For startups, a great alternative to venture capital is angel funding. A silver lining that has rapidly emerged over the past year is the uptick of virtual angel investment groups.
At Keiretsu Forum we have pivoted online, a notable trend amid large angel investment groups, which means existing investors, no matter their location, can access and evaluate any of the deals that go through the network.
Concurrently, new investors seeking to diversify their portfolios are gravitating to the virtual angel model. Member onboarding, due diligence, live presentations, and member meetings are now all conducted online.
If you’re thinking about going the angel route, here are five critical things to know about the process that can help lead to a successful round:
1. Prepare for virtual fundraising
In a post-Covid-19 pandemic world capital must be raised virtually. The biggest challenge for entrepreneurs is that investments are made without ever meeting potential investors face-to-face. There is minimal eye contact, and little body language—which is the language of funding—in a Zoom meeting. The goal is selling the upside potential and creating interest.
Try and get into the mind of the angel, who will be evaluating you and asking themselves:
- Who are you?
- Why would I want to be involved and work with you?
- Do I support the journey, the mission, and the impact?
- Is the technology compelling?
- How vast is the market opportunity?
All those questions must be addressed during the pitch presentation.
Fundraising as an ongoing process, with presentation and speaking skills evolving over the course of the campaign. Constantly evaluate your own presentation: Is the audience-market quickly defined? What is the pitch about? Why is it being pitched? Who will benefit from it?
Indeed, the most effective technique for improving your pitch skills is to watch entrepreneurs with similar stage companies deliver pitches. Presenting to 50, 60 or hundreds of investors is no small task. Before and during the process, put your ego aside, and attend a few online investor forums to see how the best do it.
A good pitch coach is someone who can simplify the process and make it less daunting. In addition to the pitch itself, not to be underestimated is honing the presentation skills that enable the entrepreneur to deliver an engaging and compelling presentation.
2. Angels like familiarity
Angels gravitate toward opportunities in the industries they have direct experience in, and the insights they can share with founders on how to successfully grow companies within those markets is invaluable.
Relationships between entrepreneurs and angels can get started quickly and can be very hands-on, with angels oftentimes embedded within the company’s extended management and advisory network. In scenarios like this, the expertise, plans, and funding take place within an exciting and collaborative environment.
“People invest in people they know, like and trust. Once an entrepreneur goes through the process of securing angel funding, they are part of a tight community.”
People invest in people they know, like and trust. Once an entrepreneur goes through the process of securing angel funding, they are part of a tight community. By example, approximately half the entrepreneurs that present to Keiretsu Forum are members of the group. Many are angels and entrepreneurs that have built and sold several companies.
The companies that make it through the full process are typically ones who raise capital, have a track record of success, understand the fundraising process and the value of seed funding. This environment helps to cultivate relationships between the investors and the entrepreneurs.
3. Due diligence is the force multiplier
Due diligence is the key to a successful funding round. The process can be lengthy, taking upwards of 80 to 100 hours over six to eight weeks, but once completed the company is now able to syndicate and receive further capital.
Typically, in an angel group setting, companies initially pitch first to a deal screening committee who determines if the opportunity is worthy of a full investor presentation. If there is interest, the due diligence process begins. Keiretsu Forum deploys on average 50 to 60 members that evaluate the opportunities and vote on inviting opportunities forward to the next step. Tight screening should be a confidence builder for both angel and entrepreneur.
For example, Keiretsu Forum members back more than 80% of the companies that go through the process. An affiliated fund, Keiretsu Capital, will often invest alongside the members backing the company. This process gets repeated when the deal is syndicated across the network that includes numerous additional angel groups. At the end of the cycle there should be 50-70 interested angels to close capital from.
4. Protect intellectual property
Most angel investment groups will not sign NDAs to conduct due diligence. It is critical to have a proper patent strategy to protect key intellectual property (IP). That said, due diligence plays a large hand in formulating that strategy, ensuring there is a good framework in place for the company to document a sustainable differentiation, with the freedom to operate and prevent competition from infringing on their patents.
Most angel groups have IP attorneys who are members and conduct those reviews. Be careful about what you put in writing—angels should be able understand what is going on with your business without you disclosing important assets.
5. Family offices deliver patient backing
The alignment between family offices and angel groups is the future of entrepreneurial finance. Indeed, family offices are experiencing a huge transfer of wealth (approximately $20 trillion) to the next generation of family members who are eager to make impact and diversity investments. Consider that more than one-half of the companies funded through Keiretsu Capital are now also funded by family offices.
Moreover, unlike VCs, family offices are geared toward investing over a longer horizon and do not have an incentive to overly dilute the companies they invest in. Most important, family office investment adds a substantial balance sheet for fueling growth, and a sense of financial confidence for anticipated tough stretches.
The symbiotic relationship between the angel investors that have the entrepreneurial expertise and the family offices that have the wealth that should most excite female entrepreneurs seeking to raise capital.
Brianna McDonald is president of Keiretsu Forum Northwest, the largest chapter of Keiretsu Forum, the world’s biggest angel investor network ranked by Pitchbook #1 “Most active investors early stage US region” and “Most active investors late stage US region.” Brianna is adept at screening companies for angel investment, coaching companies on presentation and investor relations, sales strategy execution, relationship management, and leading due diligence teams. Brianna believes in companies that have “multiple bottom lines”, in that they are not solely focused on profits but also focused on impact, social good, diversity, and making the world a better place for the next generation.
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