VC 101: Finding the Best Angel Investors for Startups

Running a startup involves a great idea, a strong business model, a dedicated team, and, most importantly, capital. But how do you secure funding for your startup?

While many sources of funding for businesses are available, angel investors are a popular choice for startups looking for early-stage financing. New ventures backed by angel investors are more likely to survive and have a greater chance of successfully exiting the early-seed phase than those without this support. 

In fact, startups with angel backing are at least 14% more likely to survive for 18 months or more.  They also have a 10 to 17% higher chance of successfully exiting from the startup phase.

The challenge, however, is finding the right angel investors for startups. 

In this article, we'll walk you through who angel investors are, how to get angel investors for a startup, what to look for, and how to approach them so that you have the funding your business needs to thrive.

Who Are Angel Investors?

Angel investors are high-net-worth individuals, former/current entrepreneurs, or successful executives who fund startups in exchange for ownership or stock in that company. While they operate individually, in a few cases, they may come together to form a syndicate when making investments. 

Angels usually invest in the business at an early stage, referred to as the "seed stage." During this time, the company is in the process of developing its products or services and may not yet possess a proven record of revenue or customers. It might also be unqualified for other investing sources, typically venture capital, which is private financing from firms. 

Angel investors provide startups with a financial boost to launch their products or services into the market. 

Benefits of Angel Investors for Startups 

Interestingly, angel investments offer startups more than just financial support. It comes with a lot of other positives:

• Most angel investors used to be entrepreneurs themselves and have many contacts. They can give good advice and help new business owners meet more people to grow their businesses.
• Angel investors are easier to work with than banks or other money sources. You don't have to give the money back right away.
• If your business does well, you and the investor both benefit. If it doesn't, they often don't make you pay everything back. Sometimes, you might not have to pay back at all.

When an angel investor supports a new company, they make it look good and worthy of trust. They show other businesses this. They show that they believe in your company. This attracts more investors and money. It especially draws big investment firms.

How to Find Angel Investors for Startups

Once you decide to move ahead with an angel investor, the next step is to start looking for them. 

The first place you should focus on is your personal network. Chances are someone within your immediate network may be willing to invest in your business. You could find someone to introduce you to potential investors. So, reach out to your family members, former colleagues, friends, or mentors.

If you aren't already connected to a network of wealthy people or have lost touch with your contacts, don't lose hope. There are several places to find angel investors for a startup.

Here, we've listed five great places to look for startup angel investors.  

1. Utilize Online Angel Investing Platforms 

The best way to find angel investors for startup businesses cost-effectively is to look at online websites that connect startups with angel investors. Most of these platforms are free of cost or come with a free version. Notably, they offer access to a pool of investors actively seeking investment opportunities. 

After creating a profile, you can share your business proposal and connect with potential investors worldwide. Some of the online websites you can start with are:

• Angel Capital Association: One of the largest professional development organizations for angels in the world, ACA hosts over 15,000-member accredited angel investors and 250 angel groups. 
• Angel Investment Network: Access over 300,00 angel investors with this network. It allows you to create and publish your pitch, after which interested investors can reach out to you. 
• Investor Hunt: If you're wondering how to find investors for your mobile app, Investor Hunt is a comprehensive database of angel investors and venture capitalists. Filter investors by your requirements to find and contact relevant angels quickly. 
• Crunchbase: It is a great platform to look for angel investors for tech startups. The platform hosts a robust database of top angel investors that you can customize to identify your ideal investors. Only active angel investors are listed here. 

2. Attend Networking Events and Conferences  

To find angel investors for your business, talk to local business groups, startup hubs, and commerce chambers.

These places often have events like expos, startup meets, and forums. These events are great for meeting investors and others who love startups.

Some also offer services to match you with investors and mentors who want to help local startups.

For example, TechCrunch often sets up events for startup owners to meet investors.

Try to engage in conversations and establish a relationship even if you cannot secure funding during these sessions. It's possible that you may not find the right investors, but someone who can recommend you to a potential one. 

3. Take Help from Social Media Platforms 

Social media provides several platforms to find angel investors for a startup. It encourages introductions before a formal pitching. Startup founders can use social selling to build credibility and rapport before expecting investors to commit time to a pitch.  

Here are a few specific ways to use social media platforms to find angel investors for a startup:

Build Social Proof

One of the major factors in obtaining funding is to demonstrate proof. Social media is a cost-effective way for startups to build a presence and nurture a community. It's the perfect place for them to grow visibility around their idea and attract potential investors. 

Founders who lead with value-sharing knowledge vs. self-promotion stand out in front of potential angel investors. 

Get on Their Radar

While you're organically building a presence using social media marketing strategies, take time to look for potential angel investors. Even the busiest investors will have a profile on social media. If you cannot get on their feed the first time, you can explore their network by finding out who can introduce you to them on LinkedIn or who they are following on X (previously Twitter).

Use the Right Platform

Not all social channels provide access to target investors. You need to see where your potential investors are present, what content they consume, and how they interact. 

Two of the most notable platforms to start with are LinkedIn and X, which are teaming with angel investors. Use hashtags, strategic keywords, and advanced search options to pinpoint investors on these channels.

4. Participate in Pitch Competitions 

Participating in pitch competitions is another great way to refine your pitches and present yourself to potential angel investors. 

Even if you don't take the funds home, the feedback from the judges improves your business pitch, which can help you secure funding from angel investors from other places. If you do win, it provides valuable exposure and credibility, making you more attractive to investors in the future. 

