👋 I'm Yu Chen, an angel investor based in New York. I'm passionate about building impactful technology products. There's A TON of advice on raising money out there (and I've included a few favorites at the end), but I want to address some important gaps in information:
There's not much written from the perspective of an angel investor. After all - founders should understand the motivations of people they're pitching to.
Advice out there doesn't always fit the needs of founders from non-traditional backgrounds, and I care deeply about leveling the playing field for everyone.
What motivates angel investors
We are like any other investor - we want returns on investment! Except, angels are different from institutional investors like venture capitalists (VCs) in a few important ways. Note - these rules always have some exceptions.
We invest our own money - we can make fast decisions and wire money quickly if something really appeals to us.
We invest in areas that we're passionate about - angels have investment sweet spots, often in domains they understand, care about, or worked in.
We have different risk/return profiles - angels often invest earlier and in more risky stages. If we're passionate about a certain area, we may also be willing to wait longer for the startup's vision to be realized.
Investing is not our day job - most angel investors have a different day job, and invest as a passion project. So they often don't have a lot of time to review to pitches and meet with founders.
Convincing angels to invest in you
Investors broadly evaluate startups in 3 areas - team, market, and product. For un-traditional founders - it's possible to fill in the gaps in these areas and turn your disadvantages into strengths. There's a lot of ways to do that, and here's a few examples to get you thinking.
Team - This the most important element. At the angel stage there's often no product or revenue, yet investors need to quickly evaluate whether the founders can pull their company through years of ups and downs and grow their revenues to $00M. So, they often use "lazy proof points" e.g. educational credentials, warm introductions, or previous experience founding companies, to evaluate a team.
Start developing a track record 3-6 months before you start raising. In-lieu of having lazy proof points, you can still demonstrate the ability to learn quickly and overcome obstacles by nurturing relationships before raising. Build your network, provide regular updates, over-communicate your progress and over-communicate your pivots, and demonstrate that you're constantly learning and overcoming obstacles.
Build and expand your network of allies, advisors, and investors early. Create your wishlist of investors, research their experiences and investing track record, and build roads towards those investors. Your goal is to eventually get a warm intro to them by somebody who can genuinely vouch for you.
Market - Investors look for a large market that's well defined, with clear user pain-points, that's ideally also growing even bigger. We also have markets or technologies that really excite us that may not follow all the criteria above.
Emphasize your competitive advantage. You may be building your company outside one the trendy investment areas. Instead of trying to change what you're doing, illustrate that you have unique insight into an untapped market. Or, maybe you solve the problem better than competitors, or have a head start.
Add proof points. Connect with advisors or investors in your domain area. Do some early fundraising from experts or executive who know your space. Having expert support is a vote of confidence and positive signal to investors who aren't as familiar with what you're building
Product / traction - The best indicator that you'll be successful is past success - so ideally your product is already launched and generating revenue. Since that's often not the case yet - investors are open to evaluating proxy data as early of success.
Anyone can build! Even if you aren't an engineer or don't have a technical co-founder, you can still build an early revenue-generating product using free no-code tools. Makerpad is a great resource to see examples and learn what's possible.
Gather data and testimonials. Once you've build a prototype or early product - start gathering usage data to show traction - these can range from raving customer reviews, to user signups, to actual usage of your product. Try to collect data for several months, so that you can build a story of growth and share that with investors.
Sales tactics - fundraising is a sales exercise, and there's a lot of best practices that can help founders stand out and close deals. Here's my top recommendations, which address some of the most common mistakes I see in pitches.
Personalize your outreach. Demonstrate that there's an extraordinary fit with the investor you're contacting. Highlight specifics in the investor's background, passions, or investment goals that align with you or your company. Write personalized introductions from yourself, and use the network you've been building up for the last 3-6 months to make that warm introduction.
Get your key message across in 30 seconds. Make it very easy for busy investors to understand what's compelling about your team, market, and product. Start with a memorable one sentence description (but stay away from sounding like a copycat), highlight your key differentiators, and format emails to have "high skim value".
Play the long game. Take the same approach to engaging with investors as you would to building your business and customer base. Learn and grow with each interaction, and manage your growth, retention, and recovery efforts. Investors do sometimes invest in companies that they had previously passed on, after they've made more progress. So always think about turning a no into a yes.
As always I hope you've found my suggestions helpful, and feel free to reach out to me with any questions or thoughts.
Yu
P.S. Here's a few great resources on raising those early rounds
Steve Blank's overview of fundraising rounds
Elizabeth Yin (Hustle fund) gave great strategies & tactics on raising from angels
Once you have a pitch deck, refine it with anonymous feedback from real investors
Learn from founders who went through this before
Once a round closes, start planning for the next one