How to Raise Money from Angel Investors

There are several advantages to taking investment from angels as opposed to other sources (Venture Capital, bank funding, crowdsourcing etc.):

Pros:
1. Speed
If an angel investor likes a company or an idea, they can move relatively quickly from decision to payment. Unless investing through a syndicate, they don't have to cross-check their decisions with other stakeholders (committees, boards, etc.). Payment can come as quickly as a few hours once a decision has been made.
 
2. Experience
Angel investors come from all different types of backgrounds. If they're investing in your startup, they likely have experience in your sector or have knowledge they can share with you to help you navigate the complex issues you may have. Compared to other startups without angel investment, this may give you an edge. 

3. Ability to actively participate 
Angel investors typically want to help as much as they can, given your success is their success. As a result, angels are quick to provide support and advisory where possible. 

4. Independence
Angel investors typically don't take board seats or have egregious terms for future funding rounds. Most of them keep it simple, focusing more on equity percentages or board observer seats. They tend to be more 'hands-off' typical VC investors, giving founders more independence around strategy, hiring and product development.

5. Flexible Funding 
Angel investors are relatively flexible when it comes to term sheets and the cap table. The majority will support having other investors on board and see it as a sign that more investors can support future rounds. Angels typically recognise that founders need high ownership levels to be incentivised to continue building the business – especially in the early years. 

Cons:
There are some critical crawbacks of taking angel funding. While angel investment has some key advantages, there are some notable downsides of angel investment:

1. Control
Although you still have a significant amount of freedom with angel investors (compared to the likes of VCs), you may still lose some control – some angel investors will take board seats, others will have relatively stringent board reporting requirements. 

2. Pressure
The pressure to perform will likely increase. Before the angel round, the only pressure came from the founders themselves. Now that another investor is on board, the business will have to be monitored through KPIs, and reviews will take place more frequently. While this is a burden on the team, it can be a positive thing – the purpose of these reports is to track the business over time and identify where improvements can be made. 

3. Dilution
While dilution may seem small in the angel round, as the startup raises more and more funds, the initial ownership can drop relatively quickly (especially after a few VC rounds). Institutional VC investors may expect a certain founder ownership percentage to ensure the founders are motivated to see the company through to the end. If angel investors have taken a significant portion, this could impact further capital raises.

The top considerations to take into account when pitching to angel investors are as followed:

1. Refine your pitch
If you're pitching to angel syndicates, you're likely going to have to do multiple pitch nights. Practise your spiel until you can explain your business plan clearly and succinctly.

2. How much funding do you need – and why?
Be specific in your capital target and use of funds – try not to take random round numbers out of the air. 

3. Be open and honest
Angel investors are likely able to see through any uncertainties in your pitch. They will likely ask about these uncertainties in due diligence or questins and answers. Be honest about what you don't know and the risks, as this will likely show you understand the business and market you operate in. Angels may be able to help you deal with these problems (and they may be intrinsic in your industry anyway, which angels will take into account). Remember – no startup is perfect when they raised their rounds – problems and risks are normal. 

4. Be prepared for questions
Nobody likes losing money – least of all angel investors. Your startup will be carefully examined, and every assumption questioned. The angel investor will ask many questions to gauge whether your idea, your team and your target market align enough to succeed in a world where many don't. As such – be ready to answer a lot of questions (some that are quite tedious).

5. Negotiate terms
Remember that this is your startup, your vision and your idea. If this is your first formal funding round (mum and dad don't count!), you will have to get comfortable asserting your non-negotiables and what you expect from the deal. Loss of ownership is inevitable when you raise capital but keeping it at a reasonable level is extremely important for the company's future. Top terms that get negotiated include ownership percentage. Investment type, board seats and share type.

6. Get an Advisor
Whether analysing term sheets or side letters, it's valuable to get legal and/or financial Advice – so try to talk to business partners and advisors. You must understand the options before signing anything – contracts can be structured in many different ways.

7. Check with another party
Before signing legal documents, check with another party to make sure you're not missing anything. Get a second opinion. If you're connected with other founders who have raised capital before, or you know of VC analysts - don't be afraid to reach out and ask for help.

For any specific investment question, we suggest talking to the Angel network you plan to approach. Our list below addresses common queries about angel investing as a concept.

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