There is no right or wrong time to approach an Angel Investor as long as you are successful in attracting investment. This is the right attitude of an entrepreneur who is serious about attracting external funding.
But, there will specific times in your business cycle that will have the highest chance of raising angel investment and recognising this as an entrepreneur will place you in a very advantageous position.
So at what stage in a business venture will you have the maximum chances of attracting angel investment?
When is the ideal time to start approaching investors?
The best time to approach an angel investor for the purposes of raising external funding is when you can clearly demonstrate that an angel investment in you will help grow your organisation. Sounds easy enough, BUT, angel investing due to its informal nature can usually take up to 6-12 months from some investors and it is crucial that an entrepreneur meet private investors approximately 12 months before their business actually NEEDS the angel investment to get it at the next level.
Clarifying this point further, let us assume that you are investor-ready now and can demonstrate that a much needed investment will help grow your business. You have demonstrated how the money you raise will be invested and have also clearly demonstrated the return on investment that an investor can expect to receive. You have a good gut feeling so it may be fair to assume that you will attract the money after just a couple of meetings with a few angel investors. Sadly, this will most likely not happen as receiving money from an angel investor is generally very informal and is not like buying property where a buyer negotiates, exchanges with solicitors and then completes the process within 60 days.
Hence, the most successful entrepreneurs that have attracted angel investment will have started approaching investors approximately 6 – 12 months before they actually needed the money to hit their company account.
The benefits of being prepared
Having conversations with Angel Investors earlier than when you actually need the investment will also offer you necessary pointers as to what an investor will want to see in your business before choosing to invest in you, which will then give you the crucial time to adapt the business to the investor’s requirements.
The best Angel Investors and mentors will pop in and out of your business career, offer you help and guidance, pointers in the right direction, be a voice on the end of a phone and gauge how well you are doing and the progress you are making – all in the hope of one day investing in you.
The conversations with an Angel Investor will usually start off with you presenting a business plan but the business may not be entirely investor-ready. Instead, the investor may recommend certain changes before he/she moves forward with you. Ironically, even if the investor then chooses not to invest in your business – the chances are that the recommendations would have made your business stronger and more attractive to investment.
The real knowledge, experience, guidance and investment into your business will be through the conversations that you will have with angel investors at the early stages of your business development.
If during these initial meetings you show potential to these investors, they will stick with you until the day comes when you need capital for expansion. The relationships you forged earlier on with investors will mean that the capital would be available to you and only a phone call away.
How can you prepare your business?
If you are serious about growing your business, it is good practice for entrepreneurs to write a full business plan, even if you are a small sole trader and not really seeking investment. Most likely you will not get time to write the business plan after you start-up, and having a business plan ready will clearly demonstrate that you have been thorough. So the key is that the more conversations you have with private investors earlier on, the more they will be able to assist you when you need them. These conversations with private investors will also clearly indicate at what stage your business will be investment ready for them in the future.
As an example, some entrepreneurs trade as sole traders under their personal name, yet seek to raise investment when they have not even formed a LLP or a LTD company. So an investor may have a meeting with an entrepreneur and conclude that (example) X asset must be assigned to Y company before opening ‘Z LTD company’.
This is not a rejection for investment but an invite to discuss the funding requirement further when your house is in order. So it is important to know timing wise when to start approaching and talking to Angel Investors. Forming a company structure that can accommodate an investment in a business’s early days is also wise practice.