It's no secret that 90% of startups fail within the first year. One of the most significant reasons startups fail is that they are unable to secure funding at any stage in their development. Funding is essential to helping give tech startups the money they need to get their business venture off the ground. There are a lot of ways entrepreneurs and tech startups can secure funding through VC funds, small business loans, friends and family, and growing in popularity is the funding from angel investors.
Searching for angel investors is only half the battle. When you find an angel investor ready to sink funds into a tech startup, you only have one shot at making a good impression. Your elevator pitch should describe your startup in 30 seconds in a way that captivates and compels them to learn more.
Once you nail the initial meeting and land the opportunity to pitch to your angel investors of choice, you'll want to carefully avoid common mistakes tech startups make when pitching to investors. Read on to learn more about angel investors, what to avoid, and how to increase your odds of success in landing the funding your tech startup needs.
What is an Angel Investor?
Before you begin to set meetings with angel investors, it's essential to understand what they are and how they can help your tech startup. Angel investors are private investors that have a high net worth and are looking to invest in startups or back entrepreneurs on their next business venture. Angel investors partner with startups in exchange for profit sharing or, more commonly, ownership equity in the company.
The type of funding angel investors provide is usually a one-time investment to help the startup get the crucial funds they need to hire employees, rent business space and equipment, and produce its products or services. The investment helps carry a startup in the beginning stages of the life of a company without requiring entrepreneurs to pay them back.
The only tradeoff for the funding is that the startup and angel investor will have to establish an exit strategy where the angel investor makes their money back by selling shares, or the company has enough profit to pay plus a certain percentage of the company's equity.
10 Common Mistakes Tech Startups Make
If you've got a great idea and you're ready to launch your startup, it's time to begin the challenging process of attempting to secure funding through angel investors. Too often, entrepreneurs realize their mistakes too late after already making a pitch which can prevent them from raising funds. Understanding these top 10 common mistakes can help you adjust your strategies and create a pitch that will compel angel investors to invest in your tech startup.
1. Failure to Know the Competition
– Understanding the competition in any business is crucial in making business decisions that can propel your business ahead in your industry. When pitching to angel investors, you want to highlight your product or service but also touch on how it stands out from the competition and what makes it better. Whether you tell the investors you have no competition or fail to highlight them in your presentation, you'll seem unprepared and unrealistic in your expectations. The investors you meet with likely already have a good idea of what the competition looks like, so being prepared will show that you've done due diligence.
2. Showing Unrealistic Expectations
– When you're pitching to investors, you want to be realistic in your projections about the future of your business. Angel investors are looking for rapid and realistic growth in a business that can potentially maximize their returns during their exit strategy. Avoid making assumptions in your projections that are difficult to justify. Be able to back up your projections with calculations and figures to ensure you are realistic and show that your business provides an exciting opportunity for growth.
3. Sending Out Your Business Plan Unsolicited
– Although many investors may dig into their emails to look over cold outreach, a good majority will not even open your email. Thousands of startups reach out to investors daily and rarely have time to read them all. Try to reach out to angel investors instead through networks where they can be contacted more effectively. Or look into LinkedIn and find connections that may be able to refer your startup to them. Referrals through connections and networks are more likely to get investors to schedule a meeting and listen to your pitch.
4. Not Researching Angel Investors Before Pitching
– You always want to be sure to do thorough research on the angel investor you are pitching to before you pitch. Not only do you want to understand what they look for in a startup, but you want to be sure your industry is aligned with the investor's background and objectives. You don't want to pitch a tech startup to an investor whose background is in retail clothing. The more you know about angel investors, the more you better understand what they look for in startups. You can adjust and personalize your pitch deck to match the angel investors' ideal startup investment to better your chances of success in securing funding.
5. Having Too Many Slides in Your Pitch Deck
– While pitch decks are there to give investors information about your company, you don't want to overload your deck with too many slides. After all, you only get a limited amount of time to review the information with your investors. You want to avoid having to rush over each slide and not having enough time to answer any questions. Investors can always ask for more information later on if they are interested.
6. Leading with Valuation
– Receiving financing from angel investors requires you to establish a valuation to determine how much your startup is worth. Too many entrepreneurs lead with valuation instead of waiting until after the pitch. Pitching your tech startup first allows you to explain why it is worth investing in and justify your valuation before presenting it to your investors. After your pitch, you can better discuss your valuations with investors at a secondary meeting.
7. Not Highlight You and Your Teams Background
– Many angel investors understand the importance of getting to know the team behind the tech startup in addition to the business idea. Investors want to back a startup with a bright team with a good track record of achievements and skill sets. In your initial meeting, you want to start by introducing the team and the key members, their experience, and their ability to execute the business plan. Beyond introductions, you'll want to highlight your plans to scale your team as the company grows.
8. Unable to Answer Tough Questions
– Your investors are going to ask some tough questions you may not have considered or included in your presentation. If you tell them you'll get back to them with an answer, it could be the breaking point and may leave a poor impression. If you are prepared with a solid and confident answer, you are more likely to impress your angel investors and show them you're able to think quickly and on your feet.
9. Not Including Your Marketing Strategy
– Next to investing, your marketing strategy is key to getting your tech startup in front of your target audience. You want to articulate clearly your plan for marketing your business to build a solid customer base. Detail the platforms you'll use and techniques and how you will utilize social media in your marketing. How will you measure your marketing strategies and adjust if they fail?
10. Neglecting to Send a Follow-Up
– Many startups miss this crucial step after meeting with angel investors. Before leaving a meeting, ensure you understand the next steps. After the meeting, sending a follow-up email to thank them is a great way to show you value their time and appreciate them listening regardless of the outcome. If they choose not to invest, a genuine thank you email can help potentially build the bridge to funding later on in the stages of your tech startup. Be aware that investors may take a few days to review the information and presentation material to get back to you so be patient.
These common mistakes tech startups make aren't going to scare investors away necessarily. Understanding and preparing through practice can help you learn to perfect your pitch by learning what works and what doesn't. Adapt your pitch by learning from your mistakes and avoiding these common ones, and you'll be able to secure funding with your ideal angel investor easily.