Serial entrepreneur and business angel, Jerry Horwood, talks about how entrepreneurs can attract angel investment.

Jerry Horwood is Chairman of the S100 Investment Club. The new national investment platform is the only angel investment club connected to the SETsquared Partnership, the world’s top university managed business incubator. Here Jerry talks about how entrepreneurs can attract angel investment.

At the age of 29 I became an entrepreneur. How hard could it be? Think of an idea, borrow some money, make lots, pay it back, invest in more ideas. Several decades later I look back at my experiences and it was neither as easy nor as fast as I ever imagined. What doesn't kill you makes you stronger. This article is not about how to come up with ideas that stand a chance of success. There’s plenty of that sort of advice on the net. This is about how to attract angel investment from the perspective of someone who’s been on both sides of the fence.

I became a professional business angel in my 50s (professional because I don't have time for much else I can call an occupation). Recently I was appointed the Chairman of The University of Surrey’s S100 Club and as a result I see a large number of pitches from ambitious entrepreneurs. The vast majority, perhaps 95%, don't attract my money. Why do I reject them and what persuades me to buy into others? What’s in the mind-set of a typical business angel that might help entrepreneurs achieve better chances of investment?

What many pitching entrepreneurs fail to understand is that they have two markets they need to exploit equally hard. There is, of course, the market for their products and services (as well as all the influencers they need to win over to attract those customers), but there's also the market of investors - another group of people who need targeting, marketing communications, lead acquisition, lead management, requirements qualification, objection countering, sales closing, and especially after-sales management. So entrepreneurs not only have to develop a clear sales strategy for their business output, they also need one to sell their shares to investors.

Entrepreneurs must consider the following when attracting investment:

What type of investors are you targeting?
How do you find them?
How do you attract their interest?
How do you develop their interest?
How do you close the sale?
How do you keep them interested (because you're probably going to have to ask them for more money before you run out)?

The key point to remember about potential investors is that THEY DON'T HAVE TO INVEST. So the entrepreneur needs to work a lot harder to sell shares - especially because angels are typically cynical, suspicious and cautious. We've seen it all before and we know entrepreneurs always predict faster and higher sales than they could possibly achieve. It's known as the 'hockey-stick' - the sales projection that shows virtually no sales today (fact) but magical exponential sales just around the corner (fantasy) - all achieved using your money of course.

Tip #1: Be realistic. We'd prefer to see achievable projections proving viability, not wildly optimistic targets proving naivety.

These are the top five things that attract me

1. Professional, passionate, tenacious, confident people who look smart, communicate well, listen well, and with whom I can see myself having an enjoyable personal and business relationship. They will need show me they have tenacity in selling me their shares as well as their products. Answer all my questions and then keep asking me if I'm still interested. Don’t assume if you don't hear from me that I've lost interest. I've probably lost momentum and become distracted. I need reminding - be persistent without becoming annoying. Read my signals carefully.

2. Comprehensive research - and convincing me, as someone from outside their sector, why I should believe it's comprehensive. Explanation of why not only is there a gap in the market but what's their evidence for a market in the gap. Otherwise it's called 'wishful thinking'.

3. Who else thinks you’re great, especially customers? 'Traction', as it's known, from the
market is hugely compelling.

4. Realistic sales projections (see Tip #1 above). Better to over-perform and impress, than under-perform and disappoint.

5. Practical sales channels. Too often I'm shown business plans where "5% of all of the millions of SMEs in the country" are going to buy their stuff. Selling to SMEs is the hardest thing in the world unless you've got an army of very tenacious sales reps on every high street... which they haven't, and I'm not going to pay for.

Some entrepreneurs are scared of wealthy angels. They're probably worried we might behave like the dreaded TV Dragons and not be polite or fully supportive. No one likes being told their idea is weak or totally bonkers - and a few of us will be blunt. Remember it's all business to us, not personal even though some criticism may seem unfair or even naïve. But if that’s our response to what you’ve communicated, you might want to reassess how you tell your story. You only get one chance to make a first impression.

Remember we don't only want a return on our money (a big return for such a high risk, at least 10x what we invest), we also want to help. ‘Angeling’ for me is about 'buying seats at the tables of the future.' Continuing to make a difference to the world, well after our 'careers' are no longer defined by others. We not only want to put some of our wealth back to work, but also our experience, our connections and our moral support. And we will only do that with people we like, and with people we believe will last the course and not give up.

It's never easy. If it was, everyone would be doing it and there'd be no need for angels.

July 2018