What's under the halo: Advice on pitching angel investors
Advice from some old pros
The most substantial trend in local seed-stage investment may be the emergence of tech-industry vets who approach deals more like walking venture-capital firms than traditional angels. But those new-breed investors aren't the only game in town.
Traditional angel investors also are actively facilitating the growth of local startups. Often entrepreneurs themselves, these angels are interested in supporting businesses started by colleagues or getting behind promising new ideas in the industries where they spent their careers.
These investors can be great sources of funding and mentorship, but they require a different approach than their counterparts, the VC-savvy newcomers. Here's a look inside the mind of an old-school angel:
Get personal. When you give the "Who am I and why am I starting this business?" portion of your pitch to crusty institutional investors, chances are they're tuning you out and flipping through your handout materials looking for the revenue model. With an angel investor, all that gooey stuff matters.
"Expect the process to be very relationship-oriented," says Chris Arndt, founder of Red Granite LLC, a firm that helps high-net-worth individuals and families — in other words, prospective angels — manage their affairs. "The benefit of going this route is that if the angel likes your story and the soft side of what you're doing, a lot of times you can get better early terms than from a VC."
Still you must have your financial ducks in a row: With experience running a business, angels are likely to ask extremely detailed questions about revenue and expense projections.
Follow the leader. Angels are drawn to the industries where they spent their own careers. That's a good thing, because you can benefit from their advice and network.
"It's very valuable to have someone bringing something to the table" besides money, says Craig Bradley, co-founder of the Evanston-based angel-investment group Wildcat Angels.
The flip side, Mr. Arndt cautions, is setting clear expectations of the investors' involvement, otherwise an overeager angel could become meddlesome to the startup's leadership team.
Gradual returns. In addition, angels may value a familiar industry more than a less-familiar one that may have greater profit potential. Mr. Arndt's clients are investing in businesses in competitive, low-margin industries such as restaurants and manufacturing, and he says they adjust their investment-return expectations accordingly.
Traditional angels also look to get paid differently than their VC-style counterparts, particularly if the startup isn't in a high-growth sector.
"A lot of angels in non-hyperscalable industries are willing to put their money in, wait five years, and then collect dividend payments rather than looking for the big exit that is typical on the technology side," Mr. Arndt says. "High-net-worth single families usually already have large pools of capital; for them, cash flow is nice because they like to live off that income and grow the capital pool in the center."