Here’s How Tough Angel Investors Will Try to Test You
The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “What’s the best way for young startup owners to develop relationships with angel investors?” is written by Andy Lark, CMO of Xero.
Angel investors play a vital role in the startup ecosystem. The usually-wealthy individuals—who provide capital to startups to fuel growth—are an intrinsic part of the funding and mentoring processes that so many founders rely on to boost their chances of success.
Building relationships with the right angel investors requires technique and thoughtful action. Here are a few social queues to help you get started:
Start with the end in mind
For high-growth companies, angels are the first step in a journey that will involve a variety of funding methods. Getting the capital structure right, allocating equity while being mindful of the need for future funding rounds, and ensuring the investors add more than money—including mentorship or guidance on hiring better talent—are a few of the basics.
The pitch is the pitch
Smart angels are testing you as a person, not just your idea. Some will reject you in a confrontational way to test your resilience. Others will fake indifference to see how passionate you are about the opportunity. Many will question every fact to see how deep you are into the details. How you handle the pitch is as important as what you present in the pitch.
Bring method to the madness
Creating a strong, no-bullsh*t pitch deck is step one. These individuals have usually been around the block a few times, and they’ll notice if your numbers don’t add up. Make sure there’s consistency between your pitch, website, product, and any marketing collateral. Be precise, methodical, and clear on your value proposition and story. Too many founders go hunting for equity with a half-baked concept or without a full story.
Angel investing is usually something that’s done on the side of other ventures. As a result, most angels actually don’t identify as angel investors. And, while there are networks of professional angels, the majority of your potential funders aren’t actually members. This means you’ve got to not only work the organized groups of angel investors, but build maps of where likely investors may be. They could be at industry events, or might even be friends of friends. Look under every rock.
No doesn’t always mean “no”
If at first you get a no, don’t slink away in self-defeat. A “no” in the investment world can quickly be flipped to a “yes” if you have the right technique and story. This includes following up on meetings and action items, and methodically soft-selling by keeping the potential investor abreast of your progress, wins, new hires, and even press coverage.
Part of following up and keeping potential seed investors across your progress is establishing excuses to engage with these individuals.
You must be willing to debate, fight for your position, and tell a compelling story so others believe in your idea. Storytelling and vision are incredibly important in the early days, especially as many startups are yet to have a fully functional product, established user base, or profits to speak of.
In the early days of establishing a company, people matter more than the actual idea. Renowned startup investor Jason Calacanis said it well when he said, “You don’t need to know if the idea will succeed — just the person.”
Capitalize on this while you can—it’s less so in the later stages of investing. Hire the best A players you can afford, show the investor you’re a stand-up person, and focus on driving a focused and motivated team. If you haven’t to the right people, it’s almost impossible to attract the right investment.