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When you’re just starting out and looking for investors for your new company, forget the standard sources of capital; forget the banks; forget the Venture Capital firms; forget the finance companies; and forget the Small Business Association.
All of these sources of capital are a big waste of your time.
You see, these sources of capital exist for a company that possesses two key advantages: assets and cash flow. First, you need to have assets greater than the amount you want to borrow and second, you must have the cash flow to pay the debt service.
Without both of these important elements, you might as well be praying for it to rain money. Most new businesses possess neither of these elements, so where are you going to get money to start up your business venture.
You need an angel. Only an angel would invest in a company with no assets and no cash flow. Your angel needs to be capable of investing money into your business; therefore, you need an angel investor.
Where do you find an angel investor? There are only two reasonable groups of people you can count on. First, people who know you, trust you and have money and second, people with money who know the industry you’re breaking into and trust that it both needs and can support your innovation.
The first group is the easiest to find and talk to. These would be family members, mentors, former bosses and colleagues, rich kids you grew up with--anyone you know who trusts you and has money. If they know you and trust you but don’t have money, don’t bother them.
Money is essential for an angel investor. Compile your list and then call and make an appointment to meet with them. Don’t tell them the whole story over the phone; just tell them you are seeking their advice on a business matter.
People you don’t know can also be excellent angel investors. This second group is harder to find, but easier to convince to invest in your company. Wealthy people with money who know a particular industry are often looking for a better way to accomplish something specific in that industry.
If your idea is brilliant, they will recognize it as such and want to invest in your company. However, you must also impress them with your research, your knowledge, your preliminary plans and your integrity. They will have to believe in you before they will invest.
When you show up for your appointment, it is important to have an engaging presentation ready to show them. PowerPoint is great, but it could also be a booklet or a business plan or some other form of presentation. Create something you can give to them, so they don’t forget about you the moment you leave.
Nobody says “yes” in the first meeting, so don’t be discouraged if you walk out of the meeting without a check in your pocket. If they exhibit interest in your business plan, make a second appointment in order to discuss details.
Remember, even though these folks are your friends, don’t be casual about your presentation or the image you project. Impress them with your appearance, your research, your preliminary drawings, your start-up plans and your knowledge of other attempts to solve the same issue you’re out to solve.
Carefully plan your proposal time beforehand; don’t take too much time getting to the point. Start with the executive summary, not the historical genesis of the whole idea.
Once again, don’t be discouraged by rejection. If they aren’t convinced your idea is great and your ability to execute it is apparent, just learn from them and move on to the next prospect.
It’s important to remember that for both groups of potential angel investors, rejection is the norm. Your potential angel investors are the unusually intelligent people who are willing to trust you and see your vision.
You may have to meet with 20 or 30 people to find just one who is smart enough to take the necessary leap of faith to invest in you, so keep searching until you find the ideal angel investor.
One final word of advice: always ask yourself “what do they want?” before presenting your business plan. Most people do not want to invest in an idea.
They want to buy stock in a company that is going to someday be valuable. So before you set up your first appointment, you should form your company and be ready to sell stock to your potential angel investor. Be ready to say, “I want to sell you xx percent of my company for xx amount of dollars.” That will impress them.
Notice I did not say raising money will be easy. It will test your resolve. Rejection is hard to take but it hardens you and makes you more determined.
Once you find angel investors, treat them like angels. Contact them often with updates on your progress. Ask their opinion on important matters. Send them your promotional material.
Always keep in mind that they are investing in you because they trust you. Earn their trust repeatedly and they will continue to invest in your company, which is really an investment in you and your future.
Photo Credit: Bill Davenport
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.