Looking to raise? Why angel investment and tech startups can be a match made in heaven
There’s no such thing as a typical angel investor. Which is good news, because there’s no such thing as a typical tech startup, either.
But some of the characteristics of tech startups make them particularly suited to angel investment as they struggle to prove their concept and reach their market.
If you are wondering if an angel is right for you, the first question to ask is … which angel?
With personality, situation and a host of other factors playing a huge part in driving an investors approach classifying angels is a tricky task. It’s worth developing some form of taxonomy however, even if it fails to completely capture the true chameleon-nature of this most versatile group of investors.
The super angel
If it seems hard to understand why someone would invest in a high-risk venture at its earliest, unproven stage, then it is unfathomable as to why someone should turn this into an obsession. Enter flying in from stage left, the super angel.
- The benefit of this angel is the feeder system to venture financing they offer. You’ll also enjoy a vast network of other CEOs to connect with.
- The drawback here, though, is the lack of real ‘value add’ that you may experience. Typically, most angels are genuinely fascinated by you and your business: they want to be there to share both their passion and experience. But, for the super angel, you are just one among many: and the next investment is always just around the corner.
The tech domain angel
After a career in tech, these investors know their stuff. They instantly get the opportunity you offer, where others just stare slightly blankly as you deliver that elevator pitch.
- The benefit here is you gain an industry-insider who helps validate your concept, offering proof before the pudding, alongside a highly-relevant network of connections.
- The drawback can be a sense of personal space. The tech domain angel knows the space so well they may not be happy leaving you to operate freely in it.
The BFF angel
Friends and family sometimes cross the line between bootstrapping and angels: it’s a continuum not a sharp divide.
- The obvious benefits are ease, availability and willingness to invest.
- The obvious drawbacks are the lack of any other benefits!
A host of angels
The reasons for angels to group themselves together are as varied as the types of angels themselves.
- On the plus side, you gain access from one pitch to many investors – and even the possibility for VC-scale funding.
- On the down side, you lose that personal passion and can suffer the same ‘finger-in-many pies’ syndrome as the super angel.
The peer angel
On the face of it peer-to-peer investment seems to be the perfect match for tech startups.
- Fellow entrepreneurs are likely to be among the first to make that leap of faith (and quicker than most to put their money where their heart is).
- But, unless they struck lucky with a previous investment, they are unlikely to have enough cash to really float your boat. And, as a small investor and a peer, they may not offer the kick-ass constructive criticism that you need to carry a concept to its optimum scale.
The road to Damascus angel
The true believer is what we usually think of when we imagine an angel, yet they are actually quite thin on the ground. The road to Damascus is not a well-trodden path and that hallelujah moment may never strike for you.
- Singing from the rooftops can invite a choir of other investors, and the sheer belief and enthusiasm of the convert may counter other investor’s more sceptical appraisals of your efforts.
- But cheerleaders tend to carry on singing even when defeat is on the cards: a critical eye is sometimes worth more than a hundred cheerleader routines.
The portfolio angel
This rare type of angel is quietly and determinedly building up a diverse portfolio of early stage startup investments. Unlike the super angel, who just can’t seem to stop themselves, this angel operates more as an accountant than an enthusiast. They are adopting a portfolio allocation model with ROI coldly at its heart.
- You may feel a little warmth thanks to the fact that other financially-savvy syndicate investors will be watching their moves.
- But, there’s often nothing but a draught of cold air once the cash has been banked.
The dinner party dabbler angel
For these mega-wealthy individuals, often not from the tech startup world, investing in early-stage startups is a hobby (or something to break the ice with at a cocktail party). Conversational returns – rather than financial ones – are the order of their day.
- You gain a high-profile, well-connected investor.
- You don’t necessarily gain their attention.
Whether angel investment and your tech startup are a match made in heaven really depends on your stage and your needs.
And as with any investment decision, there are a plethora of alternatives to this seemingly ideal approach…
Alternative to angels #1: bootstrapping
If you can get things going without external capital then you gain a huge amount of autonomy by retaining control over your business.
You are less constrained when it comes to decision making and your focus can remain solely on your goals.
And yet, you can feel the pinch when you bootstrap, both financially and emotionally. The ever-increasing workload can place undue stress on you that may lead to poor – or haphazard – decisions.
You may also lack the necessary funds to consolidate any traction you make in your market, risking being outpaced by a better funded, faster moving competitor.
Alternative to angels #2: crowdfunding
Most tech products or services lack the large consumer base that crowdfunding usually demands .
Yet it can be done. Oculus VR, one of the pioneers of wearable virtual reality hardware, literally Kickstarted its growth and was eventually acquired by Facebook for $2bn.
Crowdfunding is very much an art in itself and the campaigns need running with all the marketing know-how of an Omnicom exec – there is a healthy ecosystem of companies that exist solely to design and manage crowdfunding campaigns
Alternative to angels #3: VCs
If it’s a large investment you need then venture capitalists can usually stump up more than an angel. However, they are also much more risk-averse and likely to need something much more substantial than a well-honed pitch and well-presented projections.
Winning their funding is tough enough at later stages, but at an early stage it is unlikely (but not impossible).
Angels and tech startups: a match made in heaven?
Because angels invest their own money, they tend to have a greater emotional investment in the business than VCs. Most will also offer you advice and guidance as well as a cash injection.
Consider calling on a host of angels if you need to scale or simply need more investment. You may find these tailored to a specific type of business and more flexible than VC investors.
Angel investors can offer a great path to securing funding that matches with your goals – and the goals of your startup – which can be invaluable. After all, the aim here is not to raise money at any costs, but to raise money in a way that allows you to run a sustainable and profitable business in the way that you are comfortable with.