Fundraising with Angel Academe
Having written an in-depth series of posts for new angel investors, Angel Academe writer-in-residence Jodie O’Keeffe now addresses founders, and walks through some of the issues involved in seeking angel investment.
Your startup team has bootstrapped and self-funded the creation of a ground-breaking new product. Your loyal customers are not only willing to pay for it, they’re eagerly requesting additional features. With enough resources, you could easily expand your market share and accelerate business growth. To realise your lofty ambitions, you need some additional new hires, but revenue won’t yet cover their salaries. Sound familiar? Welcome to the seed round, funded by business angels.
1. Why seek angel investment?
To build a high-growth business, you need cash. Not just to cover monthly expenses while revenues are building, but to enable growth. Making those key new hires, bringing the tech in-house, securing your IP, perhaps, or creating and executing a proper marketing plan, expanding the product or service range, the list goes on. Unfortunately for most entrepreneurs, this presents a paradox: you need cash to grow, but you need to demonstrate significant “traction” before venture capital firms will take an interest in what your business can do. Now is the ideal time to see investment from business angels — certified high net worth individuals with an interest in supporting early-stage, high-growth businesses.
2. Why do business angels get involved?
The motivations behind angel investing are as individual as the investors themselves. Some are exited entrepreneurs who want to share their knowledge, others senior executives with a side project or people on career breaks who want to stay in the game. However, they all share a common trait — a healthy appetite for risk and the associated reward. Business angels understand that investing a portion of their wealth into a portfolio of early-stage high-growth businesses is incredibly risky, and exciting, and hopefully financially rewarding. They are keen to see new businesses get off the ground, to support founders financially, to share their networks, advice and professional support if required. They are so keen that collectively in the UK, business angels inject over £2 billion a year into the start-up economy. Compared to the £450 million in early stage funding contributed by venture capital firms and the crucial support angels provide to young business, angel funding is a vital element in any start-up ecosystem.
3. When is the best time for angel funding?
Founder life is really busy. You’re focused on creating your product or service, and often fundraising is put aside for more urgent issues. Until, of course, it suddenly becomes the most urgent issue. Emergency fundraising puts founders in a very weak negotiating position and is best avoided. Start early, and expect it to take twice as long as planned.
One of the ironies of start-ups is that you should also delay fundraising as long as possible. Your business will be more attractive once the market has a proven appetite for what you’re selling. You’ll be in a stronger negotiating position, you’ll give away less equity, but it will land at a higher valuation, and you’ll have more to offer at later stages of fundraising.
Timing your seed round is a delicate balance and varies with each business. Ideally, you have a working product, business model and market traction, with an offering that is differentiated from the competition and has strong barriers to entry. If these factors are in place, and lack of funding is slowing your ability to grow, it’s time to approach angels and angel groups about securing investment.
4. Why angel and not VC?
Some VCs invest at seed stage, but this is unusual and if they do invest early, they usually participate alongside angel investors recognising the value that angels bring. VCs are investing other peoples’ money so are focused on delivering financial return within a fixed period of time. This often makes them more risk-averse and they tend to get involved at later stages when businesses are more proven. You will need the deeper pockets VCs bring for those later and bigger funding rounds — Series A and beyond. If a smaller fundraise is enough to get your start-up to a stronger revenue position, angels are often a better option. Angels are responsible only to themselves, so can decide on their own comfort level in terms of risk, return on investment and time to exit.
Having a larger number of investors contribute smaller amounts to a fundraise allows for the added value of the network multiplier effect. As a founder, you suddenly have a new group of financially successful, well-connected, experienced cheer-leaders who will champion your business and open their networks.
Not that VCs won’t open their networks, but with angels, it’s personal.
5. Why Angel Academe?
For female founders, Angel Academe offers a major draw card — female investors. Female founders are known to receive just nine percent of the early stage funding pie. Angel Academe aims to increase this figure by bringing more female investors to the sector, and exclusively backing female-founded businesses. Our 400 registered angels also know that female founders are a good bet, as they are proven to do more with less and because diverse founder teams perform better.
Applying to pitch at Angel Academe is free, our selection process is educational and thorough, and you’ll receive valuable feedback along the way. Your business will be showcased to an engaged network of investors with a wide range of expertise and professional backgrounds. Importantly, the group recognises the value of a diverse investment portfolio, particularly the high-risk, high-reward business like yours.
Pitching to a group of angels saves founders time and effort, making the fundraising process more efficient. Oh, and it’s a relaxed, open, communicative atmosphere. Founders are under enough pressure; pitch night needn’t be unduly stressful. After all, it might just be the beginning of a long and fruitful relationship.
See our investment criteria, how we work and how to apply here
