Struggling to find financing is one of the harshest realities of startup life — with several businesses essentially starting from scratch. According to a 2019 study from SCORE, 42% of entrepreneurs are bootstrapping, starting with less than $5,000 in cash reserves.
When startup founders hit a certain point — often after dipping more into their savings than they'd like or exhausting what family and friends are willing to chip in — they start to explore other courses. One of the more attractive yet challenging options is landing an angel investment.
Here, we'll go over what an angel investor is, review the best angel investor networks, see the pros and cons of working with angel investors, and go over some tips to help you maximize your chances of receiving this kind of funding. Let's jump in.
What is an angel investor?
An angel investor is a typically wealthy individual who provides capital to startups in exchange for equity. These kinds of investors tend to support early-stage startups — ones that aren't in a place to appeal to a wider base of investors quite yet.
Angel investors generally look for promising startups in their seed or Series A rounds of financing and offer those businesses injections of much-needed capital to help get them off the ground.
Let's take a closer look at what they do.
How does an angel investor work?
For most early-stage startups, angel investors represent the bridge between self-financing or sourcing funds from friends and family and receiving investments from established venture capital firms.
Angel investors typically have high net worths and extensive business experience that they can leverage to help the companies they fund. Once they've invested in a startup and received their appropriate equity, they usually assume an advisory role for that organization's leadership.
In most cases, they invest in industries they're familiar with — a trend that can make them excellent networking resources for startups. They're often well connected and can refer founders to other private investors as their businesses mature.
For a closer look at what angel investors do, check out this video from Investor Trading Academy
Best Angel Investor Networks
Pricing: Free to Raise Money
AngelList bills itself as the world's largest startup community. The platform doubles as an angel investment resource and a network for job seekers. Its investment side — AngelList Venture — provides two funding options for founders: recurring transfers and roll-up vehicles.
Recurring transfers offer rapidly growing companies the means to offer employees and early investors liquidity on a regular, rolling basis. That said, this option is reserved for businesses with valuations of over $100 million with notable VC investors.
Roll-up vehicles, on the other hand, are more widely available for startups of most sizes. This method gives founders a single link that allows investors to commit and send funds online. From there, AngelList handles the administrative side of the process — including all filings, tax documents, and distribution management.
Best for Startups Looking for More Than Funding
AngelList offers resources for startups that extend well beyond funding. The platform can help connect startups with job seekers, handle incorporation, and assist with equity management — among other perks. If you're looking for a "one-stop-shop" solution that provides more readily accessible funding options than other networks, consider looking into AngelList.
Pricing: Register for Pricing Information
The Angel Investment Network is a resource that can connect entrepreneurs with a pool of close to 300,00 active investors. It offers a straightforward, accessible template for founders to structure their pitches.
From there, entrepreneurs can publish those pitches for angel investors on the platform to browse. If your post catches investors' attention, they can reach out via the network's in-application messaging function — allowing you to either receive funding or expand your personal network.
Best for Startups Looking for an Accessible Platform
The platform offers four tiers of listing options ranging from free to $1,999 — with varying degrees of reach, visibility, and listing length. With a wide range of posting options that can suit startups with virtually any budget, Angel Investment Network is a solid choice for anyone pursuing angel investments.
Pricing: Apply for Pricing Information
Republic is a prominent investor-centric angel investment network. The platform is primarily tailored towards individuals interested in investing in thoroughly vetted, high-upside startups, real estate ventures, crypto plays, and video games.
It's essentially a sophisticated crowdfunding program that democratizes angel investing. Prospective investors can invest as little as $100 per startup at a time. Its accessible interface gives users immediate insight into the companies they're interested in funding — along with each business's valuation cap.
The program has a simple yet rigorous application process for entrepreneurs to list on the site. But once you're in, you're given tremendous visibility to a host of potential supporters — from seasoned VCs to small-time contributors — and the opportunity to raise up to $5 million per campaign.
Best for More Mature Startups, Prepared to Pass Rigorous Screening
Republic is an extremely exclusive platform for startups. It's not easy to pass its screening process and get listed on the site. So if you're only just starting to piece your business together, you're going to have a hard time landing on its front page — but if your company is a bit more well-established with demonstrated upside, Republic can be an invaluable resource.
