SUMMARY – Startup founders must understand angel investors to raise capital.
Many entrepreneurs, business coaches, and owners lack the financial support to do justice to their vision. Only a minute number of startup founders achieve VC funding. This is where angel investors enter the scene as literally, angels. Since angels have limited time for reviewing business proposals, founders must be coached to produce their best business pitch and understand the angel. Founders should strategize on building a relationship with the angel, proposing better pitches, and storytelling as a part of the essential armory of a fundraising founder, ultimately giving angels the confidence to invest again.
COACH LEADERSHIP STORY AND TESTIMONIAL
Fifteen years ago, when Phil’s career was turned down at NHS due to redundancy, he decided that he would no longer work for big organizations that offer slow paced roles and which become detached from the employees themselves. He sought confidence in being trained yet again in executive coaching, and started a company with the name Coachpositive Ltd. Apart from being a qualified executive coach, he currently chairs a small company, PatientSource Ltd which develops electronic medical records, and is also a Board Advisor to three other companies. Phil admits that most of his coaching practice is rooted in these roles and not in running a stand-alone coaching business. He really gets founders and co-founders, and his clients agree that he is a very empathetic coach.
Like most entrepreneurs, nothing went quite according to Phil’s plan. He learnt a lot about positive psychology, which went on to become a main plank of his coaching business. After being regularly offered well-paid interim management roles, Phil became an angel investor and began investing. His experience in management got him to advise, support and coach founders and founding teams on growing their businesses.
As an advisor to startups, Phil wants to help entrepreneurs get their idea into the world. As an executive coach, he helps with multiple aspects of business development and personal development, for example, helping them become a leader or to build them a narrative that best explains the social and financial impact their business has. Four years ago, he began posting on LinkedIn to advise founders on what to do to improve their chances of getting funding, using a hashtag – #hownottoannoyanangel. During the COVID lockdown, Phil developed and kept adding to that work, compiling all of his findings into a book AngelThink.
Phil perceives fundraising as a contest. Founders line up all the time to chase funding, but scarce win. It is like a marathon – probably more like a triathlon.
DID YOU KNOW?
Phil spent about USD 25,000 trying to build his executive coaching practice.
PROBLEMS FACED BY ENTREPRENEURS WHILE FINDING ANGEL INVESTORS
In the absence of financial support, most entrepreneurs turn to angel investors and yet only a few succeed in actually receiving it. It is not a rookie task to convince an angel investor to invest, for obvious and valid reasons.
Here are some of the factors that keep entrepreneurs for being funded:-
- Myths surrounding angel investing lead to disorientation among entrepreneurs, causing them to waste time, effort and resources.
- Finding angel investors is hard, finding inclusive angel investors can be even harder. Entrepreneurs deserve to find resources that do not discriminate against their identity.
- Even after finding competent angel investors, it is hard to gain an opportunity to pitch business proposals as they have limited time on their schedule.
- Sometimes entrepreneurs also get a feeling of being alienated from the angel as they fail to understand them.
- While many participate in the race of being funded, only a few reach VC funding.
TIPS AND ADVICE ON HOW ANGELS THINK:-
Since angel investing is so essential for founders and their sprouting businesses, they need to understand how they can get it for their fundraising process. As a guide to people looking for angel investing, Phil highlights the following tips and advice on how angels think:-
1. Half of the answer lies in the person seeking investment themselves:
“Relationships are key. A founder has to make an attempt to build a rapport with me.” – Phil McSweeney
No angel investor wants to invest money in complete strangers. Phil has to like the founder and trust that they have a set of qualities and skills to scale to a multi-million pound business (or stand aside and let someone else take over). Founders and leaders must possess the ability to be astute, resilient, decisive, empathic, honest, calm, and humble at times.
Phil also emphasizes the factors like presence of self-belief, integrity and judgement. Have they, for example, assembled the best team they could? Did they do as much as what could be done with what resources they had?
2. Angel investors make some decisions through business proposals:
“I look for certain things in the proposition.” – Phil McSweeney
The idea needs to excite the angel investor, after all, we’re all thrill-seekers in some way. It has to look like it has a big enough market, and cause someone enough pain or necessity to buy a solution (that ideally has a niche). It is not a ‘copycat’ idea, but has potential to disrupt an existing market.
The idea might have a sense of inevitability or higher purpose about it, like social impact, climate change and sustainability, or development of a new vaccine. Having a groundswell makes it more compelling to the investor. Some angels will also decline anything potentially harmful or possibly trivia, even if it looks financially promising.
3. Like other humans, angels are also influenced by emotions:
“We think we can make rational decisions based on data – like anticipated market size or financial projections – but we’re suckers for a good story told well.” – Phil McSweeney
What gets the angel investor more engaged than logic, are good origin stories, people who chime in with the values of the investors, and someone who paints a great vision for them. We all make emotional purchases with post-hoc rationalization, angels are no different in Phil’s opinion.
4. Understanding angel investing is a requisite:
“I look for at least some evidence that the founder understands how angel investing works.” – Phil McSweeney
Angel investors do not prefer to invest in someone who is naive about angel investing itself, it is thus essential for business owners who seek investing, to keep learning about angel investing. Phil probes whether the founder would try to step up funding to VC funding input (that has such a low success rate) and would they have a plan B.
5. Angel investors’ motivation to invest in businesses
“What I’ve come to learn is that it’s not the money per se that they want back, it’s what comes with it.” – Phil McSweeney
Of course, angels invest because they want their money back, with interest, in future. It is a big risk for them. According to Phil, this is how angels think about that, they’ll say that they are ‘giving back’ or ‘paying it forward’ to a new generation, wanting to share their wisdom and experience with someone with energy to grow something in the world, but they also want success and an exit.
What motivates the angel investor, more than regaining their money and time, he thinks – is kudos among peers, and that they have the ‘chips’ to keep playing the game. It’s being an active part of a community, it’s bragging rights, and it’s being associated with a high growth success, especially a unicorn. Exit is symbolic. Without it, their money is dead and there is little sense of achievement. So founders have to show them a credible and believable trajectory.
SOCIAL IMPACT LEADERSHIP AS ANGEL, LEADERSHIP COACH, AND ADVISOR
Like most entrepreneurs and business owners, angels, coaches, and advisors carry a massive potential to have a social impact through their services. We cannot think of a better example than Phil, himself. Let’s learn how he manages to do that while doing everything he does for his clients-
Being a chair of a company that develops electronic medical records, Phil wants to make an impact on clinicians by making their lives easier, by simply easing one small thing that might contribute to burnout i.e., poorly-designed software, that cause friction and frustration.
As a Board Advisor to canopey.com, Phil supports the founders to build a shopping platform exclusively for sustainable goods. In his life, Phil is greatly concerned about legacy issues, because he wants to leave behind a better world for his children and grandchildren.
His organization AngelThink, explains and supports diverse and disadvantaged founders like female founders, older founders, BAME (Black, Asian, and Minority Ethnic) founders to address the disparity in who gets funded.