How to Pitch to Angels—Your Early-Stage Investors

Mastering the Art of Angel Pitching: Tips and Tricks for Early Stage Entrepreneurs!

Angels have different motivations from VCs and need to be approached differently.

Angels are the first investors in most startups. Yet founders usually have little idea of who we are and what we’re looking for.

I’ve been an angel investor since 2010 and invested in close to 100 startups: 40 individual investments and the rest through angel group funds. I’ve had the opportunity to interact with hundreds of other angels, which is half the fun.

I’ve seen a misconception among founders who think angels are a bunch of rich men and women hanging out on LinkedIn looking for startups to invest in. In other words, they think we act like single person venture funds.

While there might be a few angels who try to act like mini-VCs, the vast majority of angels don’t fit that mold. Which means all those LinkedIn messages you’re sending us are missing the mark.

Who are Angel Investors and What Are We Looking For?

The Center for Venture Research estimates that in 2021, 363,400 individuals invested in 69,060 startups in the US alone. (Report?here.)

That’s a lot of angels investing in a lot of startups.

Similar to venture funds, angels invest in the equity of startups with the expectation that these companies will grow rapidly and be acquired or go public in 5–10 years to generate a large return.

We’re investing in exactly the same types of startups as venture funds — companies set to grow exponentially to $100M+ in revenues and be acquired for a huge multiple.

But we differ from venture funds in a few key ways that affect what we invest in and how.

First, unlike venture funds which are investing other people’s money (mostly from pension funds, insurance companies, and really rich people), angels are investing our own money.

When I hand you a check to invest in your startup, it’s coming straight out of my personal checking account. That’s money that would otherwise go towards my retirement or that Mediterranean cruise my wife keeps hinting about. So you have to convince me why I should invest in your startup instead of making my wife happy.

In contrast, VCs have to find companies to invest in. That’s their full time job. They don’t get paid unless they invest. So they’re hunting all day for startups to invest in. They want more deal flow. They really want you to send them your pitch deck. Angels — we’re busy with other things.

That’s because unlike VCs, we’re not getting paid to invest. VCs take a 2% annual management fee (plus 20% of the profits) to run their operations. Angels work regular jobs.

Some of us are startup entrepreneurs, others corporate executives. I’ve met a lot of lawyers, doctors, and bankers as angel investors, as well as many retired people.

Typical angel investments are quite small, at least by VC standards, usually $10K — $100K per investment, with $25K being the default check size among my angel groups. That forces us to invest in earlier stages than VCs, with higher risk and longer waits for returns.

For founders, those small checks mean that unlike signing up a couple of venture funds to invest $2M each in a $4M seed round, founders need to find 20 angels to put in $25K each to fill even a $500K pre-seed. That’s a lot of people to convince to give up their cruises.

It also means we’re busy with jobs and other obligations (like writing these articles!), so we can only spend a few hours each week reading pitch decks, listening to pitches, and reviewing diligence materials.

But every day I’m inundated with pitch decks and requests to set up a call. The startups are in fintech, medtech, SaaS, and other sectors of which I know very little. They all sound great, but investing in something I know little about, no matter how good it sounds, is a recipe for losing money.

So if you’re building a lawtech startup, reach out to lawyers; for medtech, doctors and medical professionals. The people who understand what you’re building and why are the same people who ought to be your investors.

In fact, the greatest benefit of having angels invest in your startup is not the money, but the help we can provide in making the business a success. If you find the right angels, they can introduce you to customers, solve technical problems, and provide advice on everything from marketing to legal issues.

Angel investors can be your most valuable advisors, and instead of having to pay us, we’re paying you. So keep us up to date not only with your triumphs but your challenges, too, and you’ll be surprised how many people you have on your team ready to help.

Angels and Angel Groups

As individual investors, though, we’re not prepared to be deal leads and negotiate terms, nor to do the research needed for proper diligence before investing.

Though some angel investors may invest a small amount based solely on the pitch, most like me will only consider investing after a lead investor has set terms and done a thorough analysis of the company. VCs usually fill the role of lead investor, but early-stage deals are too small for them.

Further, most of us limit ourselves to investing in sectors we know, which means we can’t invest in much. For startups, the number of angels with expertise in their narrow niche may be too small to fill out a round.

Which creates a conundrum for both startups and angels. Angels want to invest in a wider range of deals, but we don’t have the time or the knowledge. Startups want to reach a larger number of angels and find someone to lead the deal.

Fortunately the angel group solves all of these problems.

An angel group is a collection of angel investors who review pitches and review investment opportunities together. Most angel groups are organized around a geographic area, an industry sector, or a professional affiliation.

Some angel groups focus on individual investments while others invest through a pooled fund. Many do both. But unlike VC funds, our angel funds don’t charge fees which means we don’t have employees and have to do all the work ourselves.

Angel groups make it possible for startups to pitch to dozens of angels at a time and collect hundreds of thousands in investment from a single organization. By acting as the deal lead and producing a diligence report, we also make it easier for other angels to invest with confidence.

So rather than reaching out to random people on LinkedIn, I always advise early-stage startup founders to find relevant angel groups to apply to.

But at the same time, reach out to individual angels who specialize in your industry. Get them onboard and take advantage of their assistance.

In the end, the biggest motivator for angel investors isn’t the financial returns — it’s about helping you get a valuable business off the ground.

I hope you found this post honest, actionable, and insightful. If you’d like to support me as a writer, Buy Me a Coffee!