Earning the halo: How to build relationships with angel investors, even when they won’t invest in you

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Rui Ma, front row second from right, at a 9others meetup for entrepreneurs in Beijing.

Rui Ma is the Greater China Venture Partner for the global seed fund and accelerator 500 Startups. She has been working in finance for over a decade and is well into her second year as a professional angel investor. Follow her on Twitter @ruima.

Disclaimer: the opinions expressed in this piece are the author’s own and not those of her employer or colleagues.

As an angel investor, I get a lot of awkward pitches – lots of which could probably be less awkward and more productive for both parties.

So partially out of self-interest and partially because we really do feel for those of you on the opposite end of the table, I would like to share some of my personal perspectives on what I believe are best practices for building a relationship with an angel investor – particularly with whom you have no prior connection.

Some of you might find my advice to be very basic. But for those of you who aren’t naturally inclined to be your most charismatic self in front of a stranger with a noticeably short attention span, I hope the following five tips can be helpful.

Do your research

What sector does this investor invest in? At what stage? How much money does this person typically invest?

While sector focus is often less clear for many investors, especially those starting out, what is a lot clearer is their typical investment amount and maximum risk tolerance, a stage of development the business has to be in before they are comfortable with parting with their money.

As for the stage of your business, be sure that you’ve made enough tangible progress to at least pique the interest of prospective investors. Of course we have all heard of the serial entrepreneur who got an investment “before there was a business plan.” But in general, with investors you have no prior relationship with, there is usually some minimum bar to meet before a fruitful discussion can occur. Often it is a working demo or prototype. Sometimes, as in the case of 500 Startups, it is having some traction of said product or service.

In terms of investment amount, there is usually some variable range. It’s true investors often like to inflate this number, but you can get some sense of the amount by asking – how many investments have you made in the past year or two? How much have you invested in aggregate? Is it within a million dollars or north of a few million?

Pro Tip: If you don’t know, and you have exhausted all previously named avenues of finding out, then just ask. Ask at the beginning of the meeting rather than the end. Wouldn’t you want to know earlier rather than later? That way, you can actually mine some useful information out of the meeting, and begin to map out future interactions.

Embrace a mindset of giving, not taking

Just like in any relationship, some giving may be required before receiving.

If you realize that an investor is unlikely to invest in your company at its current stage, but still want to develop a relationship with this person, be upfront about this. It is entirely possible the investor will decline the meeting, but there are still many ways for the entrepreneur to make the meeting worthwhile for the investor and frame it as such. At the minimum, appeal to your investor’s strengths and tailor your request for the meeting to a specific “request for expertise.” Make it clear that you have done research on the investor and know their investment thesis, but address any concerns they may have about meeting you “so early.”

One way startups have caught my attention is by approaching me and saying: “We know it is too early for you to invest, but what should we do about China given our x percent of users that live there?” This frames our relationship around an intellectual problem rather than an immediate investment decision, and lends itself easily to a conversation.

Asking an investor you have only just met for intros into their personal network is rude, impractical and a surefire way to ruin a relationship. However, it is perfectly reasonable to ask a hypothetical question such as “if you were me, how might you approach fundraising (or whatever subject you are interested in receiving advice in)?” and receive much the same information. Knowing who you should approach, when, and why is arguably just as useful as a direct intro.

Pro Tip: At the end of a meeting, ask if there’s anything you can do for the investor, such as letting them know of interesting events (and somewhat less importantly, dealflow) in your sector or some adjacent sector they are interested in. Ask them if you can forward them interesting articles or reports about your space (or even your competition) once in a while so they can become more knowledgeable. Offer to be an expert they can go to for future companies they see in the space. It is a good habit to form, for any sort of business development actually – how can you be helpful, how can you demonstrate your value-add?

Create opportunities for interaction

Building credibility with an investor is simple – say what you will do, and do it. Do this enough times, and you will build trust.

In the common case where you meet an investor who is bullish on your sector but undecided about your company, you should take every opportunity to prove that can competently build and execute. Take every opportunity to involve them in the building of your business, in a low-obligation, “opt-in” format. Creating opportunities for interaction and doing something together, no matter how small, is the best way to build trust.

Pro Tip: One best practice I share with teams is the “advisor/investor-friendly monthly (or major event) update.” Include everyone on this list that you hope to build a relationship with – mentors, advisors, and potential investors. The best newsletters tend to have the following format:

  • A TL; DR summary of the month’s main achievements in 1-2 sentences
  • More detailed sections on some variations of the following: what went well, what went poorly, and what you will be doing in the next month
  • Be specific in your numbers, but don’t provide too much detail. Stick to 2-3 KPIs you think demonstrate the growth of your business
  • Always frame your updates with the mindset of “versus planned.” What did you think would happen? What actually happened? What are your next steps?
  • Lead and close with asks – what can the recipient do to help you? Are you hiring, launching, fundraising, or what? Be explicit in the ways you need help.

For folks you don’t know well, this is a great way of initiating and keeping a lead warm. It’s also efficiently establishes credibility – showing others how you work, and giving them a glimpse into what it might feel like to back you.

Communicate and close the loop

When you do successfully create that interaction, make sure you follow up, so there is a complete feedback loop.

If you are lucky enough that your prospective investors, mentors and advisors actively jump in and help you with your outstanding asks, then please do them the favor of thanking them for their advice. Even more importantly, let them know the outcome – did you implement their suggestion? Why or why not? What then happened? Very few entrepreneurs do this well, as most are probably too busy executing to close the loop. However, if an interaction isn’t complete, a relationship does not move forward.

Pro Tip: For inspiration, look to successful Kickstarter campaigns. Some of the best communications packages I’ve received have been from projects I’ve backed. I am not sure what it is about the folks running these, but they create some great examples of passionate calls to action that turn mere supporters into passionate evangelists for their cause.

Be patiently persistent

While no good entrepreneur takes a lack of reply as the final answer, don’t be a stalker when it comes to being persistent. Give yourself a buffer of a week or so between “check-ins” when immediate replies don’t surface. Also, keep your messages brief and to the point. Try to limit your communications to no more than two mediums because beyond that it begins to get a bit uncomfortable.

Pro tip: Meetings that last more than one hour suck. Just don’t do it. 30-45 minutes is preferable, and you shouldn’t be talking more than half the time, unless it is to answer questions. As an investor, I am unlikely to make time for someone who has wasted my time in the past.

Angel investors are like athletics scouts

Though it may not feel like it sometimes, investors (and angel investors in particular) truly want entrepreneurs to succeed, especially first-time entrepreneurs. There is a certain satisfaction that goes with being able to say one was the “first money in,” a certain pride to being that first person to “discover” the next Google or Facebook, to “seeing” when no one else saw. Occasionally we come to a decision quickly, but sometimes, we need more information. More often, we might not be the right person to join you on your entrepreneurial journey, but we may become one of your many cheerleaders and be the bridge to someone who ultimately brings you to the next level. Think of angel investors like scouts for professional sports: we really want you to make it, but help us help you. Do your research and adopt best practices.

Editing by Josh Horwitz
(And yes, we're serious about ethics and transparency. More information here.)

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