Angel Investing: A Nonprofit's Guide To Success

Angel investors are wealthy individuals who provide funding for startup businesses, usually in exchange for equity. They are often past entrepreneurs themselves, and are motivated by a desire for innovation and a willingness to take risks. While angel investors have traditionally focused on for-profit businesses, societal changes and the rise of ethical investment have led to a growing number of angel investors turning their attention to non-profits. This shift has been driven by concepts such as venture philanthropy and impact investment, which seek to create financial returns while also contributing to the welfare of others. For non-profits looking to attract angel investors, it is essential to have a solid, well-planned, and innovative business plan that demonstrates a commitment to sustainability and measurable impact.

How to attract angel investors to your non-profit

Attracting angel investors to your non-profit requires a solid, well-planned, and impactful business plan. Here are some steps to help you attract angel investors:

Understand Angel Investors:

Firstly, it's important to understand who angel investors are and what motivates them to invest. Angel investors are typically wealthy individuals who provide funding, knowledge, and networks to early-stage start-up businesses. They are often experienced and successful in their careers, looking to invest in innovative ideas and mentor young entrepreneurs. They usually seek a higher rate of return than traditional investments and are willing to take on the risk associated with start-ups.

Develop an Innovative Solution:

Investors are attracted to innovative solutions that address long-standing challenges and social problems. They are less interested in short-term, service-based interventions. Ensure your idea is revolutionary and has the potential to change societal patterns and attitudes.

Demonstrate Sustainability:

Angel investors want to know that the impact of their investment will be long-lasting. Include financial and programmatic sustainability measures in your business plan. Explain how you will continue operating and creating positive change if your funding sources disappear.

Measure and Communicate Impact:

Develop clear objectives, outcomes, and assumptions for your non-profit. Create key performance indicators (KPIs) to measure and communicate the impact of your work to potential investors. A robust monitoring and evaluation system will help track your progress and achievements.

Showcase Passion and Commitment:

Angel investors are attracted to passionate and dedicated leaders. Demonstrate your connection to the social cause and your boldness in implementing strategies for social change. They want to see your entrepreneurial qualities and your commitment to transparency, accountability, and responsibility.

Build a Strong Team:

Investors will look for a capable team with diverse skill sets. Ensure you have people in place for key organizational roles, such as business, technology, finance, and public outreach.

Have a Clear Marketing and Fundraising Plan:

Develop a comprehensive marketing and fundraising strategy. Investors will want to see a solid plan for generating revenue and creating goodwill. Include milestones and metrics to track your progress and make necessary adjustments.

Network and Pitch:

Angel investors often invest locally or in causes they feel connected to. Build a network within your area and connect with potential investors who share your interests. Perfect your pitch and be prepared to present a clear, transparent, and compelling business plan.

Remember, attracting angel investors requires a well-thought-out strategy, a dedicated team, and a compelling vision. Be prepared to showcase your innovation, sustainability, and impact measurement practices.

Understanding the intentions of angel investors

Financial Returns

Angel investors are often driven by the expectation of significant financial returns and profits. They invest their own money and seek ventures with promising profit potential. While they may be more patient than venture capitalists, they eventually want an exit strategy to pocket their profits, typically through a public offering or acquisition. It's important to note that angel investors usually expect a high return on their investment (ROI), which can be around 30%.

Social Impact and Giving Back

Some angel investors are motivated by a desire to give back to the community and make a positive impact on society. This intention aligns with the concept of venture philanthropy, which involves taking on risky and imaginative approaches to fund unpopular social causes. Angel investors who embrace this concept may be more inclined to support non-profit ventures that contribute to societal welfare and create a better world.

Innovation and Disruption

Angel investors are often attracted to innovative and disruptive ideas or technologies that have the potential to change the status quo in an industry or create entirely new markets. They seek ventures with a unique value proposition that can secure a competitive edge and attract investors interested in game-changing opportunities.

Market Potential

Market potential, or market size, is another critical factor for angel investors. They look for startups that not only address a specific problem but do so in a market expansive enough to promise scalable growth. Market research, customer testimonials, and pilot projects can provide concrete data to validate a startup's market potential and attract investor interest.

Leadership and Team Evaluation

Angel investors carefully evaluate the leadership team of a startup. They scrutinize the skills, experience, and dedication of the management team, assessing their ability to execute the business plan, adapt to market shifts, and scale the venture. Investors also consider the leadership's complementary skill sets, alignment with the startup's vision, and long-term commitment.

Long-term Relationships and Collaboration

Building strong, transparent, and collaborative relationships with angel investors is essential. These investors often seek to contribute more than just capital; they want to add value through their network, experience, and business acumen. Regular updates, open dialogue, and transparency about financial health and strategic shifts are key to fostering trust and long-term partnerships with angel investors.

In summary, understanding the intentions of angel investors involves recognizing their diverse motivations, which may include financial gains, social impact, innovation, and long-term collaborative relationships. By aligning your non-profit venture with their interests and demonstrating a solid and innovative plan, you can increase your chances of attracting angel investment opportunities.