Pricing: Packages Starting at $300 per Year
Gust is an investment community, boasting a network of over 800,000 founders and 85,000 investment professionals. The platform offers the means to connect with angel investors, but its functionality and merit aren't limited to that.
The program also helps you grow your startup by providing performance benchmarks, actionable feedback, and clear next steps for your company as it matures. Gust is tailored to help startups of every stage from seed funding to Series C.
It also has impressive resources for investors and accelerators. With low-priced packages available, it's an excellent resource for startups of virtually any size as they mature and establish themselves in their respective industries.
Best for Startups Looking for Comprehensive Guidance
For startup founders, Gust is less of a traditional angel investment network and more of a comprehensive assistance platform that happens to have an angel investment-oriented element. So if you're in the market for a program that will help you bolster the legal and financial elements of your business — all while providing access to investors — you might want to give Gust a closer look.
Pricing: Apply for Pricing Information
FundersClub is another exclusive, competitive service for startup founders. It only accepts around 2% of its applicants — but if you make it through the application process, you'll be in an excellent place to attract and connect with angel investors.
The network boasts an impressive list of alumni — including Instacart, Coinbase, Flexport, and GitLab. The platform also recently added a network search function where founders can search for and automatically request intros with potential investors.
Best for Relatively Mature Startups With Demonstrable Traction
FundersClub offers startups a unique combination of exclusivity, prestige, visibility, access, and ease of use — but that only comes with your ability to demonstrate considerable traction and legitimate potential. And as I mentioned, the vast majority of startups don't meet the platform's rigorous standards.
So if you want to work with this network, you'll need to show tangible progress, have a lucrative market you appeal to, and ensure that your people and product are more than sound. If you can't absolutely nail all of those elements, applying to FundersClub might not be worth your time yet.
Pros and Cons of Working With Angel Investors
Pro: It's relatively low risk.
Unlike loans, angel investments don't have to be paid back. If you land an angel investment, you're essentially staking your credibility and reputation on how far you can take your business — but you're not incurring much financial risk.
Con: You forfeit some control of your business.
Angel investors aren't fronting you capital for nothing. They typically assume some degree of ownership or equity in your startup in exchange for their investment.
So if you take an angel investment, you're expected to cede some control of your company — and the stake you offer your investors might be significant enough to have some major implications on your ability to run your company as you see fit.
Pro: Angel investors tend to be business-savvy.
Many angel investors were successful businesspeople in their own right — they're typically seasoned, sensible, and smart enough to have amassed enough money to put up capital for startups. And if you take their investments, you can leverage their knowledge and business acumen in the form of actionable advice and guidance. That can come in handy when you hit snags or deal with growing pains.
Con: You ultimately have to kick up some of your profits.
Obvious as this might sound, it's still worth pointing out — an angel investment isn't free funding. If your business goes the distance and starts to turn a profit, you're going to have to kick some of that money up to your angel investors, based on how much equity you gave them for their initial investment.
Pro: Angel investors often have a personal stake in your success.
Angel investments are financial transactions that often have a personal edge to them. Your investors want to see you succeed — for both your sake and theirs. That's why many are willing to be a valuable resource to help put you in touch with the right people and navigate the murky waters of startup life.
Con: Angel investors often have a personal stake in your success.
Though an angel investor's personal investment in your business is often beneficial, it can also be smothering. Some investors take an approach that's a bit more hands-on than certain founders would like. You want your angel investor to offer you an appropriate balance of trust and guidance — it can be frustrating if they overdo the latter.
How to Get an Angel Investment
1. Make sure you're all the way ready.
Angel investors generally aren't going to dole out cash if you pitch a neat idea without some kind of tangible backing. They're trusting you with a potentially sizable investment — so, naturally, you need to prove that you're trustworthy.
Your product or service needs to be either complete or near completion — you need your tech to be sound with tremendous upside. In most cases, you'll also need to have existing customers or a significant base that you can convincingly demonstrate will buy from you.
On top of that, you have to have a thoughtful, effective, executable business plan in place — along with realistic and compelling forecasts that can highlight exceptional growth potential.
