angel investors are typically looking for an exit strategy that will provide a return on their investment, such as the sale of the company or an initial public offering (IPO). It's important to have a realistic plan for this.

Meeting these expectations doesn't guarantee funding, but it can significantly improve your chances of securing an angel investment. It's also worth noting that a positive, respectful relationship with your investors can go a long way towards facilitating your business's success.

How To Negociate With Angel Investors

Equity, funding amounts and risks

How much should I ask an angel investor for?

The amount you should ask an angel investor for depends on several factors, including the stage of your business, the market size, projected revenue, and the estimated cost of achieving key milestones. It's important to create a detailed financial plan that outlines how you will use the funds.

On average, an angel investor might invest anywhere from £25,000 to £100,000 for very early-stage startups, with some investing up to £500,000 or more. However, these are just rough estimates and the actual amounts can vary widely depending on the specifics of your business and the investor.

How much equity should I give to an angel investor?

The percentage that angel investors get depends on the negotiation between the entrepreneur and the investor, as well as the valuation of the company. On average, angel investors might acquire anywhere from 10% to 25% of the company, but this can vary significantly based on factors such as the business's growth potential, the size of the investment, and the perceived risk.

Remember, a larger equity stake not only means the investor will get a larger share of any future profits, but it also generally means they'll have more influence over company decisions.

How do I pay back my angel investor?

Angel investors are typically paid back from the sale or exit of the company in which they have invested, not through regular repayments like a loan. This exit could be through a merger, acquisition, or an initial public offering (IPO).

They may also receive dividends or distribution payments if the company begins to generate substantial profits. The specifics of how an angel investor is repaid would be outlined in the initial investment agreement.

Do investors get their money back if the business fails?

The short answer is "No".

Typically, if a business fails, angel investors do not get their money back. Angel investors provide capital in exchange for equity, or shares in the company, and therefore assume the risk of the investment. If the company does not succeed, the value of that equity can become worthless, meaning the angel investor could lose all of their investment.

Unlike lenders, angel investors don't have a guaranteed return and their investment is not secured by any assets. The nature of their investment is inherently high-risk, high-reward.

What is the risk of working with an angel investor?

Working with an angel investor carries several risks, such as:

Equity Dilution

You'll likely have to give up a portion of your company's ownership, which can dilute your stake in the business.

Loss of Control

As partial owners, angel investors may want a say in business decisions, which could potentially clash with your vision or direction for the company.

Pressure for High Returns

Angel investors typically expect high returns on their investment, which can put significant pressure on your business to grow quickly and profitably.

Limited Capital

Unlike venture capitalists, angel investors typically provide one-time investment, which may not be enough for long-term growth.

Dependence

If your angel investor is also a key advisor or has important industry connections, their departure could potentially harm your business.

How Hard Is It To Find An Angel investor?

Finding an angel investor can be challenging. It often requires significant networking, a solid business plan, an impressive pitch, and a product or service with high growth potential. The level of difficulty can vary depending on various factors such as your industry, your location, and the economic climate.

In addition, it's not just about finding any angel investor, but the right one - an investor who not only provides funds but also brings valuable expertise, guidance, and connections. This process can be time-consuming and requires persistence and patience.

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