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The Ins and Outs of Angel Investing—Including 3 Tips for Pitching Backers From Hannah Bronfman

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When it comes to figuring out funding for your business, bootstrapping and venture capital tend to be the two areas most founders focus on. But there is a third avenue for acquiring backing to be aware of: angel investing.

Angel investing is when individuals provide financial support to early-stage startups in exchange for an ownership stake. These investors, often called angels, offer not only capital but also mentorship and expertise to help the startups succeed. As such, angel investing plays a vital role in fostering innovation and entrepreneurial growth by fueling promising ideas and businesses.

How angel investing differs from VC funding

Angels are individual investors, and the capital they provide early-stage startups comes from their own personal funds, while venture capital funding involves institutional investors managing pooled funds from various sources.

Often, angels invest smaller amounts and are more hands-on, providing mentorship and guidance, while venture capitalists typically invest larger amounts and focus on scaling and maximizing returns.

And the last main distinction is that angel investors are usually involved in the early stages of a startup, whereas venture capitalists typically come in during the later stages when the business is more established.

The amount angel investors invest in a company can vary widely depending on factors such as the stage of the startup, the industry, the specific investment opportunity, and the individual investor's preferences. Angel investments typically range from tens of thousands to a few million dollars.

However, it's important to note that angel investors typically invest smaller amounts compared to venture capitalists or other institutional investors who often provide larger funding rounds in later stages of a company's growth. The exact investment amount is usually negotiated between the angel investor and the startup, taking into account the company's valuation, potential growth, and the investor's desired ownership stake.

In the United States alone, it’s estimated that thousands of companies receive angel investments each year. Additionally, angel investing is prevalent in many other countries with active startup ecosystems, such as the United Kingdom, Canada, and India, contributing to a significant number of companies benefiting from angel investments worldwide.

While angel investing is common, it can still be intimidating to navigate the process for founders looking to align with angel investors given how hands-on they are in the developmental stages of brand building. Like any relationship, you really want to ensure it’s a good fit, says Diarrha Ndiaye, founder of Ami Colé, who found an ideal partner in content creator, influencer, and angel investor Hannah Bronfman when she launched her clean beauty line formulated for melanin-rich skin in 2022.

“It really was important for me to have people on my team really rooting for this and trying to be a part of the culture and moving the narrative forward,” says Ndiaya.

How Hannah Bronfman got into angel investing

Ami Colé is one of 40 companies Bronfman currently invests in (others include Ceremonia, Our Place, Live Tinted, Golde, Topicals, Wellory, Sienna Naturals, and Supergreat), and the angel investor says that while the process of backing a company like Ndiaye’s is definitely about business—it’s also personal.

In 2013, Bronfman says “shit hit the fan” for her wellness brand HBFIT, which she recently closed down after 10 years. At the time, Bronfman says the venture capital firm she was with wasn’t a fit anymore, and her company’s future seemed uncertain. “My angel investors essentially handed me a life jacket on a sinking ship,” she recalls. “I just remember thinking: One day, I'm going to do this for someone else. I'm going to pay this forward.” 

At this point, Bronfman is very clear on what she’s looking for in a potential company to invest in, and whether you’re hoping to pitch yourself or not, her perspective can help you prepare for the process of angel investing in general.

What she looks for in a potential company to invest in as an angel

“My criteria now is a little different than my criteria when I first started angel investing,” says Bronfman, adding that the list is ever-evolving. While these are the factors she looks for now, they’ll likely be different with more lessons. However, there is a bottom line: “My thesis is investing in products and platforms that are better for you and the environment,” she says.

Currently, there are four things Bronfman searches for in companies. First up: a compelling founder story. “I would love for it to be a woman or a person of color,” Bronfman says. “Or a founder who has bootstrapped up until the point that they're raising capital.” This also means that Bronfman tends to back brands that are in their post-launch phase.

Bronfman is also looking at why this product is a fit for the market. How is it better for people and the environment and how will it stand out from others like it? On that same note, the angel usually requires that she is personally, not just fiscally, invested in the product. “It really has to be a product that I would use and champion,” she says.

How to find angel investors

It's important for entrepreneurs to prepare a compelling pitch deck and be proactive in networking and reaching out to potential angel investors. Building relationships, attending industry events, and leveraging online platforms can significantly increase the chances of finding angel investors for funding their startup. Here's where to start.

1. Personal and professional networks: Entrepreneurs often tap into their personal and professional networks to seek introductions or referrals to potential angel investors. This includes reaching out to friends, family, mentors, industry contacts, or alumni networks who may have connections with angel investors.

2. Angel investor networks: There are formal networks and groups of angel investors that entrepreneurs can access. These networks typically consist of individuals interested in investing in startups and provide a platform for connecting with potential angel investors. Examples of such networks include AngelList, Gust, and local angel investor associations.

3. Pitch events and competitions: Startups can participate in pitch events, demo days, or startup competitions where angel investors often attend or judge. These events provide opportunities for entrepreneurs to showcase their business ideas and potentially attract angel investment.

