Two Entrepreneurs share the secret to finding Angel investors. “Go straight for the heart.”
The most common question I get from readers is about how to find angel investors. If it seems like they are hard to find – or hard to convince – it could be you are looking in the wrong places. Ready to learn where the easy targets are?
Listen to this story. Chris Wasden, CEO of hearing diagnostics device company Tympany Inc., is no stranger to raising money. Before co-founding Tympany he was an investment banker at JP Morgan. You’d think he’d know where to find easy money.
You’d be wrong. As a startup, Lawson gave over 90 investor presentations in his hometown of Houston. But his pitch fell on deaf ears until he focused on pitching to people who knew his industry best – ear doctors and their patients. “The majority of our investors have been touched by hearing loss in one way or another,” Chris told me. “We found that most other investors just really didn’t understand our business.”
In fact, by focusing on hearing clinics and their patients, Chris raised over $3 million from about 60 angel investors. Two of those investors put up $500,000 each after trying out the product for themselves. One guy struggled with diminished hearing. The other – a partner at a VC fund – was not even aware that his hearing was bad until he took the company’s test!
Angels prefer to invest in those industries that they know well and are passionate about. If you go after people with relevant life experience – instead of those who simply invest by the numbers – you’ll have a much better luck.
That means golf companies should raise money from golfers. Energy companies look to retired oil company executives. Dot-com companies look to the younger crowd who are heavy ‘net users.
I call these “Affinity Investors” – they invest because they have an affinity with your company’s product, industry, service or customers.
It’s not a complicated idea … but you’d be surprised how many people ignore this simple advice.
Turn the Tables
Need another example? Mark Miskie – a friend here in Charlotte – started Arcus Medical in 2003 to commercialize a device that helps incontinent men manage their condition.
Although incontinence is not uncommon, Miskie found that most VC and Angel investment group did not understand the true potential of his new product. “Everyone loved the idea; but no one would invest,” he tells me.
So Mark took a different approach. “With my limited time and resources, I had to ask myself, ‘who should I target?’” he says. “Finding urologists to invest was the one thing that could most increase my chances of making it in the market.”
Urologists not only understood the product but were eager to invest in something that could improve the quality of life of their patients.
From one presentation at a urology clinic, Miskie found ten angel investors who put up enough seed capital to get the product prototyped and to complete some initial market testing.
It didn’t take long before the word spread among the other urologists. Arcus’s second round of funding was over-sold. “Within 48 hours of opening our second round, all the equity was earmarked. I made the pitch in the middle of an evening meeting. There were a couple of people who walked up to me and handed me a slip of paper – with dollar figures written on it. They were even calling me on the drive home.”
More than Money
There’s another huge advantage to this simple strategy.
You can get cash from any investor… But affinity investors bring deep industry knowledge that makes your company more credible to customers. Mark says his investors “Bring connections and credibility. Every time I got a check from an urologist it was an endorsement fort the product.”
Chris Wasden adds, “Plus it’s interesting to see their perspective as potential customers.”
An Angle for every Angel
No matter what industry you are in, it’s simply a matter of identifying the non-financial rewards for investors. The lesson for entrepreneurs is clear: angels invest for many reasons, and finding a compelling motive – whether financial or not – can be key to an angel’s heart…and his checkbook.
For more on this topic, check out other related articles on all aspects of fundraising and Angel Investing.
Dedicated to your profits,