Dearest friend… Please bet on me

May 22, 2014 Mac Lackey

(Post Two re: Raising capital from Angel Investors)

As discussed in previous posts, the process of raising capital from angel investors is part art and part science. It isn’t easy, and it isn’t typically fast. If you have already developed your pitch (see: https://maclackey.com/will-work-for-money-5-must-haves/), it is time to test your thesis.

Testing Your Startup

The first and most important step for entrepreneurs to test their startup with angels is schedule meetings to present to friends and family (FF). Why go there first? Well, in theory these people know you, trust you, and are more likely to believe in you more than the average stranger. If friends and family say NO based on your business plan, strategy, or approach, you need to go back to Step One.

There is another important reason you go to FF. The next group of investors you speak to, likely sophisticated “angels”, will gain some comfort knowing that you personally as well as those people you care about the most (your FF) have already entrusted capital with you (ie. They aren’t the only ones with “risk” in your investment).

So, here’s the approach. Be professional. Even if this is family, schedule a meeting with an agenda. Take them through the full pitch including your qualifications (and, yes, I know they already know them… but be thorough). Explain your plans and why specifically you are asking them to invest. Be transparent and honest. You might make it clear you need to prove to other investors you have support from FF. You might suggest this early capital gets you started, or whatever the case may be. Be clear and honest about the risks, how you will use the capital, the downsides (will they potentially lose it all??), and what you see as the upside (if it works will they retire in St Maarten or make 10% on their money)…

After you have made your professional pitch, ask them for the investment (So, Dad, I would like you and Mom to consider investing $25,000 in my new Bakery). Then tell them you are happy to answer ANY questions or concerns they may have. Now, shut up and listen carefully.

Answer all the questions and see where it goes….

Learning from FF’s Response

If they say YES, you have “soft circled” your first money. (Soft Circled means you have a verbal commitment you can share with your other potential investors). Great job.

If they say NO, make sure you have a clear understanding of WHY, as it will hopefully help you evaluate how to proceed with others. Thank them very much, be professional, and leave knowing you now have new, important info.

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