When you’re looking for funding for your startup, it’s important to know the different types of angel investors. Here are six types you should be familiar with: entrepreneurs, financiers, active members of the startup community, and angel groups or syndicates.
It’s also important to understand the difference between accredited and non-accredited investors.
The Six Types Of Angel Investors and What They Want to Hear
It is not difficult to find angel investors who are open to your vision and will trust you in making it a reality.
These are the six types and needs of angel investors:
James Church is the author Investmentable entrepreneur: How investors can convince you that your business is worth their support. He is also cofounder of Robot Mascot, a U.K.-based agency for pitching. Church is frustrated when founders fail to convince investors and struggle to raise capital. He works with them in creating a compelling, concise and credible business case to investors. He has also led mentorship sessions and mastermind sessions at Google Campus as well as many universities.
Church explains that the main reason why so many entrepreneurs fail to raise investment is simple. Understanding your angel investors is crucial to creating compelling business cases. He stated, “Almost all entrepreneurs must understand their audience.” They don’t need understanding of the audience to which their product is being sold, but the audience to who they are selling shares.
Knowing the seven investor archetypes can help you better understand them and help you sell your shares to them. These are the results Church’s experiences.
1. The non-technical investor
Although the investor may not be able fully to understand the technology behind a great idea, they will still have many opinions about the business model. Based on their business experience, investors will form their own opinions regarding the strength of your company. Technical prowess, however, will remain in the hands others.
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Church recommends that you keep things simple when you realize that you are speaking to a non-technical investor. Church suggests that you talk about your complex technical process in three to five steps. Innovation is supposed to simplify life. Investors may believe the contrary if you tell investors too much about your technology.
2. Investor who is eagle-eyed
Angel investors will review all aspects of each business venture, including financial projections, after a pitch has been accepted. They will likely meet with you multiple times and will execute heavily during due diligence. Transparency is the key.
Church recommended that you prepare well so that you can be confident that your financial plan as well as your business plan will be credible.
3. The follower
Follower investors will need other angel investors to commit to angel investing in your company. They may be unfamiliar with angel investing and will rely on the judgment of their peers. Church stated that even though they won’t be leading a round, they will follow an investor they trust. This can work in your favor.
Church states, “Once you have one (or more) angel investors on board circle back with the follower investor to determine if it’s possible for them to join the party.” After they find out who has signed, initial reluctance may turn into a willingness to sign. Church believes that these investors are worth developing a relationship.
4. The wise investor
Angel investors are very common. Church explained that angel investors don’t just want to provide venture capital. Angel investors want to share their expertise and knowledge with a team that inspires. They want to be part of your success on a deeper level, providing insightful advice and making introductions that will help you grow your company.
Before you decide to follow this path, consider whether additional expertise is required. Are you looking for connections or venture capital? Whom will you seek advice?
An investor with a lot experience and a small book of knowledge can be more valuable than the money that they invest. This is an important part of your investment strategy.
5. The equity grabber
Church explained that not all investors agree with the initial valuation. They might also request more ownership equity than originally proposed. “The ownership equity graber fits the bill.” They will always want more so you need to be able determine the value of your plan and stick to it.
Church recognizes the importance of negotiation. However, he recommended that you take your time before signing any deals with lower valuations. Do not rush to give up more ownership percentage than you intended. He stated that if your valuation is constantly being challenged, it is likely you are trying too hard to raise too much money for the stage of your business’ development. This is why it’s important to negotiate with such an investor.
6. The investor who was paid
An investor who has lost their investments doesn’t have the money to invest in your company. Church stated that it is possible for a lost investor to lose out on angel investments or invest more cash in a rising star in their portfolio. After a solid pitch, most angel investors have a network of angel investors.
It is vital that you know the types of angel investor. Although not all can invest immediately, some may be able to do so in the future. Church advised them to keep it sweet. Every interaction is part your personal brand and reputation.
You never know what the future may bring.