Now, when it comes to looking for pitch competitions, you have various avenues to explore. Start with local development organizations, which host free pitch competitions that you can find by searching on Google. You can also contact your local economic development agency, local incubators, or the Small Business Administration. 

Eventbrite and Meetup are also great places to find local pitch competitions. 

Apart from local competitions, national and international institutions organize pitch competitions that require little or less money. These include The Capital Network and the Startup Grind.

5. Engage with Startup Accelerators 

Startup accelerators are dedicated programs that foster the rapid growth of startups. They are mentor-based programs that provide support and guidance to a startup for a certain period, typically three months. 

The program will expose you to a wide range of experienced entrepreneurs and advisors. They will help you create your product, refine your business model, and — most importantly — connect with angel investors.

Statistics have shown that startups succeed and increase value with the accelerator program. For instance, the Global Accelerator Learning Initiative study found that the three-year survival rate for startups undergoing accelerator programs was 87% compared to 77% for those who did not. 

Another study conducted by the SARP (Seed Accelerator Rankings Project) found that startups that went through the programs had an average valuation of $4.5 million compared to $1.7 million for others. 

However, when you plan to apply to the best startup accelerators, you are expected to have an idea – a prototype or the whole product. You're also to present your ideas to investors and other parties, including the press, on demo day organized by them.

How to Find the Right Angel Investor for Your Startup: 3 Important Factors to Consider

Even if you tracked down some potential angel investors and made connections, chances are they may not be the right fit for your startup. Considering your needs and goals, you need to move forward with investors who are the ideal choice for your business. 

Here are some key factors to consider when choosing the best angel investors for startups.

1. Assessing Industry Experience and Expertise 

You must seek investors with experience and expertise in your industry or related field. For instance, if you're a software startup, connecting with angel investors for tech startups would be ideal rather than healthcare investors. 

Not only will they be more interested in investing, but they will also possess a deep understanding of the dynamics and challenges of your specific market. With that, they will be able to extend help beyond financial investment. With their industry expertise, you will obtain valuable business insights and guidance on navigating certain challenges. 

What's more, they will have connections to boost your business. These angel investors will easily be able to help you connect with potential customers, partners, and other investors. 

2. Check Track Record and Past Investments 

The next factor is to look for angel investors for startups with a proven track record of investing in startups and driving them forward. You can even look for accredited investors if need be. 

However, your main priority should be checking startup angel investors' previous investments by exploring several online review sites and platforms. Consider cross-referencing multiple places to acquire a well-rounded view of the investor's reputation. 

Also, seek feedback from entrepreneurs who have previously worked with the investors you're considering to connect with. This information will also shed light on the investors' working style, level of support, and knowledge to help make an informed choice.  

3. Evaluate Credibility and Financial Stability 

Checking the financial standing of angel investors for startup businesses is another essential step to finding the right one. The best angels are high-net-worth individuals eager to provide knowledge and capital for successful initiatives in their industries. 

Conversely, angels who feel they can't afford to lose money will steer your startup toward rash business decisions. These might result in quick returns for them, but it might come with long-term consequences for you. 

You want an investor who accepts the risks and rewards of investing in an unproven startup and is willing to stay invested for a long time. They don't make harsh decisions and have realistic expectations from the startup. 

How to Approach the Right Angel Investor for Your Startup

Once you have identified the right investors for your business, you may wonder, "How do I approach an angel investor?" 

During this phase, you must be patient, determined, and open to feedback. Additionally, you must respect the angel's time and present relevant information while highlighting your passion for starting the business. 

Here are a few steps to follow for approaching angel investors for startups:

1. Create a Strong Business Plan

With a solid business plan, you can highlight how your startup has the potential to achieve long-term success. It should offer a clear and comprehensive overview of your business idea, products or services, market analysis, financial projections, and growth strategy. 

2. Determine Funding Needs

Next, you must determine what you actually want to do with the funding. Consider how much money you need to achieve your goals and create a realistic financial disbursement plan. Startup angel investors want to see your plans for their money.

3. Develop the Pitch 

A clear and attractive pitch is the key to securing funding from angel investors for startups. So, create a concise yet engaging pitch and demonstrate an understanding of the problem your business aims to solve. It should effectively discuss your business plan and the potential for growth for angel investors.

4. Share the Pitch

If any potential angel shows interest in your business, book a meeting with them. Do your research and be prepared to answer any questions regarding your pitch. Also, you must be open and ready to receive feedback. 

5. Negotiate the Terms

From the start, try to be as open and transparent as possible with startup angel investors. Be clear with what you're providing and what you expect in return. When negotiating the terms, keeping the long-term goals in mind is vital. This means considering things like liquidation preferences (who is paid what amount when the company is liquidated) and vesting schedules (equity percentage for employees).

6. Close the Deal

Once you reach an agreement, close the deal, but have your lawyer review the paperwork before signing. Ensure that you and the investor understand the terms of investments so there are no risks down the road. This will ensure that both of you start on the right foot to support your startup's growth journey.

Final Thoughts 

Finding angel investors for startups is demanding, especially for new founders without prior experience. 

However, it is vital to take time and be patient while picking angel investors’ startups or individuals to make sure you have the right support that pushes you forward and not back. With the right processes and tips, you can learn how to get angel investors for startups, enhancing your chances of attracting the right ones for your company. 

Remember that angels offer more than just financial aid. By nurturing a strong relationship with potential angel investors for startups, you can tap into more resources, access a wider business network, and take your business to the next level.