How to make an angel investor
This weekend, I learnt a lot about the Nigerian technology ecosystem that will host at least a portion of my company, Fora.
The lessons are many but I think the most important one is that African entrepreneurs can’t find good angels, so they need to make them.
So I decided to provide a how to on how I made an African Angel Investor when I couldn’t find one.
The truth of the matter is that African Angel investor are first human beings. They are not born angel investors and they may not even be looking at investment opportunities. But they can become angel investors by a specific circumstance of opportunity, prepared entrepreneur and a compelling growth story that convinces one in their gut that this is an immediate buy. Remember that unlike VC’s, angels invest their own money so they must be true believers.
I made my first African angel investor for Fora on a weekend trip to New York.
Truth be told, I was going to New York but I wasn’t expecting to come back with a signed term sheet. I just wanted to learn what I needed to come back in a few months to raise serious money for Fora. One person I admire a lot calls this friendraising. I was in New York to friendraise.
I did end up coming back with a fairly large cheque though.
Here is the brief how it happened :
I attended a dinner, organized at the Harvard Club by the good folks at Harambe (I owe my friends at Harambe A LOT!). I presented Fora.
A South African gentleman who happened to be an investment banker at Investec with lots of institutional relationships walks up to me after my presentation and asks to meet up later. I meet with him on a cold monday morning at a cafe in his West end apartment building (I bussed all night from Boston to make that meeting). We talk for 3 hours. He commits on the spot. I send him documents the next day. Wire comes in a week later. It seems quite simple right?
It surely wasn’t.
In the middle of all this process was a deeply intriguing conversation about values, timing, impact and of course $$.
So here is how you turn a New York investment banker into an African angel investor.
1. Be Prepared
To make an angel you need to have a business.
African Angel investors don’t invest in dreams scribbled on napkins. If you are not prepared, don’t pitch. I’ve seem entrepreneurs do a lot of terrible things; like come to me with tons of ideas and ask me to pick the one I want to invest in. Ridiculous.
There are a few non-negotiable things you must have, a business name, an incorporated business with share capital, a specific idea or proven concept, a proof of that concept (or demo), a brief elevator pitch that clearly communicates your business. If you have read up to this point and you don’t have these things, please stop reading. This article is not for you.
Fora was born from a frustration I had with the fact that privileged Nigerians were spending $10b/year getting a foreign education - when that same education could be made available within Nigeria through cutting edge technology and instructional design for more than 10x less.
I have an elegant story I constantly iterate to tell the story of my business so angel investors find it an attractive investment.
Specific action : You need a business not an idea.
2. Have a plan
I think before you even start approaching anyone for any kind of help, you need to be very realistic about what you want to do and how YOU will make it happen - whether or not the human in front of you turns to an angel investor.
Your plan will certainly evolve (ours already has several times) but having a clear and specific idea of what you want to do and how it will happen makes you a better candidate for angel investment than some rambling fool who will waste time.
Specific action : Have a pitch deck, a program document and a budget/revenue projections ready for review by potential angel.
3. Make sure they care
Contrary to what a lot of Nigerian entrepreneurs might imagine, the best angel investors don’t believe angel investing will make them $100m rich even if they made it their full time job. The nature of angel investing simply doesn’t enable these kind of outcomes. Instead, a lot of angels especially in this part of the world are investing to encourage you. Most times, they identify with the problem you are solving and they figure, but because of family or other commitments, it is better you than them. Good angel investors often have more than a passing interest in your space and might even be playing in it at a higher level. Many of my other angel investors are potential acquirers or people doing what we do successfully in another emerging market. They all understand and deeply care about the market of digital courseware publishing. If your potential angel investor doesn’t care intimately about your space, it will be difficult for you to get their money.
Specific action : Draw up a list of 50 successful people in your space and find a way to meet with them via warm introduction or cold email. [I might know some of them - ASK ME!)
4. Don’t just ask for money, ask for help
Ask for advice you get money, ask for money you get advice. I wanted to get some advice or connections - and I keep milking him of those. But he figured out wisely, that I would need money too - so he gave me some. Another reason why it is important for you to ask for advice before money is that it is important to know that your angel investor can actually help you beyond the money. If all you get from your angel investor is money, you are getting a horrible deal.
Specific action : Draw up 10 “fork in the road” type questions for your business. Carry them with you whenever you meet with a potential angel investor so you can ask them what to do based on their experience. Always ask a potential angel investor for introductions to customers or partners. Always.
