Like any other variety of dreamer, aspiring entrepreneurs tend to get bogged down in imagination. Everyone wants to be the next Richard Branson, the new Zuckerberg, the better Elon Musk. Powered by the importance of their disruptive ideas, fledgling entrepreneurs imagine the thrill of running a business they ferried from mere concept to brick-and-mortar reality.
It’s a lovely dream – but the romance of the whole endeavour tends not to survive the practical details. The sheer work involved in finding funding, convincing investors and hiring teams tends to drop a damper on too-optimistic imaginings. While it can be easy to imagine what success looks like from the security and comfort of a nine-to-five office chair, the shine of entrepreneurial dreams must always be tempered with an edge of practicality. Entrepreneurs have to be creative thinkers, innovators – but most of all, they need to be capable of convincing investors that the ideas they dream up are worth fostering.
There is certainly no shortage of competition for investment funds. The number of new businesses in the UK has leaped from 2.5M to a lofty 5.5M since 2000; according to a recent report from the Centre for Entrepreneurs, over 660K companies took root in the UK in 2016 alone – a significant increase from the 608K established the year before. These endeavours can find financial backing in a myriad of ways, from government schemes to private loans to venture capitalist support; however, a significant portion of up-and-coming entrepreneurs rely on the intervention of angel investors.
Angel investors are high-net-worth individuals or networks who invest personal funds in projects they find promising. The scope of this investment can vary quite a bit: while provided amounts typically range from £10K to £500K, some deals can burgeon into the millions. With approximately £1.3B provided annually in the UK, angel investors far outstrip venture capitalists regarding sheer amount given to up-and-coming businesses. Reaching out to an angel investor might be one of the best ways for entrepreneurs to find at least partial funding for their ideas – if they can convince the person behind the checkbook.
According to a joint report published by IFF Research, RAND for British Business Bank, and the UK Business Angels Association, a full 67% of the angel investors active today have been investing for over five years; 42% already have between one and five years of experience. Before an entrepreneur steps into a conference room with an angel investor, they need to understand that the person across the table has likely seen, heard, and dismissed far more ideas than they have ever boosted to success.
Before an entrepreneur steps into a conference room with an angel investor, they need to understand that the person across the table has likely seen, heard, and dismissed far more ideas than they have ever boosted to success.
To put the issue bluntly: you might think that your venture is unique and disruptive, but if you don’t have enough substance to convince a skeptical investor of the same, you don’t have enough to thrive as a business.
Convincing investors to support an untested business takes time and more strategy than most think. As an angel investor myself, I am not shy about turning away entrepreneurs who – despite having ample will and enthusiasm – don’t check the boxes I need them to check.
Below, I provide a few insights into my qualifying list.
Reclusive Geniuses are Terrible Founders
Popular cinema might wax poetic on the trope of the reclusive, eccentric genius, but no amount of cognitive brilliance will ever render antisocial behaviour lucrative.
Popular cinema might wax poetic on the trope of the reclusive, eccentric genius, but no amount of cognitive brilliance will ever render antisocial behaviour lucrative.
Case in point: the IFF study mentioned above found that one in every five angel investors consider their connection with an entrepreneur and the individual’s character to be essential factors in deciding whether to invest. It isn’t enough to have a great idea or disruptive product; if you can’t communicate your ideas productively to the right people, they might as well not exist.
The best way to get a foot in the proverbial door is to network. Though formal business mentorship programmes such as incubators and accelerators are undoubtedly helpful for newcomer entrepreneurs, informal networks and industry communities tend to open up more opportunities for newcomer entrepreneurs than formal mentorship programmes. Finding a place in those communities, however, can be notoriously difficult; one study on the intersection of networking and entrepreneurial success noted that over half of respondents struggled to access informal business networks, and many only broke through after a word-of-mouth referral.
Brilliant or not, an aspiring entrepreneur won’t be able to convince an angel investor to meet with them – let alone fund their ideas – unless they have the networking savvy and charisma they need to be taken seriously.
Practicalities are Better than Buzzwords
Angel investors don’t need or want fluff in their pitches. As entrepreneur Kelly Azevedo once dryly commented for Business Collective: “Stop referring to your new startup as ‘revolutionary’ or ‘groundbreaking, ‘ and check your vocabulary for other trite phrases. Investors, colleagues, and stakeholders have heard it all before, and using buzzwords doesn’t make your startup stand out.” Embracing over-the-top marketing strategies might thrill your consumer base, but bringing that kind of self-promotional excitement is sure to bore potential investors – especially if they don’t find your idea to be “groundbreaking” at all.
The conversation should stay with the business under review. Angel investors need to know that they aren’t wasting their time and money on a half-baked idea or an ill-prepared founder. Savvy entrepreneurs showcase their products and teams, note the scalability of their business models, highlight their pre-investment successes, and, perhaps most importantly, point out potential gains for investors.
Investors might wait three, five, or even eight years to find a significant return on their investment, but they do expect returns for the time and money they have given. Those gains can take a variety of forms – social gains or scientific innovation might take the place of financial returns, for example – but all must serve as the answer to a simple question:
How does the angel investor benefit from believing in your project?
Investors Are People, Not Checkbooks
An angel investor’s value goes far beyond any dollar amount. Though entrepreneurs primarily seek out investors for the funds they can provide, the individuals they deal with can serve as vital sources of information and guidance during the rocky entrepreneurial journey. Today, roughly 77% of angel investors choose to take an active supporting role in the businesses they fund, while 75% provide strategic advice.
Of course, some entrepreneurs might not be comfortable with the idea of taking another’s input in the executive leadership of their pet project; some might want to claim the money and do as they please. I would argue, however, that those who cling to stubborn independence miss the collaborative nature of entrepreneurship and the value of mentorship entirely.
Having a dream to call your own is all well and good – but without help from other people, how can it ever become a reality?
It’s food for thought.
