Who is an angel investor?
An angel investor is a high-net-worth individual who gives capital to early-stage startups and businesses in exchange for a stake in the company. They have usually been business owners themselves, coming off their own successful ventures, or have been part of others. That experience lets them guide the founders they build relationships with.
Angel investors are different from venture capitalists. Angels tend to invest in earlier rounds, such as idea, pre-revenue and seed, putting in anywhere from £1,000 to £500,000.
Venture capital firms, by comparison, manage institutional money and pool funds together to invest in later rounds, which can be anywhere from £1m to £6m.
That makes angels an attractive option for founders who are looking to scale a small operation or start something new.
The benefits of having an angel
Angels are more than just the money they provide. Because of how personal their involvement is, an angel can bring:
1. Mentorship and experience
Because angels have had prior ventures, they often come with experience in hiring key team members, operations, governance and compliance. They can support you where you're lacking, and use their network where it's needed. When an angel comes on board, they can guide you through these parts of your business and give you a level of mentorship you wouldn't get from money alone. That makes them invaluable to new founders.
Depending on the angel, they often come with their own network too, which opens doors to opportunities you'd never have found on your own.
2. Keeping control of your company
Angel investors typically give founders room to keep control of the vision and direction of their company, usually taking a stake of between 10% and 25%.
3. Increased credibility
Getting funding from a credible angel increases your own business's credibility.
That makes it surprisingly easier to raise later rounds. It acts as a stamp of approval that builds a feedback loop and attracts more investment. If you have angels with good reputations behind you, you'll find it much easier to raise capital from other angels and from venture capitalists.
How to win an angel over
1. Make it personal
Because angels are investing their own money, they're more personally attached to the investments they make. So your approach to an angel should be personal too. Research the angel and tailor your pitch specifically to them.
Questions to ask yourself:
- Have they built a business in the same industry or space?
- Do they have personal experience with the problem you're solving?
They don't need to understand your business inside out or become experts in it. But they do need proof that it's a good decision: that it actually solves a problem, and that they understand it well enough to relate to it.
2. Be coachable
Angels aren't just buying into a business. They're buying into a founder, and they bring a lot of valuable experience from the ventures they've been involved in.
Because of the personal relationship they tend to have with founders, they look for people they can get along with and who are easy to coach.
3. Keep your pitch simple, clear and concise
A lot of founders overcomplicate their pitch deck with complex slides. In reality, many angels aren't experts in your field, and they don't want to be.
The best way to appeal to an angel is a clearly structured argument covering:
- The problem: clear and urgent
- The solution: concise and specific
- Traction: not just ideas, but proof of demand
- Your team: why you?
- The market opportunity
- The business model
- How you'll use the funds
- Your vision
How to stand out
1. Use the right channels
Use less conventional channels, such as newsletters like The Boardroom's weekly Board Pack. Cold emails are impersonal and often ignored. It's better to meet angels in the emails they actually read, where they're shown new opportunities in their inbox every week.
2. Specialise
Angels look for founders who specialise, with deep knowledge of their domain. Position your brand as an authority or expert in a niche, to show a sound understanding of your space.
3. Show your community
Highlight the traction you're getting from your product or service, whether that's early users, beta users or a community forming around your brand. All of these show you have something worth growing that people are already using.
Frequently asked questions
- What is an angel investor?
- An angel investor is a high-net-worth individual who invests their own money in early-stage startups and businesses in exchange for a stake in the company. Many have built or been part of successful ventures themselves, so they often bring guidance and connections as well as capital.
- How much do angel investors invest in the UK?
- Angels tend to back earlier rounds, such as idea, pre-revenue and seed, investing anywhere from around £1,000 to £500,000. Venture capital firms usually come in at later rounds, typically somewhere from £1m to £6m.
- How much equity do angel investors take?
- Angels typically take a stake of between 10% and 25%, which usually leaves founders in control of their company's vision and direction.
- How do I get an angel investor's attention?
- Make your approach personal and research the angel before you pitch. Keep your pitch simple, show you're coachable, and reach angels through the channels they actually read, such as investment newsletters like The Board Pack, rather than relying on cold emails.