Should I pitch my idea to Angel Investors?
We have an idea for a website. I am a software developer, but I don't want to spend all my time creating this site that won't sell or be marketable or popular whatsoever, and make us no money.
Would it be a smart thing to do to take my idea and present it to an angel investor for some capital and guidance?
Basically with this capital AND guidance, we would setup the LLC and pay for legal fees in doing so, market the product, and probably pay someone with a lot more technical talent than me to develop it. I'm hoping we would be able to still have control of the company in ownership % as well.
Why or why would I not do this? If so, how would I go about finding an Angel Investor and presenting him/her with my idea? Also, can I protect my idea by just having them sign something before our conversation?
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Very low chance of angel money if you don't have at least a prototype and how are you going to sell someone else on the idea if you are not even willing to spend your own time on it? I doubt an investor is going to "sign something before [your] conversation". You should go take a look at venture hacks or another website. – Tim J 14 years ago
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Very unlikely to get funded by an angel when you yourself don't believe in your own idea and are not willing to invest the time on it. – Ricardo 14 years ago
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I believe in the idea. The fact is, I don't want to take the $200k risk and have it not work. I don't have the kind of money to validate that. – Scott 14 years ago
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Investors are probably likely to steer away form people who are in the business solely for profit. They get to choose people who live, eat, breathe their companies and are single-minded about success. Your own skepticism is healthy for your financial welfare, but you'll be passed over in a blink of an eye – Tim J 14 years ago
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Good comments. Angels are not the first round of funding. You get Angel investing once you have at least a prototype or working product. They give you the cash you need once you are already proven viable to allow you to hire more people, buy more product and really kick the company into high gear. Fast growth. Anger Investors expect major returns, and will only invest with people who are willing to die to see their product succeed first. Their personal gain / profit second. You are looking more at seed funding which is usually from pocket, friends, family. – Ryan Doom 14 years ago
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@Tim - what do you mean by "Your own skepticism is healthy for your financial welfare, but you'll be passed over in a blink of an eye"? – Simpatico 13 years ago
5 Answers
Seriously, your pitch is: "this site will not make money. Plus it's too much work, so I don't feel like doing it".
And you expect to convince an angel investor to write you a check? Right now, you sound like you are in need of a quick lesson in how the real startup world works. I know it's a bit brutal, but check out how the pros do it and read all of http://venturehacks.com. That will give you the equivalent of a Ph.D in startup fundraising.
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But for venture hack, I can submit a pitch. How do I know they won't just take my idea and run with it without even getting back to me? – Scott 14 years ago
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He's saying (As did I) that you should read the articles and posts on the site to understand how taking investment money works. HIGHLY unlikely that anyone is going to "take" your idea and run with it. – Tim J 14 years ago
You may get lucky and get investment for just the idea but it is unlikely and if you do it will be expensive (i.e. higher % of equity for the cash).
At minimum you should start proving the idea before seeking investment. You do this to reduce the risk to the investor so stand a better chance and the investment will be cheaper for you.
There are a couple of ways to start down this route without building the product:
- You can start talking to potential customers about their problems to see if your product will solve them. Google Eric Reis and Lean Startups for the latest processes for doing this.
- You can build a simple sales site for your product, do keyword research then spend a few hundred dollars on ad words. See how many people click the buy now button on your site (then say it is comin
g soon and collect the email address). This will give you an idea of interest and the cost to acquire a customer.
I would suggest you do at least one of the above before approaching any investors.
The next stage (to get cheaper investment) would be to build a minimum viable product (see Eric Reis again) and get some customers.
Once you have customers (traction) you become a much better prospect to any investor.
Good luck with your product.
Why dont you pitch it here, and we will tell you if its a good idea? You might not need as much capital as you expect. Investors, angel or not, should be a last resort. They seldom bring anything to the table, and most web apps dont require much capital. With the right product you could continually reinvest your profits and avoid outside investors...
