Attracting angel investors in a risk-adverse investment culture
Do you believe so strongly in your startup idea that you have given up your day job to develop it? The realisation that a good idea alone does not guarantee success can be a bitter pill to swallow. You may have pulled 80-hour weeks for over a year drawing no wage, but eventually the stark reality will hit home.
Given the risk-adverse investment culture in Australia, startups are finding new ways to promote themselves to business angels who can provide financial backing. Getting the first investor to believe in your idea as much as you do is usually the biggest challenge; but once that’s successful, angels can convince other backers that your startup can and will succeed.
Those who have raised significant amounts of investment capital ($1Million+) have the following three approaches in common:
1. They’ve built trust with cautious angels
While funding websites have grown in popularity, most sites don’t vet the startups whose profiles they post. Many carry stark warnings for would-be investors. The first tip is to look at the investment from the investors’ perspective. Startups are highly risky and sites with Amazon-style ‘One-click’ investing options are hardly going to instil confidence. Your profile should give a full background on your startup with a link to a Virtual Data Room (VDR) for angels to research your background at their convenience.
Put in as much face time as possible with potential angels. Investors prepared to back risky ventures know they cannot always accurately assess the group dynamic of your startup from afar. Offer to meet potential investors in order to build trust and allay their fears.
Raising investment capital is almost the same as selling high-end assets. The difference is, once you buy a house, the keys are yours straight away. Investors are paying for something they may or may not get – which of course, is the nature of investment.
2. They’ve hired a marketing executive
To convince an angel that your startup is worthy of their investment, you need a sound business plan and the ability to demonstrate an idea that will sell. If you have run up against a brick wall with your funding options, you will likely need to hire a marketing executive to help refine your business plan and help your startup raise capital. This can be just what you need to develop your product into a saleable option backed up with an enforceable patent.
This may not be a feasible option of you’re already resource-limited. But with sites like Expert360, you may be able to get the right expertise you need and pay only on an hourly basis.
NB: Expert360 is an Australian startup that recently raised $1 million in investment capital in their first ever fundraising round. The online marketplace features a curated selection of more than 3000 experts – from former ASX CEOs through to deep subject matter experts – across 34 countries in Australasia, North America, Europe and the Middle East. Check out the site: www.expert360.com.
3. They’ve targeted individuals, not larger firms
Trying to sell established venture capital firms on the idea of taking small stakes in your startup is a recipe for disaster. Using a funding website remains the best way to attract high net-worth individuals who previously struggled to get in on deals with big-name investors.
These angels are open to the idea of researching firms through VDRs and are attracted to ease and convenience of online research into startups and other angels already involved in startups. They see unconventional investing platforms as ways to muscle in alongside established firms without first requiring an invitation. Some of these sites include: www.gust.com, www.angelsden.com, and www.australianinvestmentnetwork.com.
The other way to target individuals is to do plenty of research and approach investors that have a personal interest in the kind of startup you’ve been working on. Founder and CEO of Health.com.au, Andy Sheats, told us in an interview last year that they initially wasted time speaking to the wrong people. He learned that the best approach is to find investors who’ve had extensive experience or interest in the industry you’re trying to disrupt. They’re more likely to invest their time to “really understand your vision”.