Angel Investors Aren’t Billionaires as You Think
The Only Way to Become One is to Write the Check and Soak the Garri
In Africa, angel investment is still nascent and plagued with many misconceptions. One of them being, angel investors are rich. And it’s not hard to see why: the activity has largely been regarded as the preserve of the super-wealthy.
Angel investors are individuals who invest their personal money in some companies, mostly startups. Either former or current entrepreneurs, it is not uncommon for them to be successful businesspersons themselves.
But to think that angel investors are rich, have a pile of billions stocked in some box, is nothing but ridiculous. This is probably one of the reasons angel investing in Africa is so hard.
It’s true angel investing comes with a lot of risks (unlike VCs, they invest their own money), the kind that only rich people are better positioned to bear. But regardless, that doesn’t mean angel investors are members of an elite club. That angel investors are rich. Or that they run multi-billion or million-dollar empires.
When all is said and done, Africa still needs more angel investors. US-based companies–Epic Games, Juul Labs, and Uber–each attracted $1.2 billion or more than twice the amount of venture capital invested in Africa in 2017.
Angels soak garri too
The truth of the matter is, African angel investors are not born angels in the first place. What’s worse, they might not even be looking for investment opportunities.
Like the co-founder of Flutterwave and Andela, Iyinoluwa Aboyeji, puts it,
“they just find a way to do it in spite of their financial circumstances.”
Today, just about anyone can become an angel investor if they have the time, money, and experience.
While there’s no minimum amount of money required to become an angel, the amount should, however, be able to set a startup’s team on the right track for others to meet them in the middle as they build their idea to fruition.
If a startup is considering pitching an angel investor, it knows the kind of money it’s going to get if investments come through. On average, angels typically invest between $25,000 to $100,000, but could sometimes spend more or less. When angel investors pull their resources together for single funding, they might invest up to $750,000 or more.
The fact that the Tony Elumelu Foundation dishes out $5,000 to African entrepreneurs yearly doesn’t mean that’s all the money they’ll ever need to build their businesses from the ground up. It’s simply a foundation. Think of it more like a springboard to bigger deals in the future. That’s what angel investing does.
How to turn a human into an angel
At this point, it’s important to understand exactly what angel investors look for before throwing in their money into any business. Why is this important? Well, it’s clear that angel investing is a big risk in itself and no smart angel would want to flush their money down the drain.
Spending money is not easy. So if an entrepreneur must drag those dollar bills from their investor’s hand, they must be willing to play ball and give them what they want. Here are a few things they look for that if an entrepreneur provides, will win not just their hearts but also, their checks.
1. Have a business, not an idea
An idea is not enough. It takes a combination of an idea and a business to get that check out of an investor’s pocket into an entrepreneur’s hand. These people are humans before they are angels. They’re committing part of their financial portfolio into startups and in some cases, that might be the very last of their money.
As such, angel investors don’t invest in those big dreams. They want to see a business in that dream and if it’s not there, that check doesn’t leave their pockets.
At its bare minimum, a business would mean having things like: a business name, a specific idea, or a proven concept for the business, a demo, an elevator pitch, share capital.
2. A solid plan
Angel investors can be a very strict breed of people and that’s perfectly understandable. They want to see a clear plan of what an entrepreneur wants to do (especially with their money) and how they will bring it to reality.
They also understand that this plan will evolve over time but having a clear and specific idea of what an entrepreneur wants to do at this point and how they will make it happen, makes them a better candidate for angel investment. Any good plan, at least, should have a pitch deck, a program document, and a budget/revenue projections ready for review by potential angel investors.
3. Ask for help, not just the money
The best way to approach angel investing is not in terms of investment and returns. For many angel investors, it’s about believing in a person and their idea and then supporting them financially to succeed. Angel investors are usually more willing to invest in an entrepreneur’s idea that’s not just after the money.
People who ask help in the form of advice, connections, introductions, end up getting money on top of that. This is not to say entrepreneurs shouldn’t ask for money. The idea is to show investors they’re not all in for just the money but also, their invaluable input.
Most angel investors want to feel like they are part of something revolutionary, something big, bigger than the check. Asking them for their help, therefore, makes them more willing to invest in the business. Besides, which angel invests in a business they don’t share a vision in? So, if all an entrepreneur ever gets from an angel investor is money, they are getting such a horrible deal.
4. Never turn down an angel
Because this is the startup world, entrepreneurs should always leave their doors open to angels. Keep this in mind:
“If you knock an angel’s door, the door shall be opened. If you shut your door, the angel never knocks.”
True entrepreneurs are raising whenever someone wants to invest. Asking an investor to come back later is a sure-fire way of making sure they never come back. It is their money and sooner or later, the concerned entrepreneur will need it to keep their head above the water. That’s how entrepreneurs survive in this jungle.
If the terms are right, there’s no reason an entrepreneur shouldn’t take an angel’s money. Besides, no one ever gets a special award for helping a potential angel keep his money in his pocket.
5. Take tiny amounts from a broad swath of angels
When sourcing for investment, one good practice is to take smaller amounts of money from many angels who can give an entrepreneur some business advice. Having multiple perspectives in the room and a swath of people to get actionable advice from is a good thing for any business.
Besides, taking a large sum of money from just one person means they’ll have the power to dictate their terms. Worst case scenario, kick a naive entrepreneur out of their own business if they gave the investor too much power because of their money.
If you have the time, money, and experience, there’s no reason why anyone with some extra cash can’t become a successful angel investor. And NO, they must not have billions of dollars sitting somewhere. All it takes is the will to see an entrepreneur succeed in bringing their idea to life.
Angel investing can be such a rewarding activity for both the investor and the entrepreneur. But there’s no template, and it’s likely that there won’t be one any time soon. That means risk, but also opportunity.