Interested in finding an angel investment?

An expert’s advice on applying for angel investment: do your homework, make sure you can answer the crucial questions, be very honest.

Who is your customer? How do you stand out from others in the same field? How do you know your market? – These questions were repeated with some variation, when the jury examined the companies that participated in Pirkanmaan Kasvupolku pitch event. One of the judges in the event, FiBAN Area Angel in Tampere Ossi Numminen, is an angel investor and consultant. For the first steps when seeking funding, here is his advice.

– First, do your homework and look into your business: in what stage is your company at the moment and thus, what kind of investment you should be seeking. Otherwise it might go wrong from the very beginning, says Numminen

When the investment options provided by the entrepreneurs themselves, family and friends are sorted, a business angel is often the next step. Project Director Tapio Siik of Business Tampere considers the potential angel investors in Finland to be rather easily accessible through the angel investor networks (FiBAN, Business Angels Finland). Also, news about promising new companies seeking investors tend to travel fast. For a startup, finding angel funding may be crucial.

– The funding instruments of Business Finland are reasonably good, but if a startup can combine them with their own money and angel investment, it can strengthen its funding. And the startup will also get mentoring for better business development, Siik says.

A pitch event, either open or investors only, is often the first contact between an entrepreneur and a investor. The latter won’t make an investment decision there and then, but negotiations may be opened. Numminen appreciates a pitch that reflects the pitcher truly. If a pitch is too polished, it may stray from the core subject i.e. the business that needs investor’s attention.

– I recommend fearless honesty and openness when presenting the idea and the company. Market predictions should be justifiable and assumptions realistic, says Numminen.

What are angel’s interests?

Even if the idea is in very early stages, an angel will need a clear answer to three main questions. First, what problem or need does the idea solve? Second, who is the primary customer, that is: which target group is mostly affected by the said problem? Third, what kind of solution is offered?

According to Numminen, timing is an ever more important criterion in investment decisions. For example, his company, Suomen Vaikuttavuussijoitus Oy, invested in the Tampere Region based StepOne Tech one year ago. They’ve innovated a device to convert a gas-powered vehicle to be able to use bioethanol. The technology was available ten years ago, but back then the time was not right for a breakthrough. 

– Now climate change is on everyone’s lips and there is a real demand for solutions. A couple of years ago it would have been too early to invest in this tech, two years from now it would be too late, Numminen explains.

An angel investor is also interested in the team. Does the company have relevant skills for development? If the angel joins them, is it possible to build good team chemistry?

– Often there are young, active, highly motivated people in startups. It is nice to work with them, and this is one of the main reasons to be a business angel, says Numminen.

What will a business angel invest?

Business angels invest their own money and thus are free to make decisions according to their own preferences. A typical angel is a person with long entrepreneurial or managerial experience and will to help startups. An angel invests money, but also ”sweat and networks equity”, i.e. experience, insight and contacts.

– Co-entrepreneurship is a common theme in angel funding. It is like driving a car from the back seat: how ever much you would like to grab the wheel, you must leave it to the team and just steer a little bit from behind, Numminen describes. 

– Most business angels in Finland are like me: I like to be involved with a couple of startups at a time and help them develop their business, continues Siik. 

The further a startup develops in the lifecycle, the bigger amounts are invested. In the earliest stages we are usually talking about sums from 10 000 to 30 000 euros, a bit later funding round may reach 300 000 euros. Usually there are more than one angel participating in the investment.

Business angels will want their money back one day, and because most of the startups do fail, the successful ones should yield a return on the capital invested. Quoting Nordic Guide to Finding an Angel Investment by Sami Etula:  ”Money is a fuel without which investments cannot continue.” The guide is available for free at the FiBAN website and it is recommended reading for anyone interested in the practicalities of angel funding.