by Rachel MacDonald
So you’ve got a great idea for a startup and you’ve honed your elevator pitch to perfection. You may have even started reaching out to potential investors to get your new business off the ground.
The following six tips can help you negotiate successfully with angel investors, even if it’s your first time at this particular rodeo.
1. Understand the Nature of Angel Investment
Angel investing is particularly associated with Silicon Valley, but this practice is used all over the world. Angel investors are often already successful entrepreneurs, but they may be anyone with money to invest in a startup. In return for the funds that the investor provides, the angel gets a pre-specified share of the business, in effect owning a percentage of your company.
Most angel investors then sell this stake in the business in the future for a profit. However, if the business fails, they don’t get anything in return. Because of the high-risk nature of an angel investment, some investors prefer to take a highly hands on role within the company. They also will need to see proof of your startup’s growth prospects before beginning negotiation.
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2. Nurture Existing Leads
Treat relationships with potential investors as you would those with any other business leads. If there are any individuals who have shown interest in your company, follow up with them at least once a month to update them on your progress. This way, they’ll feel that they won’t be jumping into an unknown investment.
3. Track Results From Day One
Angel investors are interested in measurable results. To attract attention, keep track of all of your data from the get-go. No matter how small your business may be, spend time recording leads, profit, and website traffic. This provides proof of the progress you’ve made from day one.
4. Look Beyond Money When Evaluating Investor Value
Naturally, angel investment is attractive to entrepreneurs in need of startup cash. However, it also provides the opportunity for other benefits. Many investors are experienced entrepreneurs who have already learned valuable lessons through trial and error. If they have a financial stake in your company, they will most certainly wish to impart their wisdom to ensure its success. Look at the experience and networking potential of an investor as well as his or her net worth.
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5. Have a Two-Way Conversation
You will undoubtedly put a great deal of time into refining your pitch for investors, but don’t forget that you’ll be entering a business relationship that’s ideally mutually beneficial. Don’t be afraid to ask questions of the investor during your negotiations. Find out more information about the individual’s investment history, resources, industry experience, and expectations. Follow up with references from past beneficiaries and consider all points carefully.
An overbearing or shady investor can often be dealt with in the same way that you would deal with a difficult boss, but there’s more at stake in this case. It may be impossible to separate yourself from a difficult investor in the future, so take care to do your research before you enter into any contract.
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6. Follow Up
Don’t give up if a worthy investor has passed on your offer at this time. Continue updating your records and refining your pitch. It may be that you’ll find more interested parties in the future, or perhaps you’ll get a second chance with your pitch. Finding and negotiating with angel investors isn’t easy, but when done successfully, it can become a mutually beneficial, (and hopefully very lucrative) relationship for both sides.
Rachel MacDonald is a talented writer who specializes in career and educational subjects and currently writes for nowlearning.com.au.
bpsusf | Courtesy of Rachel MacDonald