This article aims to help founders raising funds to understand:
1. What business angels are,
2. How to find them,
3. How to pitch to them successfully.
As a former founder and current investor who has participated in raising funds from both sides of the table, it is clear to me that one of the biggest hurdles early companies face is getting initial traction with investors. For medtech startups with high development costs and long timelines to commercialisation this can be an especially daunting process. This guide will help you to understand what angels are, how to find them, and how to best pitch to them to set your company up for success.
A little about me: I am Emily Rose Jordan, PhD, the director of startup relations for Europe at VentureBlick, and founder of Halo Angel Group. I personally invest as an angel in early-stage companies, with a particular focus on impact-driven companies and diverse founding teams. For my day job, I also have the privilege of scouting and investing in medtech startups across Europe and beyond for VentureBlick.
What are angels and how can they help?
Angel investors are private individuals, and sometimes groups or networks of individuals, who are not professional venture capitalists (VCs), but directly invest their own capital. Typically, angels invest in businesses where they have a relevant background or expertise to give them an edge in identifying good opportunities, while also allowing them to strategically support the founders. This so-called “smart money” can be a great tool for founders as they build and scale their businesses, because beyond financial support they can access additional knowledge, networks, and perspectives.
Beyond having industry know-how and networks, angels tend to have higher risk appetites. They typically invest in the earlier rounds of fundraising, with smaller investment amounts, when companies have less traction. Due diligence may also be easier and faster with angels compared to institutional investors that may have a complex and lengthy process.
Similar to having great advisors, working with the right angels can bring credibility to your company. Fundraising at the right time, with the right angels, can help startups get from 0-1 and achieve first traction before institutional funders are approached. Often, angels can provide “warm intros” to VCs, so getting them on board can lay the groundwork for successful fundraising later. However, when choosing investors to work with, founders should always keep in mind that taking on investors also means giving away a percentage of the company and, consequently, some control.
How is an angel round different?
The financial structure of an angel deal will vary depending on your geography of incorporation and the specific legal requirements. However, many angel deals are set up as convertible notes or SAFE notes, as popularised by Y Combinator. There are several advantages to this compared to a direct equity investment: there is not a need for a “lead” investor, legal costs to complete the round are lower, and investors can invest at different points in time, allowing the startup to receive funds ASAP. The speed and simplicity of convertible notes is great for startups with short runways that need to move and scale fast. At the next (larger) round of fundraising, existing investors then convert their investment to equity at a discount.
Angels can also invest in startups in exchange for equity right away, but this is slightly more complex and expensive to structure. When institutional funders like VCs are involved in the deal, angels can co-invest and lean on VCs to lead the legal and finance processes.
When there are many angels participating in a funding round, or a group of angels working together, it is also common to “bundle” them. There are various vehicles to do so, including setting up a special purpose vehicle (SPV), which is what we typically do at VentureBlick. This keeps the company’s cap table clean and simple, which later investors will appreciate. It also makes decision making smoother and faster as the startup does not have to communicate separately with individual angels.
How do you find angels?
Hopefully, your interest is now piqued, and you want to start pitching to angels for your pre-seed or seed stage fundraise. But where do you start?
VCs are relatively easy to find but they can be very hard to close as a first time fundraiser. Angels are typically easier to engage with once you’ve made the initial connection, but finding the right ones can be like looking for a needle in a haystack.
You can get started by looking into your personal network. Attending pitch events and trainings, applying for grants and accelerators, and joining networking get-togethers can help to extend this network. “Warm” introductions to investors are valuable, so if you know someone who can introduce you personally to an angel (or even VC) you may have better chances of success, especially compared to a cold email. The more you participate in the ecosystem, the stronger your network will be, so make sure you are supporting others as well. As the saying goes, you reap what you sow.
There are also many established networks of angels you can tap into, including some focused in medtech or specific geographies. VentureBlick, for example, operates a group of more than 1,500 advisors, many of whom are actively investing in early-stage medtech companies around the world.
