Who are angel investors? What do they do? Where can you find them? We explain the basics if you’re looking for someone to save your idea for starting a great business.
What are angel investors?
Angel investors are individuals or groups of people who are millionaires and who are willing to allocate funds to support profitable business ideas or startups. In exchange for this, they usually ask for a stake in the company or, failing that, a return on their investment.
The concept of angel investors began informally with the internet startup ‘boom’, more than 30 years ago, but– little by little– it has become institutionalized in more organized groups of people or even investment funds. In Mexico, they’re also a great option for entrepreneurs seeking resources to enhance their business ideas.
How can you identify angel investors?
Jorge López, President of Millas para el Retiro (Retirement Miles), a venture that helps people use pension funds to save for their retirement, spoke to Tec Review about angel investors.
He’s worn both hats: that of an entrepreneur who’s sought funds from angel investors and that of an angel investor who in turn has supported entrepreneurs with their ideas.
According to López, who’s also on the board of Ignia, an investment fund that supports entrepreneurs, angel investors differ from stock investors or financial institutions in three ways:
The investment process isn’t so institutional
In other words, they don’t focus so much on financial metrics, but rather on the quality of the idea and the entrepreneurs themselves.
An angel investor can give your business one or two million pesos, but they won’t give you 100 million like a major investor.
The level of involvement and control
An angel investor is someone who can give you specific tools for you to grow your business, but not all of them. For example, an institutional bank that helps you to trade on the stock market can give you tools with international projection that are much more sophisticated than those an angel investor can offer you.
How do you grab their attention?
As to how you obtain financing from angel investors, Jorge López explains that they’re generally attracted to products they consider viable in the market, even if they’re not yet making money.
“Angel investors are going to want to see something that’s ready. They don’t want to get into market research and development,” he said.
He adds that, “angel investors are groups of entrepreneurs or friends who put money into a company that already has sales; that has good leadership; that understands what it’s doing; whose numbers are more or less okay, but that needs money to scale up.”
In other words, they see the potential for growth. “They see somebody who weighs 80 kilos, and they give them money so that they can grow to 800 kilos, without dying of course. It might be a bit messy, but they look after how you can boost your growth,” he illustrates.
López mentions that angel investors usually ask for a stake in the company in exchange for financing a project. Another method is that it becomes a loan. If the agreed capital and interest can’t be repaid, that’s when they become a partner.
A bit of advice: be clear
López talks about his experience as an entrepreneur at Millas para el Retiro, an application that allows you to save voluntarily for your retirement in your pension fund account through purchases that you make with your debit or credit cards.
“For this project, I’m an entrepreneur. I’ve searched for angel investors to come on board and even companies whose loyalty programs can add to saving for people’s retirement,” says López.
He said that his most rewarding experience was taking part in the Shark Tank Mexico TV program on the Sony channel, where he presented his project to the investors participating in the program.
At this point, he gives some key advice: “When presenting your idea to an angel investor, you have to be clear. if your presentation is short and clear, it will be easier to convince them of your idea. I suggest watching the Shark Tank Mexico video. It takes five minutes to explain the very complex issue of pension funds and voluntary savings in retirement fund accounts. But the program won awards for the best presented idea. It was a positive experience.”
See more: How to use TikTok to boost your startup
How do you secure investment?
As a first piece of advice to entrepreneurs, Jorge López recommends going to, for example, Tec de Monterrey’s ecosystem of entrepreneurs, who are well organized and connected to guide people with their business ideas.
The second piece of advice is to go directly to the Venture Capital and Private Equity Association (AMEXCAP), since they include the type of investors who support business ideas.
He says that AMEXCAP has all kinds of investors, from the ‘fattest’ to the ‘skinniest’. So, it’s easy for them to bring entrepreneurs to angel investors, “because the funds are supplied by others who are responsible for finding them good companies, ideally the angels.”
The third tip is to search the internet and find several notable endeavors by angel investors that are worth checking out.
“It’s a matter of looking at their endeavors, of seeing their brands, If you manage to contact entrepreneurs, ask them what their experience was like with their venture and with the angel investor, and try to get ideas,” he recommends.