TRC 028: Angels - It’s not just about the moneyFeb 01, 2024
Read time: 5 mins
I often talk about how nuts angel investing can be.
Highly illiquid over a longer period of time and a 90%+ chance of failure.
So why would people even bother?
Angel investors come in all shapes and sizes, and, without exception, they are trying to make good returns on the money they are handing over.
Nobody is trying to just give their money away.
There are definitely those who are more purely financial investors - those who see early stage startup investing as the higher risk/higher return part of an overall portfolio strategy.
However, in my experience, many angels have motivations beyond the financial.
So what are these motivations and how do you spot and appeal to them as a founder?
Here are some of the other motivations I see from angel investors:
- Passion for innovation: Many angel investors are drawn to being both the cutting edge ideas that can help grow a successful business, but also to the people who create these businesses. If you are generally curious and optimistic, it’s a natural way to want to spend your time. They are excited by the prospect of being part of something new, disruptive, and potentially world-changing.
- Giving something back: They find fulfilment in guiding early-stage startups, helping them navigate challenges, and watching them succeed.
- Ecosystem Contribution: Angel investors play a crucial role in fostering entrepreneurship at its earliest stage. By investing in startups, they contribute to the creation of jobs, stimulate economic growth, and help build a vibrant ecosystem. By helping more founders succeed, they believe they can make a difference in creating more opportunities for others and making the world a better place.
- Personal Satisfaction: There's a certain thrill in identifying potential, making a bet on it, and then seeing it come to fruition. The journey, with all its ups and downs, brings a level of personal satisfaction that is hard to match. Tell your personal story as well as the one of your business.
- Legacy Building: Angel investors often view their investments as a way to leave a lasting impact. By supporting startups that align with their values, they can help shape the future in a meaningful way. Make sure they understand your why as well as the what of your startup.
So what can you do to discover what these motivations might be?
- Research their background: Their past investments, career achievements, and even philanthropic activities can offer insights into what drives them. Tell them what you know about them and why that lead you to get in contact. Nothing engages less than a generic cold outreach that is only about you and what you want.
- Engage in meaningful conversations: Listen actively and engage in conversations that go beyond your pitch. If you make it all about you without understanding them, it will be hard to build a relationship that leads to investment.
- Observe their Interactions with other startups: Pay attention to how they interact with other founders and startups. This can reveal their preferred style and areas where they like to add value.
- Network within the Ecosystem: Leverage your network to gather insights. Other entrepreneurs and industry professionals can provide invaluable perspectives on an investor's motivations. Have they spoken about them on a podcast or in a published interview?
Whilst it’s good to understand the personal preferences of potential angel investors, but there are a few watchouts…
- Avoid Over-Promising: If you are tailoring your pitch, be careful not to over-promise or move from your core values and business plan. Better to deal with the truth now than the pain of the lie later.
- Be yourself: Don’t try to be someone you aren’t. Don’t try and mould your personality to what you think an investor wants. Be yourself and find the people that are looking for what you have. Not being yourself is just too hard in the long run.
- Be Prepared for Diverse Opinions: Understand that each investor is unique. What appeals to one may not resonate with another. That’s how it’s meant to be. The idea is not to try and convert everyone, but to find the investors who believe what you believe and in your ability to deliver on your visions.
- Failure is normal: Conversion rates from investor meetings are typically in the 2-3% range (if you are lucky and doing well). Many more people will tell you no than they will yes. Learn what you can and don’t get downhearted - everybody else is having the same experience (even if Techcrunch makes you feel like everyone else is killing it).
It’s not always possible to spot what someone's motivations might be before you meet them, but it’s good to be aware that people invest for a range of reasons.
In the end, the key thing is to find investors who believe in you as much (if not more) than what it is you are doing.
At the early stage of investing, more than anything, they are choosing the person as much, if not more than, they are choosing the business.
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