The dos and don'ts of pitching to angel investors

Seeking capital is a delicate process, so to ensure your funding success, angel investors offer tips on how you can navigate the common pitfalls.

  

In trying to get your business to a flying start, you may have exhausted your personal savings and looked to family and friends for funding. As your small business continues to grow, its financial needs also become more complicated. Your best bet to secure the capital needed to take your young venture to the next level may be angel investors.

But when looking to angel investors for funding, it’s important to do your homework so you can develop the right pitch. In order to do that, steer clear of the following mistakes:

Not having a clear vision about your business and target market

Gaurav Aidasani, a serial entrepreneur and chief executive of Dubai-based angel investor CosmosGroup, said a major turnoff to investors are entrepreneurs who have a hazy perspective about how they plan to operate their start-up, how to address competition, and what are the types of customers they wish to cater to.

“Entrepreneurs should never undermine how well-educated investors are about their business,” he said.

Not understanding the terms and conditions of investment

Whether you plan to approach traditional investors or professional venture investors, as an entrepreneur you must understand the type of investment structure and the terms of investment before agreeing to a funding deal, advises Dave McClure, founding partner at 500 Startups, a global early-stage venture fund and seed accelerator.

“A lot of times, investors may have non-standard structures or agreements,” he added.

Asking for too much money at the early stages

Hasan Haider, venture partner, Middle East at 500 Startups and CEO of Tenmou, Bahrain’s first business angels organisation, said this is a common mistake among entrepreneurs in the GCC region.

“Start-ups often try to raise money at the early stages, without any product or business idea. That’s not really a very good approach. We advise start-ups to take the money they need to get into the next level, [provided they meet their] KPIs.”

Not establishing a long-term relationship with an angel investor

“Most entrepreneurs start reaching out to investors the second they need the money in the bank,” said Tugce Ergul, executive director of Angel Labs.

“Even if you’re not yet eyeing a multi-million-dollar round, you have to start reaching out to investors you think could help you in the future.”

Not doing your homework on the investor

If an angel is involved in health start-ups in the US, it is highly unlikely that he would be keen on investing in a gaming start-up in the Middle East, explained Ergul. “It is imperative that you do your research on the investor and his portfolio to find out what kind of investments he is looking for,” she said.

Four tips for pitching to angel investors

  • Impress them with your milestones – Let your work do the pitching for you, said Ergul. “When it does come time to pitching to an investor, make sure you have done the research to support your financial forecasts. Know your story, know your numbers and know them well. If you don't know the answer, don't ever try to make something up. Just say: ‘I don't have an answer for this right now, but I will look into it and get back to you.’”
  • Keep it short and simple – Raising funds in the region is a challenge, so when approaching investors, you need to stand out by having a proven track record and a strong team, according to CosmosGroup’s Aidasani. And when it comes to the actual pitch, remember the KISS principle. “Review your pitch deck multiple times. Get industry experts to give you their candid feedback. Keep your pitch deck simple and with less content, but more graphics. Ideally it should be under 20 slides because on average, an investor spends less than three minutes reviewing decks.”
  • Structure your pitch by focusing on the area of interest of the angels – Angel investors in the GCC are cautious. In order to convince them, entrepreneurs must target their key areas of interest, said Haider. “A lot of angel investors might invest at even the idea stage of a start-up provided that the concepts are fully clear to them and something in which they are comfortable to invest. So, do your due diligence on the investor before you approach them.”

Have a product to show – Don’t just bank on your idea. Haider added that if you go to an investor with just an idea, you’d be under pressure to demonstrate a viable product to go with your concept. “What I would recommend most start-ups do is not to raise funding before they’ve actually had their products developed, and even have some users and revenues to go with the concept.”

© Zawya SME 2021