How to catch an Angel and make your idea fly
If you’ve got a brilliant idea but are struggling to get it off the ground, finding an Angel investor may just give it the boost you need.
Here’s some tips for getting your business investment ready from Greg Riebe, founding member and past chair of the Perth Angels (formerly Western Australian Angel Investors).
Bank loans need to be secured against something of tangible value, Riebe explains. So first-time entrepreneurs can find it hard to get anything other than a small loan — unless they stump up their house.
Angel investors, on the other hand, are prepared to invest significant amounts in the potential value of your business. But they are not just going to throw cash at you. You must present a relatively detailed investment plan, Riebe says.
“You need to be able to clearly articulate how much you need, where you’re going to apply the money and what you expect to achieve from that.”
An ‘exit strategy’ outlining when Angels will be able to extract their investment and returns is also essential. Angels typically look for returns of at least 10 times their investment in about five years.
How does it work?
You submit an online application, with successful entrepreneurs invited to pitch their ideas in front of about 40 Angels. You will have about 10 minutes with a five-minute Q&A.
Would you invest in yourself?
“People starting out in business have to realise that they’re actually the first investor,” Riebe says. “So what level of detail would you want to protect your money. If you can’t convince yourself to put your own money in, how can you expect to convince other people to put theirs in?”
What do Angels look for?
- Products rather than services: “A product can be scaled and grow at a much greater rate, probably internationally,” Riebe says. “Service-based businesses tend to be self-limiting because they tend to be based on the amount of human hours you can put in.”
- Solutions for the masses: Great products solve problems. But great investment products solve problems for masses of people. Your target market needs to be $100 million-plus, with a realistic strategy to capture about 20 per cent of that market.
- Familiarity: Angels invest in what they know. It’s called smart money because Angels offer both financial and intellectual capital. Their experience and connections can help grow your business faster. So, it makes sense your product and their business knowledge need to align.
- Post research and development: If you need money for R&D — apply elsewhere. Angel investors are interested in businesses at prototype stage. You need to be able to demonstrate your product works and has market appeal.
What rings alarm bells?
Sometimes it will just come down to personalities, Riebe says. Come across as too difficult to work with and Angels may give your project a swerve no matter how interesting your product. If you make outlandish projections — “I’m going to be worth $100 million next year” — you will not win trust. Confidence is an asset. Delusion is not.
Using the ‘U’ word is a red flag. “If you come in and say, ‘This is unique. There’s no one else in the world that has this.’ Well, that’s highly unlikely,” Riebe says.
Passion is vital, but so is pragmatism. The most important lesson? “People should learn to fail quickly,” Reibe says.
People can be so passionate about their idea, they find it hard to accept it’s unfeasible. If every indicator is telling you it will not work, and you can’t come up with a different method, it’s time to move on.
“That’s not failure, it’s called a feedback loop,” Riebe says.