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Do you have experiences or stories to back up the claim that they "seldom bring anything to the table"? I have certainly heard of companies taking money ONLY for the other things - the money was left untouched. – Tim J 14 years ago
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Personal experience, on both sides of the game. About 9 years ago my former partner and I developed a project that needed more funding than we had. We spent about 9 months seeking investors, most of which were angels. The angels we met with were tech saavy, and had experience in web startups. What we learned quickly, with all of them, was that their primary interest was getting the company profitable enough for the next round of investment, VC. We continued without the Angel investment and sold the project about 2 years later. With an angel eating up 45% (thats the best offer we had), we – Frank 14 years ago
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would have been left with considerably less. Most of the angels we met with touted their experience in getting a company profitable, and bragged about their connections to VC firms. They stated how they could get our company to be attractive to VCs for the next round of investments, at which point they wanted to cash out the majority of their equity. None were interested in building a real brick and mortar business, just interested in getting on. I currently have a small group of friends that invest in startups. They look for smart developers with smart ideas with no buisness sense. – Frank 14 years ago
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They provide a little value, a lot of coaching, but all in the interest in getting the most from the companies they invest. A close friend of mine says he will invest in 10 - 15 companies, expecting 14 to fail and the last to cover his investment. I approach investing differently. I work with small companies that have good ideas but lack direction, experience and capital. I approach as a partnership from the get go, and prefer what little projects i take on to be with teams i can trust to work twice as hard as i do. I personally am not interested in the guys who want to be the next twitr – Frank 14 years ago
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but look for guys i can partner with that have a real vision and passion for solving a problem. I have a good track record with 7 successful companies, all profitable, all partnerships, all not in need of any capital. When capital needs arise, (they seldom do because we enforce high reinvestment of profits), I loan the companies money from my own personal savings as a loan, and dont use it as an opportunity to take a stake in a company as an angel or vc would. The bottom line is this, its not the idea that is valuable, or the money required to launch a product, what is valuable is passion – Frank 14 years ago
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commitment, and a desire to build something awesome. If you have that competitive nature, or can align yourself with partners, and co-workers that do, then the problems of coming up with good ideas (most ideas are just improvements), or raising capital properly are just small challenges. Most guys that have been doing this in tech realize that capital requirements are low. Angeles make sense if you are going to be drilling an oil well, or if you are going to create the next big miracle drug, but for web applications all you really need is determination, and a winning personality. – Frank 14 years ago
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Remember, for every facebook, yahoo, google, and twitter, there are 1000's of companies that go around chasing investment without first creating a real "profitable" business. My advice, get it 110% as far as you think you could ever take a business alone. Then when all else fails, attract capital in the form of Bonds or loans against future profits. There are plenty of investors that are happy enough with 7%- 12% returns on a loan to go around scouting for equity investors. – Frank 14 years ago
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The main thing is though, I need about a months product which, legal fees, marketing capital, etc. which is going to run me close to 50 grand. – Scott 14 years ago
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50k is a small enough amount where you could get is as a loan. The econonmy has become a lot tougher for loans, a few years ago you could get that as a home equity loan in a couple days. What precentage of your expenses are : Marketing, legal, operating, living expenses & salary, development costs. I think if you look at it by bucket its easier to find the money that way also. – Frank 14 years ago
I don't have any experience dealing with investors, but they aren't going to give you money if they don't get a stake in the business, and they are going to voice their opinions and throw around their weight, and want you to sell for a profit asap.
If your idea is something that you really care about and you really can't do it with some old fashioned hard work, then I would suggest fishing around for a normal loan.
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I don't mind offering an ownership stake. And to be honest I don't mind selling the business quick as long as the deal is good. – Scott 14 years ago
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I am not sure you can claim that they "throw around their weight" and sell for profit "asap". Certainly investors need to have equity and typically preferred voting rights and veto power on significant things like dilution, stock issuing, transfer of ownership, etc – Tim J 14 years ago
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When I care about a business, I work hard at it and don't want to use other people's money, because then they want to give their input. Scott is obviously in it for the money, not because he enjoys it. – Chris 14 years ago
Ideas are abundant.
Angel investors do not pay for ideas.
I would not recommend you pitch your ideas to Angel Investors
P.S. If you want to know what level of information and product completion is necessary to pitch to angels I highly recommend you subscribe to the podcast, This Week in Start-ups. There are a number of episodes where startups pitch their ideas on the show and you can use that for a comparison of what makes a good presentation and what makes a bad one.
Another great podcast for learning about angel investing is the Frank Peters Show.
Best of luck. Cheers.
