Over the past three months I’ve pitched my business to nearly 40 angels through various connections and angel networks. I have received three offers from angels which are all for the same amount of investment in return for an equal equity stake, but I haven’t been able to choose one yet. They all have some experience in my industry so how do I determine which one is the best fit for my business?
Zena Meyer writes:
First things first, you should pat yourself on the back. It takes a promising business with a good management team to impress even one business angel, so put the champagne on ice, and consider the following:
The most important thing to consider is your relationship with each business angel. When assessing your business the most important element from the investor’s perspective is the management team. This is not just about whether the investor believes the team will be successful, but it is also about the chemistry. You should apply the same criteria. Hopefully you will be working with your chosen investor for sometime to come, so the importance of a good working relationship cannot be underestimated.
You mentioned that the three angels all have experience in your industry, so the next thing is to drill down a bit further. What was their experience and how will it help your business? For example, let us say that you have created and launched a new soft drink, you have had a reasonable amount of success and are seeking investment in order to try to roll out amongst the big supermarkets. You are then faced with three potential investors, all who have worked for major soft drinks brands: one has worked on the creation of soft drinks, one who has worked on the distribution side and one who has worked as an HR director. In this scenario it is probably the one with distribution experience that would be most useful.
There is no getting away from it; we all have a weakness somewhere. Be honest with yourself about your weaknesses, and ask your potential investors to tell you their strengths and weaknesses. If you can identify the one with a complementary skill set, then they may be worth considering.
If you have got this far, you probably know what you want from your investor in terms of time/involvement. Establish the level of involvement each investor is seeking and look for a match. Do not be scared of too much involvement by your angel. Remember that whatever level of involvement an investor may want, they are investing in you as the management team; they will be there for you, not the other way round. It is for you to tell them how you would like to utilise their skills or contacts.
You will have discussed the growth and exit plans for your business with these investors. Think about which one will be most useful when it comes to turning these plans into a reality. Are you expecting to be looking for eight figure VC investment for your next stage of growth? If so, do any of these investors have a track record of attracting VC funding, or have relationships with VCs who may be interested in funding you further down the line? Perhaps you plan an IPO (Initial Public Offering), in which case, someone who has been there and done it will be a highly valuable asset.
What not to do
Many people in your position would think: “great, let’s get them to bid against each other”. Big mistake! This is not Dragons’ Den, these are most likely to be experienced business people who are keen to help you and your business, and expect to be treated in an open and professional way. If you try to instigate a bidding war, you will probably be left with no one around the table.
Think job interview
Raising funding can be compared to looking for a new job. Yes, you spend much of your time trying to impress your potential employer and convincing them why they should pick you. Don’t forget though that you are also interviewing them. This is no different to your current situation. No doubt you have impressed them, now you need to think who has impressed you. If you don’t know the answer to that, then you probably did not give them the opportunity to impress. So ask them all back in for an informal chat and let them sell themselves to you. Angel investors do not mind telling you about themselves, so it is definitely worth asking questions.
Hopefully the above will help you with your decision. Remember that regardless of skills and experience, if there is no chemistry between you and the angel, they are unlikely to be right for you and your business.
Good luck with whichever angel you choose!
Zena Meyer is business development director for Beer & Partners, business angel network