4. Online platforms and crowdfunding: Online platforms like Kickstarter, Indiegogo, or equity crowdfunding platforms allow entrepreneurs to present their business idea or product to a wider audience, including potential angel investors. These platforms provide a mechanism for raising funds directly from individual investors.

5. Incubators and accelerators: Joining startup incubators or accelerators can offer access to a network of angel investors. These programs often provide mentorship, resources, and investor connections to startups, increasing their chances of finding angel investors.

6. Angel investor directories and databases: Some websites and directories compile information about angel investors, including their investment preferences, industries of interest, and contact details. Entrepreneurs can research and reach out to these investors directly.

Bronfman's 3 tips for pitching potential angel investors

1. Provide a strong profit and loss statement (PnL) 

PnL stands for profit and loss and denotes what your business already has made, or stands to make, as well as what it has already lost or what it could lose. “It’s really important to have the financials baked out prior to talking to anyone for investment,” says Bronfman. “And if that's not a skill set you have for yourself, you need to outsource that.”

2. Embody conviction and confidence, while being open to feedback

“A founder with conviction and confidence is definitely a plus, but you're also looking for that fine line of someone who can really listen and take feedback, and not be overly emotional about their business,” she adds.

3. Have feedback from consumers

“Even if it's like a beta set of consumers you're testing your product on, it's just really important to have that customer feedback to help the momentum of what you're trying to create with your business,” says Bronfman.

Tying it all together

While it's never too early to start thinking about funding for your company. Founders should wait to start looking for angel investors until they're at a stage where their business idea has gained some traction, demonstrating potential for growth and attracting investor interest.

Typically, this occurs after the initial concept has been validated, a minimum viable product (MVP) has been developed, and there is evidence of market demand or early customer adoption. Seeking angel investors at this point allows founders to leverage their support to accelerate growth, access capital for scaling operations, and benefit from their experience and networks.

That said, the specific timing can vary depending on the industry, market conditions, and individual circumstances, so it's essential for founders to evaluate their own business's readiness and alignment with investor expectations on an ongoing basis. Bottom line: You want to make sure you've got some runway beneath your wings.

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Hesitant to Bootstrap? Here's One Founder-Approved Strategy to Make It Happen

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Jordan Harper, CEO of Barefaced, launched her clinical-grade skin-care brand with no business background, no investors, and no savings to fall back on. However as a nurse practitioner with nearly a decade of experience in aesthetic medicine, Harper had a solid understanding of the products she wanted to create, and a strong demand from her audience.

With a strategic pre-launch plan and determination to fill a gap in the skin-care market, Harper brought her product line to life without any support from outside investors or accruing personal debt.

Bootstrapping, a business funding approach for entrepreneurs who don't want to rely on external sources of capital, is the option most small businesses (aka companies with fewer than 500 employees, which is 99.9 percent of all businesses in the U.S.) use to establish their companies. According to a recent survey of startups, 78 percent of small business owners self-funded their launches.

To pay for product manufacturing deposits, Harper took out several zero-percent-interest credit cards This may seem like a risky move, but it allowed her to maintain complete control over the business, without pressure to quickly scale and generate massive returns for investors.

Once production was in motion, Harper relied on the power of pre-orders to keep the business in motion. Thanks to her loyal Instagram following and patients' feedback, she was right about the strong demand for products. Pre-orders raised enough funds to match her manufacturing costs, and paid for even more goods to go into production. Harper ended up offering four rounds of pre-orders, which she reinvested into growth strategies for the business.

On a recent episode of WorkParty, Harper backed her approach as a simple and achievable tactic for any new business owner. The key is to have a solid understanding of your products, build a strong audience base, and educate.

Tune into Jordan Harper's episode of WorkParty where Jaclyn Johnson learns more about her career transition from nurse practitioner to entrepreneur, Barefaced’s unique take on customer engagement, and tactics for maximizing efficiency.

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Despite Higher Rates of Profitability, Diverse Founders Still Don’t Receive Equitable VC Funding—But This Firm is Changing That

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Of the $48 billion in venture capital up for grabs during the third quarter of 2022, Black entrepreneurs only received $187 million (or 0.43 percent) and Latinx, $2.7 billion (or 1.5 percent). Meanwhile women-founded companies were allocated only 1.9 percent of all VC funds last year, down from 2.4 percent in 2021, despite companies with diverse founders making up nearly 20 percent of all employer businesses, according to recent U.S. Census reports.

These are examples of the type of inequity in funding that, last year, made Laurel Mintz want to launch Fabric VC, a venture capital firm that works with underrepresented founders at the earliest stage of starting their companies. The firm focuses on Web3 consumer packaged goods (CPGs), consumerized healthcare and digital health tools, Gen Z and Gen Alpha fintech, plus platforms solving for the future of work.

At its core, though, Mintz says Fabric pairs together diverse founders with the funding they need and deserve—diverse companies are 36-percent more profitable than less diverse ones, according to McKinsey & Company’s The State of Diversity in Global Private Markets: 2022 report. And gender-diverse executive teams are 25-percent more likely to experience above-average profitability.

What’s worse is that whenever there’s a decrease in available venture capital, like during times of economic downturn and recessions, underrepresented founders are affected the most.

