As an entrepreneur who wishes to develop his or her business, you must regularly find external investors to help you finance your activities and expand. Angel investors come in handy whenever you need a capital injection during the tentative stages of your business. How you negotiate with an angel investor goes a long way in determining whether you will receive funding or not. Here are some top tips for negotiating with a potential angel investor.
Identify Your Investor’s Involvement Requirements
After securing a meeting with a potential investor, make sure you identify that investor’s objectives in funding your startup. Your presentation should include aspects pertaining to the involvement and position you wish your investor to take. Highlight how you want the investor involved once they fund you. If the investor does not show an interest in being involved (passive investment), make sure to emphasize that his or her involvement, although welcome, is not a prerequisite for the success of the company.
Size Up the Investor
Before you approach an investor, ensure that you understand his or her capital limits. Try to learn your investor’s portfolio, interests, financial background, and risk-taking history. The negotiation process should also give you the opportunity to understand whether a prospective angel investor has the ability to provide the funds you need. The offer you make to an angel investor needs to be equal to his or her financial capabilities. A high ask can discourage further negotiation, while a low ask may deter the investor’s interest. Knowing your investor’s funding limits will help you score a good investment deal and maximize the investment size.
Build the Investor’s Trust
Securing funding from angel investors involves building their trust in you. You need to show your reliability, competence, and sincerity to an investor. Be consistent in your presentation and with your co-founders. Otherwise investors will lose trust in you and lose track of your message.
Understand Your Investor’s Interest
You should also explain how your company will blend into the investor’s portfolio. Before asking for funding, ascertain if your business idea is likely to interest a potential angel investor. If you run a tech startup, for instance, it’s advisable to reach out to investors who have funded similar startups in the past. Investors tend to invest in areas they understand and feel comfortable with.
Select the Negotiation Team Carefully
The negotiation team you select to meet potential angel investors greatly determines whether or not you will get funded. Choose members who have been part of similar presentations and discussions in the past. After the first few meetings, you should also identify team members who have seamless chemistry with the investors. Keeping these members in the lead during discussions will help you get the funding you need.