If you answered yes to these questions, then you may be in the market for an angel investor.
This was the teaser that hooked entrepreneurs at the Development Bank of Jamaica's Venture Capital Conference in Kingston, Jamaica, where angel investor Nelson Gray unveiled the secrets of angel investing in March.
Gray, a recipient of the Queen’s Award for Enterprise Promotion in 2015, put the entrepreneurs through their paces during his session about the myths and realities of angel investors, necessary tools for pitching, the deal workflow—and a strategy he calls the “Granny test.”
Who Are Angel Investors?
According to Gray, angel investors are people who invest their money and time directly in companies in which they have no family connection, in the hope of financial gain.
Yet money isn’t the only incentive. "Angels are people who provide their reputation, offer practical help, and have a wealth of entrepreneurial experience, mentoring skills, contacts, and networks that can open doors for your business,” Gray said. “They also have a willingness to get involved. They do it to become partners with the businesses in which they get involved.”
Where Do Angels Invest?
Alpha Angels, a Caribbean angel investing firm based in Jamaica, expressed a preference for entrepreneurs in cutting-edge industries like technology, or those who offer exciting consumer products.
Companies must also demonstrate their ability to generate a significant return to Alpha Angels investors within five years, and to gain traction overseas, particularly in North America.
In general, angel investors look for CEOs who are coachable and have considerable leadership experience. The management team should have a strong rapport and complementary skill sets, although it is not necessary for all positions to be filled.
Finally, companies should be ready to exchange equity and control for funding and mentorship. They must also have a clear path to exit—for example, through a strategic sale or initial public offering (IPO).
Making the Pitch
Entrepreneurs often begin by submitting an application, and if successful, they will be invited to pitch their business idea—generally in 10 minutes or less.
For the perfect pitch deck, Gray recommends the following elements:
- A teaser of the challenge your business will solve
- An overview of the size of your market
- A detailed assessment of your business model, management, and competition
And don’t forget the “Granny test.”
“Can you explain your business idea and how it will beat the competition in one simple sentence that your granny can understand?” Gray said. “If you need three paragraphs or more to explain your idea and strategy, then your business idea is probably too complicated or unclear to take root in the business world.”
Gray also urged entrepreneurs to provide a compelling reason why angel investors should choose them as beneficiaries.
“Convince the investor that you can use their resources—their money in particular—to create and run a business that will deliver exceptional returns on investment, and that you will be fun and interesting to work with in a partnership.”
Lessons from Caribbean Entrepreneurs
“Going through the [pitching] process reinforced the need to constantly think in a strategic way about my business, my processes, and my people,” said Danielle Terrelonge, founder and CEO of DRT Communications Limited. “Getting help with governance was one of my key objectives. I sought funding, but I also looked beyond the money to the experience of the investors and their desire and ability to help me access markets across the Caribbean region.”
Turner Innovations Limited pitched their sorrel harvesting machine—an innovation that could improve the output and incomes of farmers in Jamaica—to FirstAngelsJA in May 2015.
“I can’t begin to tell you how we felt after the pitch, which was so well-received by the First Angels members,” said Allison Debbie Turner, co-founder and CEO of Turner Innovations. “We know we have a lot of work ahead of us but we are elated and ready to get working.”
About the Entrepreneurship Program for Innovation in the Caribbean (EPIC)
Nelson Gray’s presentation was made possible by the Entrepreneurship Program for Innovation in the Caribbean (EPIC), an initiative funded by the Government of Canada and implemented by infoDev and the World Bank Group. EPIC seeks to build a supportive ecosystem for high-growth and sustainable enterprises throughout the Caribbean, with a focus on mobile and ICT technologies, climate technology, and women-led innovation.
Image courtesy of FirstAngelsJA.