“Underrepresented, to me, is a holistic bucket,” Mintz says. “We are fully inclusive: BIPOC, female, and queer founders are all welcome and prioritized. It’s what’s best for the planet, for people, for purpose, and for profit.”

Shifting the venture capitalism landscape

The problem with venture capitalism, Mintz says, is that “it hasn’t really shifted since the beginning of time, and that’s because [people] who have money and power have no incentive to change it—even though we know that if diverse-run companies receive funding, they return at a better rate.”

Mintz is hopeful, though, that group efforts will be the catalyst for a foundational change. She shouts out Jesse Draper at Halogen Ventures and Arlan Hamilton Backstage Capital as two other key figures making funding more inclusive and diverse. “We are saying, what has happened historically cannot be the future of venture—we deserve more,” Mintz adds. “We’re hoping to create a new venture movement, honestly, one that isn’t so pale, male, and stale.”

Producing a pipeline to profitability

In 2009, Mintz founded Elevate My Brand, a digital marketing and events agency that’s worked with 204 diverse-run companies. “From the Elevate My Brand side of the business, we’ve seen how these companies evolve, how they grow from a baby startup to the growth stage, to a successful exit,” says Mintz.

So far, 75 of the companies she’s worked with through Elevate My Brand have gone on to successfully raise capital. “That’s a 37 percent raise rate, which is pretty unreal,” says Mintz. This type of early intervention model could help ensure diverse founders receive access to the resources they need to launch, and successfully scale, their companies at the point where an influx of venture capital could make or break their business plan.

Ultimately, though, Mitz believes it’ll take more than herself and Fabric or even a handful of VC firms focused on the diversification of venture capitalism to really make a difference—real change will require representation on both sides of the table.

“I would love to see more women, people of color, and queer people investing,” says Mintz. “It’s been a very interesting journey to talk with them and see how they invest differently.”

Written by Natalie Arroyo Camacho

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Where To Find The Right Investors That’ll Take Your Deck From Pitch To Closing

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As an entrepreneur, I’ve had to present my ideas in front of many key decision makers. From closing sponsorship deals to recruiting executives, I’ve lost count of how many pitches I’ve given over the years—but I’ll never forget my first pitch to raise my fund  New Money Ventures. Raising money is one of the most challenging and rewarding experiences but as we know women are at a disadvantage with only 2% of VC funding going to women owned businesses. 

According to the Bank of America® 2022 Women & Minority Business Owner Spotlight, 79% of women business owners plan to obtain funding in the next year; however 75% of women business owners still wish they were more knowledgeable about small business financing. This is a big reason why I am so passionate about lending my experience and expertise to up-and-coming entrepreneurs—and why I launched a venture fund focused on money and mentorship. Here, I want to give four things to think about that will help you find the right investors at the start of your business.

1. Know Your Business Inside and Out

It sounds simple enough but understanding every aspect of your business before launching requires substantial research and deep reflection. Why does your product or service need to exist? Why will consumers be excited to spend their money with you? And why are you the one to create it? 

You must also understand your position in the market, what your competitors are doing, and how you stack up against them. Think: audience demographics, industry trends, and hard data that will not only back up your business proposition but also solidify your standing as a dedicated, success-oriented entrepreneur. Then, compile your findings in a robust pitch deck to share with your potential future investors. 

FYI: If you're looking for a guide to building the perfect pitch deck, check out the episode of Launch House that I shot earlier this year for tips, tricks, and a free presentation template to get started.

2. Pinpoint the right source of funding

Once you have a handle on your numbers, it's time to pinpoint the funding source that's right for your stage of business. The right choice might be friends and family who believe in your dream; a small business loan to cover initial costs like inventory or equipment; an angel investor in your niche; or a venture capital firm dedicated to helping you scale. My advice is to consider your immediate needs. If you secure funding, which option will help your business reach the next level with the least debt? There's a lot to consider, so give this point some good, hard thought before you jump in.

3. Prepare to answer the hard questions

Now that you have your target, take time to prepare for questions that everyone from venture capitalists to small business loan lenders will likely ask about your and your business. 

  • What are you using these funds for? 

  • Why are you valuing your company the way you are?

  • Where are your competitors sitting?

  • What data do you have to back up?

  • What is your metric for success?

This is also an opportunity to prepare questions for your investors, too!

  • What do they look for in investments?

  • How much do they typically invest?

  • Do they have any funding mandates?

  • How will they support you? 

  • If you're looking into a loan, ask if they lend to other businesses in your industry. 

  • How long is the application process and what do they consider?

  • Ask for testimonials and feedback from current or past customers.

4. Don't go it alone

Lastly, don't feel like you have to go through this process alone. I suggest working with your accountant or small business advisor to prepare documents, run numbers, and help you look at your business from a lender's perspective. Don't have a business accountant yet? That's ok! Banks like Bank of America offer Small Business Bankers that provide advice and guidance on everything from loans and lines of credit to alternative routes to access capital. 

The best investor is much more than cash in your pocket. In my experience, having someone experienced and knowledgeable enough to support and help grow my business in my corner is more valuable than any dollar amount. For this reason, I became a Bank of America business card holder and never looked back!