In addition to being the CEO of ThirdLove, I am also an active angel investor–predominantly in consumer-focused women-led startups. As an angel investor, I am always receiving inbound pitches from founders looking to raise their pre-seed, seed, and Series A rounds.
Despite what the pandemic has done to businesses, the economy, and society as a whole, there has been no slowdown in deal flow for early-stage investors. If anything, the general consensus in the entrepreneurship community is that now is a terrific time to start a company–because there are an abundance of problems still to be solved in the world.
That said, just because a lot of entrepreneurs want to start a business doesn’t mean they all receive funding.
As an angel investor and someone who has built and is still running a company that is scaling, there are a few things I look for in every founder and startup I invest in. So if you are starting a business, thinking about starting a business, or already well on your way and looking to raise your next round, here are a few things I encourage you to do to build excitement and successfully raise funding.
1. Make your business easy to understand. Do one thing, and do it extremely well.
Rome wasn’t built in a day.
One of the biggest reasons entrepreneurs struggle to raise money is because they can’t decide which one of their ideas is their “core competency” and, as a result, try to build them all.
What this does, however, is make it very difficult for customers, investors, and even employees to get a firm grasp on what it is the business actually does. What’s the goal? What’s the one thing the business will be known for? What’s the problem, what’s the unmet need, and (in a single sentence) what’s the solution? Bam, bam, bam.
If you can’t explain what problem your business solves, how, and why, in a sentence or two, then chances are you aren’t quite sure either. And if you aren’t 100 percent sure of what problem your business is solving in the world, investors aren’t going to know what they’re investing in.
2. Become close to profitable before trying to raise money.
Almost all the investments I’ve made over the past few years have been in companies that were profitable or very close to profitable.
This isn’t true for every angel investor (there are plenty of investors in Silicon Valley who bet on companies knowing they won’t be profitable for many, many years). But since I primarily focus on consumer businesses, I expect the founding team to have already made a bit of money before seeking additional investment. The reason is that, in 2021, it has never been easier to beta test consumer products, gather feedback from customers, and start generating revenue on the Internet.
Once that milestone has been reached, and the team has gathered some data around their unit economics, customer acquisition costs, and so on, the business becomes much more investable–because now, as an investor, I know my money is being used to accelerate something that’s already working.
3. Show you have the energy and dedication to build a meaningful company.
At the end of the day, angel investors bet on founders and founding teams.
I have certainly made a few investments where I was betting much more on the person than I was on the business. I call these types of founders “hustlers,” because something about their energy tells you they are willing to do whatever it takes to build a business. They might need to go through a few different iterations in order to get there, but the founder or founders are determined to get there.
A few signals I look for:
The founders have great energy, and a true passion for what they are building and how they are helping consumers.
The founders have some sort of unfair advantage, whether it be access to other influential people, a large social media following, a unique combination of skill sets, etc.
The founders are good listeners, curious and showcase grit.
That said, at the end of the day, your business needs to make sense in order for investors to get on board. Very few angels will “take a chance” on someone just because the person is excited about entrepreneurship (and those angels are almost always family members or family friends). The real way to determine whether or not your business is investable is if you share what you’re working on with someone and they immediately say, “I love it. How can I help?”
That’s a sign you’re onto something, and your business is ready to move to the next level.