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January 8, 2012

What is the Best Way to Introduce Yourself to an Angel Investor? Part I

Raising from angels has historically been much different than raising
from VCs. Angels have tended to be as inexperienced in early stage tech
investing as the entrepreneur who’s raising the money. In recent years,
there has been a resurgence of institutionalized angel groups that are
very experienced in VC fundraising or VC investing. That has made angel
fundraising pretty close in complexity to raising from a VC. So let’s
lay out what you need to prepare before you approach any kind of angel
investor.

First, you need to be raising for a venture that is worth investing in.
Sounds basic, I know. But having a worthy investment is more than you
having an exciting idea or an exciting product. In defining a venture
that’s investment worthy, you need to demonstrate three basic tenets:

  1. Inspiration: does your venture inspire people? Do you inspire them? Can you get the angel investor passionate about your venture by sucking up your own passion? Have you defined the aspirations of your venture, and can communicate them with clarity and vision?  Are you an inspiring leader?
  2. Economics: have you defined a plausible business model? Knowing that no business model is static at the startup phase, have you laid out how you would react to changing market dynamics? Have you defined the metrics that you will use to gauge progress against your desired aspirations?
  3. Investment Returns: When will you need more money and how do you plan to raise it? What contingencies will you have to make sure you never run out of money?
    How do you plan to protect your angel investors money and rights over
    time? What are the possible exit scenarios and how much money will the
    angels return?

Ultimately, at the startup phase, its all about inspiration. Angel
investors won’t give much credit to your views on economics or returns.
They still want to hear about them because they will use your
perspective to judge you and your team’s depth of understanding and
capabilities. At the startup phase, nothing is static. Things change all
the time, and at a rapid pace. Investors will want to see that you and
your team are well equipped and able to maneuver to optimize the desired
outcomes.

In the next post, I will talk about how to find and engage angels.

Firas Raouf is a Venture Partner with OpenView Venture Partners.  You may find this post, as well as additional content on OpenView's blog located here.  You can also follow Firas on Twitter (@fraouf) by clicking here