We work with our advisors to provide value beyond mere capital to startups, for example, Dr. Derrick Khor, one of our advisors, also collaborated with me on drafting this article with useful content for founders. Organisations like UKBAA (United Kingdom Business Angel Association) or BAND (Business Angels Deutschland) operate in a specific country and allow investors who are members to access deals with startups that submit their pitch decks to the organisations.
There are also great organisations supporting underrepresented founders, such as the Evangelistas, that only invest in teams with at least one female founder. Make sure you are systematically mapping out the angel groups that may be a good fit for you, then submit your pitch materials to them, and try to get relevant introductions in these organisations via your network.
Desk research can still be helpful, as well. There are many public lists of angels published by outlets like Sifted , Wellfound Ltd, and industry-specific publications. You can also search through the advisory networks for startup organisations in your space, or do a keyword search on LinkedIn for people who identify as angel investors. Another tip is to create a list of companies you admire and then research which investors participated in their recent funding rounds using tools like Crunchbase or PitchBook.
My biggest piece of advice to those starting out with fundraising is that using a CRM (customer relationship management) system is extremely important, even if it’s just a free, simple solution like a spreadsheet. If you track all your investor contacts and notes from each touch point with them, you will be able to approach fundraising in a much more prepared and professional way.
There is nothing worse than having a quarterly check-in with a warm investor but not being able to remember the questions they asked you the last time so you can highlight your progress to them.
How do you pitch to angels?
If you have found or are approached by some interesting and relevant angels, it can be daunting to take the first few pitch meetings. The rule of thumb is that the average founder will have to take 100 or more meetings before closing an investment round.
The first thing to know is that every meeting is a pitch. Even if you casually chat to an investor at a networking event or a friend’s barbeque, assume that there is no such thing as a casual conversation and always try to put your best pitch forward!
Having said that, it can be useful to reach out to angels for an informal informational discussion about your company as a first contact. This is a great chance for customer or expert validation, even if the investor is ultimately not interested. You should have your tailored questions prepared for the angel ahead of time, along with a strong pitch deck and, ideally, a product demo ready to go.
Each angel investor or group will have their own particular investment thesis and you should research this before approaching them or setting up a meeting.
At VentureBlick, for example, we are especially interested in early-stage medtech startups, particularly those building diagnostics and AI/digital health products. We look for companies that could benefit from engaging with our advisory network to validate their solution with physician users, or for strategic support, like figuring out their clinical data strategy.
Angels are engaged in a risky game – putting their own money into very early-stage companies. Help make their decision easy by de-risking yourself as much as possible. Your pitch deck should be standard and professional, with a deep dive deck ready to send with more information based on the questions you are frequently receiving. Having your data room (shared storage space containing due diligence materials for investors to access while they evaluate your company) ready before you start pitching can also speed things up and make you look much more professional if you do have a great meeting and the investor wants to proceed quickly to due diligence.
First impressions do matter, and investors want to see founders taking meetings with them seriously, not dialing in from a train or a park bench or wearing their dirty gym clothes (I have actually seen all of these things happen!). Angel investors likely have full time jobs and many other commitments. They are investing their free time in you, so do not waste it! Set yourself up for success with your attire, agenda, materials, environment, tech tools/internet connection, and location.
Personally, I look for professionalism, clear passion and full-time commitment from the founders I choose to bet on. It is also much easier to decide to invest if the business model and use of funds are crystal clear and well-explained. Other signals contribute as well, like if the startup has been previously vetted or gone through due diligence with an accelerator, other investors I know, etc. These things all make my job easier and a “yes” more likely.
If you are a medtech founder looking for funding, medical validation, and more, you can find out about VentureBlick at www.ventureblick.com.
Disclaimer
This article was written by Emily Rose Jordan, PhD , the founder of Halo Angel Group and the Startup Relations Director at VentureBlick Europe. While Emily is familiar with angel investing, the content presented here is her personal opinion and is not meant to be taken as financial advice. If you are thinking about diving into investments, and you are not already an Accredited Investor, it is a smart move to chat with a qualified financial professional first.