It is important that you are prepared for every meeting with a potential investor. When provided with the opportunity to pitch to angel investors (and Venture Capitalists!) remember your immediate goal: The purpose of your initial pitch, and your pitch document, is to get them to pick up the phone and schedule a more extensive conversation-not to get them to invest. Keep your business plans to yourself until they are explicitly requested. What you need first is a short marketing document that highlights the problem, your solution, how much money you stand to make, and why you're the team that is going to make it happen. Highlight the most intriguing aspects of your company (Unusually strong team? A killer patent position?) and avoid clouding your message with spurious detail.
The size of the angel investment you can expect depends on who you are and where you are on the value staircase-are you still in graduate school and just have an idea, or are you the soon to be ex-director of marketing at a successful start-up? Do you have a product? Do you have revenue? The answers to these question can affect the value of your company, but don't get hung up on negotiating price with angels. All serious angels know about the value staircase, and they know that eventually it will be appropriate for you to raise R10 million from a VC firm. So early financing rounds must be at a cheaper price.
The range for an early-stage investment is almost always less than R10 million, and a seed investment is often in the low single millions. It is reasonable to give an angel 20 percent of your company in the first round, but remember that these first initial investors will be diluted substantially in subsequent rounds. By the time of your IPO, their stake may be only a few percentage points.
Special investor rights are commonplace in early stage deals and this is where getting a good lawyer pays off in spades. The key point, however, is to negotiate with your investors in a spirit of partnership. Just like your first employees are often quasi-founders, your first investors deserve a special place. Don't try to negotiate with an angel the way you would with a VC. Similarly, don't waste a lot of time with an angel who thinks his R50,000 is all the money you'll ever need .
Smart angels are often less concerned with valuation and more interested in how the entrepreneur conducts himself or herself. Is she headstrong and strident or reasonable and flexible? Similarly, if your angel rubs you the wrong way during the negotiation, perhaps you should get a financial backer you relate to better. Remember that the tough times may be still to come. Once the angel writes you a check, you're married to him or her for the life of your venture.
