Angel investors often say that they’re investing in a person as much as their idea.
Angel investors often say that they’re investing in a person as much as their idea. But what does this mean, and can subtle changes make entrepreneurs more attractive?
You don’t have to watch too many episodes of Dragons’ Den before you see Deborah Meaden smile at a shaky hopeful and say, “I like you.” The subtext often seems to be that she sees more in the pitcher than their business proposal – thus offering a glimmer of hope to would-be entrepreneurs everywhere. Could it be that a person is worth investing in even when their idea lacks lustre.
The answer, sadly, is probably not. While angel investors tend to agree that it’s belief in the person who is pitching that will ultimately win them over, a bad idea will struggle to find backers no matter how dazzling the entrepreneur.
In fact, great entrepreneurs and hopeless ideas seldom feature in the same sentence. Michael Queen, president of the Surrey 100 Club, one of the South East’s leading angel investment networks, explains why: “If someone is a really skilled business person or entrepreneur they can usually see the different components that are required to make a business work and be investable. You don’t tend to get that combination too often.”
It’s also worth pointing out that when people are described as ‘investable’ it’s not their dapper wardrobe or state-of-the-art presentation software that’s winning over the angels. “How people dress and all the rest of it, I couldn’t give a monkey’s,” says Fiona Cruickshank, co-founder of Gabriel Investors. “What I’m looking for is pretty boring: people with good ideas who just want to get on with it.”
Unusual levels of resilience
Michael Queen has had “literally thousands” of hopefuls standing before him looking for investment over the past 35 years. What he’s after is a credible person (or better still, a team of people) with a strong idea and lots of tenacity. “Running a small business is incredibly stressful and demanding and it requires people to commit to a ridiculous extent,” he says. “So angels are looking for someone with almost unusual levels of resilience – as well as a realistic idea of what’s going to be involved.”
The kind of entrepreneur you definitely don’t want to be is one who fails to grasp the big picture. Queen says that those in the “very new inventor-type category” are among the worst offenders. “They have one amazing engineering idea and are obsessed with the sheer brilliance of it,” he says, “but they can’t understand that people who are investing want to know who they are going to sell it to, how it compares to the competition and why people are going to buy it.”
While polished salespeople often fare better, Queen cautions that an angel will recognise when he/she is being sold to and will know how to go beyond the patter. Nevertheless, he admits that it’s always easy to sit and listen to someone who has good interpersonal skills – something that a novice entrepreneur can work on.
“Angels are looking for someone with unusual levels of resilience and a realistic idea of what’s going to be involved”
Michael Queen, president, Surrey 100 Club
A word that angels often use to describe someone who is investable is ‘authentic’ – and what may be surprising is that this usually means it’s OK to own up to your shortcomings. Cruickshank, for one, is turned off by people saying: “I can do everything”, when she strongly suspects that they can’t. “If they are 110%, full on, ‘This is brilliant, I’m brilliant’, that’s not going to cut it,” she says. “That’s not real life.”
Rashid Ajami, who raised £4.1m of development capital for his student community platform Campus Society, agrees: “Securing investment is definitely not about proving you’re too good to be true,” he says. “If you had the complete package right now you likely wouldn’t need any investment. Paint a real picture of where you are and where you want to go and talk about what’s possible with the right investment in place.”
Long and challenging road
Sean Mallon was already a successful businessman when he hit the road in search of £1m in funding for a new venture named Bizdaq – an online marketplace for buying and selling businesses – in 2013. Instead of angels falling at his feet, the path was a long and challenging one. “It took over 12 months,” he says. “Getting investment isn’t pretty and it definitely toughened me. You go in thinking everyone’s going to be nice and cuddly but it can be brutal.”
Most criticisms of Mallon’s idea came with a silver lining. The angels’ comments drove him to make changes to his pitch that would ultimately make him investable. “By the end, the articulation of my plan was more refined and I became much clearer in how I was going to achieve my goal,” he says.
In fact, he adds, the original backer who ultimately invested in Bizdaq often tells Mallon that he was more sold on him as an entrepreneur than he was his business idea – proof, if more were needed, that it is faith in the individual that usually seals the deal. Says Mallon: “He tells me he believed enough in my vision that I would do it.”
Four ways to get angels onside:
Share your passion: “Yes, you need a great product, interesting idea and a practical business model,” says Rashid Ajami, “but the passion to deliver something you believe in is paramount.”
Don’t be afraid to think big: “One thing I see often is that businesses don’t raise enough money,” says Michael Queen. “It gets used up quite quickly and they spend the rest of their life raising subsequent rounds of capital.” He says there will certainly still be investors in the room when you’re asking for £500,000 as opposed to £150,000.
Practise your pitch: “And really understand your key data, too,” says Fiona Cruickshank. “When people don’t know the numbers it feels like you haven’t got the whole package.”
Know your limitations: “It’s OK to say that you know most of the answers but that you want someone on board who can help you find some of the solutions,” says Sean Mallon. “For most angel investors, the idea of being able to add value beyond cash is quite exciting.”