How to pitch your non-profit to angel investors

Angel investors are wealthy individuals who invest their own capital into startups during the early stages of development, receiving an ownership stake in return. They are usually experienced entrepreneurs themselves, and they may have expertise in the industry they are investing in.

Angel investors are often looking for a higher rate of return than more traditional investments can offer. They seek out startups with intriguing ideas and invest their own money to help develop them further.

If you are looking to pitch your non-profit to an angel investor, here are some steps to consider:

Have a clear plan:

Be able to succinctly explain how you will bring your plan to life, including logistics, challenges, budgeting, and timelines for completion. Have a clear understanding of the problem you are trying to solve, and present innovative solutions.

Build a team:

It is important to have people in place for key organizational roles, such as business, technology, finance, and public outreach. If your startup is highly technical, consider having a board of advisors to help identify and mitigate risks.

Show dedication and boldness:

Angel investors look for passionate leaders dedicated to the social causes they aim to address. They want to see bold leaders who are willing to go the extra mile to make an impact.

Demonstrate sustainability:

Include financial and programmatic sustainability measures in your business plan. Explain how you plan to continue working towards your goals if your funding sources disappear. Show that the impact you create will last beyond the initial investment.

Provide a way to measure impact:

Develop a clear framework with objectives, outcomes, and assumptions, along with key performance indicators (KPIs) to help investors understand how the impact of their investment will be measured and witnessed.

Know your investors:

Angel investors often invest locally, in ideas they feel connected to. Learn about the investors in your area, their profiles, and the social causes they are interested in. This will help you tailor your pitch to their interests and show that you share similar intentions.

Remember, attracting angel investment opportunities requires a lot of work. Make sure your business plan is solid and transparent, and be prepared to answer questions about what compromises you are willing to make regarding control and ownership of your organization.

The difference between angel investors and venture capitalists

While angel investors and venture capitalists are both popular means of funding new businesses, there are significant differences between the two.

Angel investors are wealthy individuals who invest their own money in a startup venture. They are often successful business people who want to back promising new businesses. Angel investors typically invest smaller amounts, usually below $1 million, and more often in the $25,000-$100,000 range. They assume greater risk and do less due diligence, but don't exert as much control over the business. They put more faith in the founder and founding team. Angel investors are ideal for strong founding teams that need help getting their business off the ground.

Venture capitalists, on the other hand, are business professionals who invest money into startups on behalf of a risk capital company. They pool funds from third parties, including other investment companies, large corporations, and pensions, and so have considerably more to invest (an average of $7 million). Because of this, venture capitalists will also require a bigger stake in the company, often owning about half by the time they exit. They will also have a say in how the business is run and will expect growth targets to be met. Venture capitalists are ideal for growing businesses that have already proven their business model and are looking for more significant investments to achieve ambitious growth goals.

Angel investors and venture capitalists also differ in their level of involvement. Angel investors rarely want to be directly involved in running the business, but they frequently have industry experience or contacts to offer. Venture capitalists, on the other hand, expect to have a high level of involvement and will often demand a seat on the board of directors.

The length of investment also varies. Angel investors are commonly invested for a period of two to five years, whereas venture capitalists typically stay invested for at least 10 years.

When it comes to due diligence, angel investors are not bound to do any as they are investing their own money. However, it has been shown that when they do at least 20 hours of due diligence, they are five times more likely to see a positive return. Venture capitalists, on the other hand, have a fiduciary responsibility to their investors and so need to do more due diligence.

In terms of seeking investment for non-profits, angel investors and venture capitalists used to shy away from these types of businesses. However, over the last 20 years, attitudes have been changing, and there are now some options available for non-profit organisations seeking investment. Entrepreneurs can approach venture philanthropists or seek out capital groups engaged in impact investing.

The pros and cons of angel investors

Angel investors are wealthy private investors who provide financial support to small business ventures in exchange for equity. They usually invest their own money and may be more patient with entrepreneurs than venture capitalists, offering smaller amounts of money over a longer period.

The Pros of Angel Investors

• Angel investors are willing to take risks and are comfortable with the level of risk involved in investing in small businesses.
• Angel investors do not need to be paid back if the business fails. They receive an ownership stake in the company in exchange for their investment.
• Angel investors bring years of expertise to the table and can help guide and mentor entrepreneurs, increasing the odds of success.
• Angel investors can provide access to new ideas and innovations, often in emerging markets and industries.
• Angel investors have the potential to realise significant returns on their investments if the business succeeds.

The Cons of Angel Investors

• Angel investors usually want 10% to 50% of the company in exchange for funding, which means business owners could lose control of their business.
• Angel investors usually have high expectations and want to see a payoff. It is not unusual for them to expect a high rate of return on their investment within the first 5-7 years.
• Angel investors will want to take an active part in decision-making and will hold the business accountable for its decisions.

While angel investors can provide valuable funding and mentorship to small businesses, it is important for entrepreneurs to carefully consider the potential risks and trade-offs before accepting their investment.

Frequently asked questions