If you try to land an angel investment without these key elements prepared — among others — you're going to face an uphill battle. Any angel investment takes some degree of faith, but savvy investors don't go in blind.
They want to minimize the risk behind their investments. Being thoroughly prepared — with a product or service that's ready for release and a plan to sell it effectively — can put their minds at ease and make them inclined to put up some serious capital for your business.
2. Network like your life depends on it.
Connections with angel investors don't come out of the sky. You can't bank on a potential investor happening upon your early-stage startup on their own and passing along a six-figure investment out of the kindness of their heart. As lovely as that prospect might sound, it's a starry-eyed daydream — not a legitimate plan for sourcing capital.
In many cases, you'll link up with an angel investor via referral — professional connections are often the most effective road to angel investments. So if you want to maximize your chances of finding interested funders, you need to network.
Consider attending local angel investor events — they pop up around the country periodically and provide excellent opportunities to connect with potential funders.
You should also reach out to other business owners. They might know angels who could be interested in floating you some cash, or they might even be interested in investing themselves.
Industry-specific organizations can also help you gain traction when it comes to linking up with angel investors. Joining and remaining active in those kinds of groups can put you in touch with like-minded entrepreneurs who can connect you with funders interested in your space.
3. Thoroughly research who you're trying to connect with.
You don't want to go into a meeting with an angel investor blind. These kinds of connections can be hard to come by, so you want to put yourself in a position to make the most of them. That starts with thorough research on your potential funder, their investment history, and their professional credentials.
Angel investors (or groups of angel investors) tend to have their own processes for landing on the startups they want to fund. So take the time to see who they've funded previously, their areas of expertise, and the kind of capital they usually put up — if possible.
An effective presentation is thoughtfully tailored. It speaks to the specific interests of the people on the other side of it. If you want to maximize your chances of landing an angel investment, you need to have a firm grasp of what your investors want to hear.
4. Have a thoughtful, effective, concise elevator pitch ready.
Connecting with angel investors isn't always some carefully calculated process you conduct online. In some cases, you might meet one in person at a networking event or some other kind of professional function.
In those cases, you need to have a well-crafted elevator pitch that reconciles being informative with being concise: a quick, to-the-point speech that conveys your startup's essence.
Yours should be compelling and attention-grabbing — covering who you are, what your company does, and your unique value proposition — and end with some sort of call-to-action.
As I said, finding angel investors isn't always some sort of long-term, back-and-forth exchange where you have the time to get your thoughts in line. It can be pretty spur-of-the-moment — so be prepared to get your message across within a short window.
5. Maintain active lines of communication with any investors you connect with.
Once you've connected with a potential angel investor, you'll need to maintain accessible, active lines of communication with them. The chance to present for an angel investment typically comes after some back-and-forth.
Very few — if any — angel investors will front you cash after a single conversation. They're probably going to do their due diligence, taking the time to feel you out and better understand you and your business.
Actively communicating with them helps facilitate that process, keeps you top-of-mind, and allows you to determine whether landing an investment from them is viable. Bear in mind, "active" doesn't mean "pushy." If you constantly badger them with messages and voicemails, you might undermine their positive perception of you.
You want to show that you're persistent — that you'll dedicate yourself to making the most of their investment — but at the same time, you don't want to come off as desperate or waste too much of their time and energy. It's a delicate balance, but you need to strike it if you want to prove your worth without frustrating your potential investors.
6. Make sure you want to work with them.
That "feeling out" process with investors I mentioned goes both ways. You need to communicate with potential investors to make sure you're on the same page — to know for sure that you have matching priorities and compatible work styles.
If you connect with an investor who is going to be too aggressive in their involvement with your business or has radically different goals for your company, you might want to explore other options.
Angel investments are often hard to come by, so unless your business is poised to take off — with traction, a lucrative market, and the right people behind it — you might want to wait before allocating too much time to the process of landing one. But if you think you're there, connecting with an angel investor can provide a much-needed influx of capital that can help set your big plans in motion.
Originally published Nov 11, 2021 8:00:00 AM, updated November 11 2021