5. Be Realistic
If you want to successfully turn a human being to an angel, you have to be very realistic with your valuation. Although you should take care not to immediately give up too much ownership, you should also make sure your valuation can be supported by some kind of logic (we might talk more about that in a different post).
My own logic for Fora was that I first figured out how much money I needed to get to profit. Then, I figured out how much equity I and my cofounder could offer investors while still maintaining a meaningful stake in the company (for our stage). Then I discounted it by 25% and adjusted for growth prospects and revenue projections. This was just my process. Yours might be different.
Specific action : Keep your valuation well under $1 million. Apply African discount.
6. Little drops of water make a mighty Ocean
People like Jason have millions of naira of other people’s money sitting in one place to invest in startups. Most angels don’t. Remember an angel is someone who invests with his own money. Take smaller amounts of money from a broad swath of angels who can give you help and advice in your business. Try not to take a large sum of money from just one person so they don’t dictate terms to you. Besides having multiple perspectives in the room is a good thing.
Specific Action : Depending on how much you are looking to raise, cut down your round to manageable 5k, 10k, 15k, 20k, chunks so that your investment opportunity is accessible to good angels.
7. Talk about the Exit
You don’t have to prophesy, you just have to present a scenario that is likely to happen as opposed to one that is NOT likely to happen.
A lot of entrepreneurs and venture scale investors pillory talking about exit options too early because they feel it is a sign of lack of ambition. I actually don’t think so. For example, I definitely intend to take Fora to IPO, but I have told my angels who I think might find our business an interesting acquisition. I have also told them who might invest in later stages to take the equity off their hands at a higher share price. Finally, I talk to them about other companies that have traversed this road and the kind of ridiculous exits they made (Embarnet, Ahanguera, Deltak, etc) - all exits in the ‘00 of millions or even billions.
I am not a prophet and there is no guarantee this will happen - but at least they can see how it might be possible for them to get their money back and maybe a bit of return on the top if we do well.
Specific action : Draw up a list of possible companies that might buy you. Start building strategic relationships with them. Also draw up a list of investors who might find this an interesting investment at scale. Build relationships with them too.
8. Give them a time bound mouth watering deal
Spending money is not easy, so if you must drag those dollar bills from your investor’s hand, you must be willing to play ball and give them a mouth watering deal. In my own case, my deal was simple, if we can close this round by Tuesday, you get a further 25% discount. Doing this will really shorten the length of your round. You need to do this if you are in a precarious money situation a-la Ticketmobile. Remember, money is the lifeblood of a company and only the living get to laugh and tell the story. Do whatever it takes to keep the company alive, down round if you must.
Specific action : Turn that successful human being that is fond of you and your idea into an angel by giving them a mouth watering deal today.
9. Follow up fast
I have a lot of trouble in this area myself but without fail, I have found that any financing deal I fail to close within 2 weeks of positive conversation takes forever. I am a bit of an Ijebu+control freak in this area but I really recommend hiring or begging a very smart person(a trusted friend preferably) to deal with follow up fundraising conversation. My first angel investor closed in 2 days. Don’t let yours linger. Once the angel has made up his mind, follow up fast!
Specific action : Set up a special email account for investment conversations. Make sure those emails forward to your blackberry and reply any emails from potential angels within 30 minutes. You can also hire a smart person to manage investment conversations.
10. Always be raising
Just recently, a friend was telling me that someone was very interested in her business and wanted to invest but because she didn’t feel ready for investment she told him she will come back to him when she is. BAD IDEA! Now she has to do the awkward dance of going back to the investor now she needs the money. Listen to me, you are raising whenever someone wants to invest. Let’s repeat that. YOU ARE RAISING WHENEVER SOMEONE WANTS TO INVEST!! Asking an investor to come back later is a sure fire way of making sure you don’t get the money. It is their money and you need it or you soon will. So you should always take the money if the terms are right (and sometimes even if they aren’t). You don’t get special awards for helping a potential angel keep his money in his pocket. We didn’t need the money from this investor when we raised it but since he wanted to invest, who were we mere startupreneurs to say no.
Always be raising. Anywhere is appropriate for turning a human being to an angel. Dinner parties, one year old birthdays, dates with their daughter, funerals (ok this might be too much)… But Entrepreneurs are shameless salesmen. That’s how you survive in this game.
Specific action : Go out there and turn a human being to an angel today!
PS : My first African angel investor has now taken the bold step of quitting his job at Investec and become a professional angel investor. If you need money and I think you and what you are working on are cool, I can recommend you. Get in touch here.