Ever wondered what angel investors look for in a business pitch? How do they decide where to put their money? And what makes them lose interest? We’ve got you covered, with expert insights from David Chang, an experienced angel investor, and successful entrepreneur.
What is an angel investor for small businesses?
Angel investors are affluent individuals who provide capital to startups and small and medium-sized businesses (SMB) in exchange for equity or convertible debt. They typically invest during the early stages of a business, when traditional funding sources are unavailable. Unlike venture capitalists, angel investors use their own funds and often have a more personal interest in the success of the businesses they support. Their strategic guidance helps businesses navigate critical growth phases, with many investors looking for signs of scalability and technological readiness.
When investors evaluate a potential investment, they often assess a company’s operational efficiency. Tools like customer relationship management (CRM) platforms can demonstrate a business’s potential for systematic growth and strategic planning. Technology that streamlines operations helps SMBs demonstrate their strategic potential to investors. Smart startups understand that investor relationships are about more than funding—they’re strategic partnerships driving business growth.
What common mistakes do beginners make?
Everyone makes mistakes in the first few pitches. But, as said, precaution is better than cure. Here are a few common mistakes that you should know about before pitching your business idea:
- Overvaluing the idea: Many SMB owners focus too much on their idea without showing how they’ll execute it. Investors are interested in a clear plan for implementation and growth.
- Lack of market research: Failing to provide comprehensive market analysis can lead to skepticism among investors. This can make you look ignorant and unprepared.
- Unclear business model: Not expressing how the business will generate revenue can break the deal. Investors need an understanding of your business model and financial projections to feel confident in your venture’s potential.
David Chang’s take on angel investing
We caught up with angel investor David Chang to get his take on the right time to start a business, the must-have elements of a solid pitch, and more. David Chang is the Chief Executive Officer of Gradifi and an Entrepreneur-in-Residence at Harvard Business School. He’s held operating roles at five startups and is an angel investor in 40 companies.
Here’s what he had to say about the essential components of a great pitch:
How do you know when it’s the right time to turn an idea into a reality?
Chang: First-time entrepreneurs often put too much value on the idea or concept itself — but ideas are worthless without execution and a business structure that de-risks the venture at each stage of growth.
As for when to start, there’s no time like the present — or even yesterday — to explore an idea, and with the low cost of capital to start a company today, it’s super easy to put something together and begin to gauge market demand.
When and why should an entrepreneur seek an angel investment?
Chang: Angel investors are a quirky bunch. While a few have a thesis-driven approach to investing, most angel investors decide to back founders on other factors. Since there’s so little data at the early stages of a venture, it’s often the founder’s story or the problem space that resonates with the angel.
However, whether you’re seeking friends-and-family funding, meeting with angels, or targeting VC funds, an entrepreneur always needs to be able to paint a vision for the opportunity and what the venture could ultimately become, as well as a realistic next milestone or stage of growth.
What are some things you look for in a business when considering an investment? Are there any “must-haves” or hard-pass elements?
Chang: I look for founders who are tenacious and seem to figure out how to overcome any obstacle. In the early days of a business, there’s so much risk and so many unknowns that I’m mainly looking for ventures that have option value and can make it to the next stage of growth to attract the next round of capital.
A huge plus is when an entrepreneur says what they’ll do execute on it. A hard-pass is generally founders who believe that capital is the only thing they’re missing from growing the business.
What’s one secret that nobody knows about making a great pitch?
Chang: I think the most effective pitches are ones where the founder grounds the investor by expressing both the summit (ultimate long term vision) and the basecamp (next stage that’s within reach). Within the first few minutes, it’s important to anchor the audience on these two endpoints. I can’t tell you how many times I see a founder lose an investor’s interest before both are covered.
If the founder talks only about the summit, the investor has no idea whether there’s any reality of substance behind the vision. If the founder talks only about the basecamp, the investor will walk away with the perception that the idea is too small or not venture-scale.
Photo by Amalia Miller
Why should entrepreneurs make time for things like mentorship and philanthropy?
Chang: I’ve seen so many ways mentors benefit from getting involved with the next generation. Not only do they keep fresh perspectives, mentors gain so much personally when connecting with and helping those earlier in their careers. Whether it’s a new connection, a deeper insight into new technology, or simply a broader network circle, I’ve found these relationships to be so rewarding for those that invest a little bit of time and energy in others.
Become a Trailblazer today
What advice do you have for someone who’s considering starting a business?
Chang: Go for it! One of the biggest obstacles to starting a business is the self-perception many first-time founders have: “I’m not an entrepreneur.” So many successful ventures come from people who have personally experienced a pain point or problem — one that, as it turns out, many others also face. Also, be honest about what you want from the experience. Whether your business becomes a lifestyle business or a mega-unicorn, there’s a wide range of successful ventures.
Do you have any favorite books to recommend for budding entrepreneurs and business leaders?
Chang: I ready plenty but I highly recommend Culture.com by Bob Stringer, which is super entertaining since there are so many anecdotes from Boston-area founders and operators.
Fuel small business growth with angel investors
Angel investors are your secret weapon for turning business dreams into reality. They bring more than money — they bring expertise, connections, and a shared vision for your growth. Paired with the right tools, like Starter Suite, you’ll have everything needed to scale smart and fast. It equips you with all the resources needed to present a compelling case to potential investors.
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