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The Fine Art of Meeting With an Angel Investor

Practical advice on when and how to pitch private investors for your business

When it comes to raising money for your startup, don't expect any miracles: Angels don't descend from heaven. In most cases, angel investors will already know you or be introduced by a mutual friend. This is partly because they need to have confidence and trust in you to take a risk on you and your business, but also because they simply like hanging out with entrepreneurs. Angel investors like being mentors, and they typically like to experience the entrepreneurial life vicariously.

Why do they want to hang out with you? Angel investors learn about you by being as interested in you personally as they are in what your business does or sells. If they don't already know you--that is, they're neither your friends nor members of your family--they'll ask around about you behind your back. They'll see what kind of car you drive and if and where you take vacations. Their impression of you, as well as your business experience and your management skills, are all critical to their decision to invest. They'll also talk to mutual associates to get the inside skinny on you--if people they know and trust say you're a genius but lousy with money (or something equally frank), they're likely to listen closely.

And angels are interested not just in you; they also want to know about your team. They want to get to know the people working with you and see that you've gathered an experienced and innovative management team to help you grow your business.

Scheduling a Meeting

You'll need to weigh three factors to help you decide when to schedule the meeting where you'll ask the angel for the investment:

1. State of your relationship with the angel investor. The right time to ask for money is when your relationship is comfortable and trusting and when you sense the investor will be open to the request.

If the investor is a friend or family member, you should have a good sense of their personal life. For example, if there are any big life events like a move, a marriage or a new baby coming up, it's probably not the best time to ask for money. If the investor is unrelated, you'll be best served to make contact and have at least two or three social interactions with him or her before asking for money--unless of course you're lucky enough to have a strong introduction from a close friend of the investor--preferably one who's already invested in your business--that is specifically intended to help you schedule a meeting to ask for money.

In each case, the investor should know you have a business plan and be curious to hear more before you suggest a meeting about capital-raising.

2. Cash needs of your business. A useful calculator for estimating your company's cash needs is available on our site here . It will take, at a minimum, many months to close on your round of fundraising, so you'll need to understand your cash flow well enough to plan several months in advance for how much you'll need and when.

3. Time it'll take to close the deal. It takes time to raise money from relatives, friends and angel investors--just like it takes time to raise money from venture capitalists. Entrepreneurs expect it to take six to 12 months to close a round of venture capital. For raising money from relatives, friends and angels, it could take as little as three months to close a round from five to six investors. For raising a larger round from 10 to 15 investors, it could easily take well over 6 months.

Why does it take time? Because you're not just trying to raise money for your business. You're also trying to run your company. And the investors have other things going on as well. Scheduling meetings, communicating, coordinating schedules, drafting documents--all these things take time. You might be able to impose closing dates on VC investors who are investing out of fear of losing the deal, but imposing deadlines on angel investors is notoriously difficult.

Goals for Your Meeting

You have two goals for your "money raising" meeting with an angel: First, you want to share your business idea, and second, you want to achieve a nonbinding agreement, verbal or written, to invest. If you can't end with an agreement to invest, end the meeting with a plan to follow up.

Goal #1: Communicate your business idea. When you ask for equity capital, you really must have an articulate business plan in place for two reasons. First, you need to be able to answer certain important questions about your idea. One popular one is, "When will you make a profit?" The answer to this should be in the cash flow projections of your business plan.

Second, a smart equity investor will nearly always ask to see a copy of your business plan. My advice is, unless they ask for it in advance, don't bring your full plan to the meeting. When they ask about it at the meeting, you can provide them with a plan summary and offer to mail the complete plan to them afterwards. There are two reasons for this. If you have the full plan on hand, you may get bogged down in the details related to the presentation of the plan or some information within it. Also, it's excellent fundraising practice to have a reason to contact the investor after the meeting.

In addition to your business plan, you'll be talking about your idea in general. Here are the three items that, in my experience, you'll need to know for certain before you go into a meeting with a potential investor:

  • What it takes to get to profitability. Investors will want to see that you've "crunched the numbers" and made a plan for success.
  • What skills you're lacking and which types of people and skill sets you'll need to have. Good leaders have the confidence to surround themselves with smart people who together make a great team. Show your investor that you know this and have a plan in place to bring on board the people needed to make your business a success.
  • How your personal finances relate to those of the business. Investors don't want to hear that you're starting a business so you can spend more time at home with your kids. They don't want to see you driving around in a luxury car or dropping cash like it's going out of style. They want to know you'll be the one sweeping the floors after everyone else goes home at night. They want to know you're willing to sacrifice--to scrimp and save--to make the business succeed. They know it's hard work to create and run a successful business, and they expect you to do what it takes to make them a lot of money.

Talking to your equity investors can be nerve-wracking. Although the benefit of having a relationship is that you and your investor already have a certain level of trust established, you should still choose your words carefully. In addition to the tips I offered in my previous article on the kitchen table pitch , you should also avoid saying the following to your investor:

  • That you have big plans for the future. Big plans--for example, to turn your startup chocolate pretzel store into the next big franchise--may appear vague and overly ambitious. Your investor expects you to be a visionary, but also to achieve the short term financial projections that will earn both of you a lot of money.
  • Anything that appears cagey or dishonest. Honesty is the most important value investors can find in an entrepreneur, and your investor will be trying to assess your degree of honesty from day one. Avoid the temptation to puff up your projected profits or your colleagues' resumes beyond the bounds of reality.

Goal#2: Get to "yes." The goal of your meeting with the angel should be to reach a verbal agreement to invest. In the case of equity investing, because the deal will be more complex than a loan, you can approach this in two ways: with a handshake or with a "letter of intent."

With most family and friend investors, you can proceed from a nonbinding agreement, such as a handshake, straight to a legally binding agreement. But it's rare for a deal to come up and close in the same meeting, so don't expect to ask for and receive the money in one sitting. Aim to get agreement on a range--such as "I could do $25,000 to $50,000"--and that you'll send the paperwork. If you've gotten this far, you're in great shape. All that's left is to follow up by drafting and sending the agreement.

For unrelated angel investors, especially those who are notoriously difficult to pin down, aim to get the investor to sign a letter of intent (LOI) at the meeting. Although the letter will be informal and nonbinding, it's a great way to get the investor to agree to the idea of making the investment. Follow up promptly with the legally binding stock purchase agreement. The LOI is a tool to get you a commitment from an investor at the moment when he or she is most excited about the business. A signed LOI also allows you to nudge other investors by letting them know you already have money committed.

Asheesh Advani is CEO of Covestor, an online marketplace for investors. He founded CircleLending, which was acquired by Virgin.
 

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