When I meet first-time entrepreneurs, almost every initial conversation eventually turns to “How and where do I look for angel investors”? This process is especially arduous for female founders. In 2018, Fortune magazine reported that only 2.2 percent of all venture capital funding in the U.S. went to companies founded solely by women, and another 10 percent went to companies with at least one female founder. So what do you do?
Approach # 1: Utilize Your Network.
The first approach is the one you already know, and that is obvious: go through your network. It’s the best option if you have it. Angel investors get inundated with cold emails and don’t open them. This is not a situation where the numbers game will eventually get you to the desired result. In fact, many investors firmly believe that if you can’t make an introduction happen, you can’t make a company happen.
Your course of action here is the following:
- Identify which investors fit your company’s objectives and which investing criteria you meet. This list is a great start to identify funds which invest specifically in female-led ventures.
- Explore Crunchbase or Fundery, the Essential Database for Women Entrepreneurs, to obtain information on their past investments.
- Secure business advisors for your company who can help you with strategy and connect you to possible investors.
- Use your network to get a warm introduction.
BUT what about all those people who DON’T have a network in the investing community, but DO have a brilliant idea and an MVP (minimum viable product) to go with it? Is there any hope for them to find capital, except the long route of going to events in your area focused on your sector, such as meet-ups, conferences, or other entrepreneurship-focused gatherings, where you can meet investors or advisors?
Luckily, the answer is “YES.” In this article, I discuss six other approaches you can use in this case to connect with angel investors.
Approach # 2: Apply to an Accelerator.
Accelerators are schools for entrepreneurs that help you either to develop your idea into a minimum viable product or to grow your business further in terms of validating your business model, getting traction, etc.
Very importantly, all accelerators end with a Demo Day where you have an opportunity to present your company in front of angel investors and raise capital. Even if you don’t end up closing on any financing then, you can still use the connections you made later, when you are ready for a funding round.
Check this database for a list of 400+ accelerators in the U.S. When you have to sift through the many accelerator programs offered, it is easy to get confused. With the criteria below, you’ll be empowered to decide which accelerator program is the best fit for your venture, Check out my 8 criteria before applying to an accelerator.
Criteria #1: Consider the program’s length and location.
When you join an accelerator, you are usually expected to attend the program on-site. So, if the accelerator is in California, Texas or New York, you would have to move there and stay there until the end of the program. Consequently, depending on the program’s duration, you may need to make significant changes to your life and to incur living expenses to participate.
Criteria #2: The program’s structure.
Not all accelerators are the same. Some have a marketing focus, some are more geared to product development, and some are just about providing access to funders. It is wise to choose the program that is the best fit for your venture.
Criteria #3: Check the program’s track record and years in existence.
Getting into such famous accelerators as Y Combinator or ERA Accelerator is not possible for everyone. Thus, out of the ones that accept your early-stage startup, you should focus on those with the best track record and most years in existence.
Criteria #4: Level of oversight.
Some accelerators are more hands-off, and some are more hands-on. You should choose an accelerator that matches the level of oversight you are most comfortable with.
Criteria #5: Sector focus.
Accelerators may have an industry focus which provides a more tailored experience for the participating startups.
Criteria #6: The access to and the quality of mentors.
You should find out what kind of mentors each program provides and how easily they are accessible. Ideally, mentors should be available on a weekly basis.
Criteria #7: Terms – $ Invested vs. % equity.
Unfortunately, accelerator terms are typically non-negotiable. Therefore, you should review carefully what you are signing up for to make sure it’s worth it.
Criteria #8: The number of companies funded after Demo Day.
This is one of the most important criteria because getting funding is the main goal of the program.
Approach # 3: Enter a Pitch Competition.
Pitch competitions are another great option for those entrepreneurs who don’t have many investor connections. Just like on a Demo day, you get to present your business, but this time to a panel of judges who are all early-stage investors. Furthermore, a winner usually gets a prize which is either cash, services, or both. Startupalooza is a very popular New York pitch competition.
That said, generally, you should use pitch competitions not so much as a way to raise or win money, but to practice your pitch, get feedback on your value proposition, and meet angel investors – not only those on the panel but other attendees as well.
Finally, there are organizations, such as The Hatchery, which host matchmaking events between investors and founders.
Approach # 4: Use Crowdfunding.
Crowdfunding has become a very popular way for founders to raise money. There are a number of crowdfunding platforms, such as SeedInvest or Gust, that give you easy access to large pools of accredited investors. However, you would have to pay a finder’s fee as a percentage of funds raised and sometimes give up additional equity if you choose to accept this form of financing. For example, SeedInvest charges 7.5% of funds raised and 5% of equity using the valuation of the financing round they are facilitating.
If you have a consumer product or tackle a social issue, you can run your own crowdfunding campaign using sites like Kickstarter and Indiegogo. Those sites don’t attract accredited angel investors, and you would typically offer products and other perks as compensation, rather than equity. These sites also keep a percentage of funds raised.
Approach # 5: Apply to an Angel Group.
After a review process and if selected, you will be given an opportunity to present directly to all their members at their Demo Day. Most angel groups meet monthly or bi-monthly. As the next step, a few selected companies would undergo a due diligence process, and 1-3 startups per investment cycle will get funded.
Approach # 6: Apply for a Grant.
Finally, there are many grants designed specifically for women entrepreneurs. These grants serve as a launchpad for you to make the necessary progress to qualify for a bigger subsequent investment.
The amount you can raise from such grants varies from a few hundred to tens of thousands of dollars. They also sometimes include additional perks such as workshops, networking, and the opportunity to pitch to industry influencers. Check out a list of top six business grants for women founders here.
Approach #7: Certify as a Woman-Owned Business for Government and Corporate Contracts.
This approach is relevant for companies which may look to secure government contracts or work with larger businesses with strong diversity programs. Many government (federal, state, local) or corporate entities have preferences or specific allocations to work with minority or women-owned businesses. It can be a way to boost your cash flow which can be repurposed for business growth or put your company in a more attractive funding position. If you are providing products or services to such organizations, you may be able to more easily secure contracts, and you also may face less market competition.
About The Author: Victoria Yampolsky is the President and Founder of The Startup Station, a comprehensive resource for modeling and valuing early-stage ventures. We help founders build successful financially feasible businesses and get funded faster. Sign up to The Startup Station’s mailing list at the bottom of our Homepage and get a coupon to redeem for a FREE COPY of the Business Model Analysis Roadmap.