On LinkedIn and Twitter, there are loads of comments through the years criticising angel investors for their indecisiveness, low valuations, poor communication and lack of resourcefulness. Since the U.S. is seen as a more start-up friendly investor territory, we’re going to compare it with the UK. This article is going to look into the ways we can hack the flow of communications between founder and investor, to come up with a better way of getting more angel deals done. First we’re going to understand the reasons why there are barriers with facts and no opinions. Then we’ll dive into how you as a founder can close your Seed rounds more quickly by being more strategic.
Risk you say? No thanks, mate
Potential UK investors are more risk averse. Let’s look at company ownership in general. When it comes to owning stocks or shares in public companies, a 2018 study by the ONS found that roughly 13.5% of individuals held shares in UK companies. Of course the number can be slightly higher if they own shares in non-UK companies, but due to financial reporting rules and laws, we can expect it wouldn’t be much higher than 20%. In the U.S., 2021 Gallup poll found that roughly 56% of Americans reported owning stock. We can see that UK investor risk appetite is therefore lower for stocks, which many in the U.S. would view as usually safe investments. Interestingly, the percentage of homeownership is roughly the same between the two countries and stands at around 65%.
The odds of finding a potential angel investor in the U.S. and UK
Aside from crowdfunding sites, investors typically need some level of certification or accreditation to invest in early-stage deals.
In the UK, investors can self-certify as HNWIs, or High Net Worth Individuals. According to the FCA, this means they need an annual income of £100,000 or more or net assets of £250,000 or more, excluding equity in their primary residence. A Statistica table shows that as of 2019, there are about 591,000 HNWIs in the UK out of a population of roughly 70 million. That’s roughly 0.84% of the population.
Comparatively in the US, an accredited investor in the SEC’s eyes is someone who has made $200,000 on their own, or $300,000 as a couple, and has done so over the past two years and expects the same this year. There is also a net worth component whereby an investor can be accredited if they hold liquid assets of $1,000,000 or more, excluding primary residence. There are varying estimates through the years of how many investors in the U.S. are accredited. These range from 10,000,000 to nearly 15,000,000. If we take the middle ground at 12.5 million, this equates to about 3.8% assuming the U.S. population is 330 million.
Looking at the numbers of possible angels alone (12.5M versus 0.591M), start-ups have a roughly 21x better chance of finding an angel investor in the U.S. than the UK. Not too shabby.
If you don’t like it here, message me before you go to the U.S.
One needs to have a historical and cultural perspective on the reasons why angel investors (and even VCs’) in Europe tend to be more conservative with making early stage investments than their counterparts in America. We’re not going to dive into those details. It comes from hundreds of years of war, suffering and crusty financial institutions which still are propped up by old money. I know you want to learn how to melt the seemingly cold receptions early stage start-ups get from investors so let’s get to it.
Seven ways to improve your chances of finding a HNWI angel investor
Snail (Royal) Mail – Yes, I am serious. Why? Because pretty much no one else is doing it and it’s an interesting option for start-ups that are trying to embed themselves in a particular community or region. Find neighbourhoods with the most expensive house prices (over £1M+ each) and drop them a letter. Try nice quality paper and envelope and make sure the address is handwritten. Include details about your start-up and that you’re looking for support from investors or advisors. Snail mail is cheap, focused, local and you only need a couple big fish. You have to be careful with the content of the letter though, make your pleas on the basis of their investment making a difference in the local community and not about you spending it on salaries or adwords.
Social media – There’s too much spray and pray going on right now. The past two years have brought the ghosts and goblins back out again, desperate for funding to fund their lifestyle. So, be highly selective, targeted and personal with your messages. LinkedIn & Twitter are probably the two best social media platforms for finding angel investors since many investors include the activity on their profile. You can also see from their profile how they can add value, either immediately or down the line.
Syndicates – There are plenty of Angel Networks looking for new deals. Envestors typically has the highest number of deals, followed by a few dozen others like 24Haymarket, Newable or Angels Den. Each network has several dozen to a few thousand members that opt-in to deals.
Angel investment networks – There are a few platforms that connect founders to individual angel investors. The most popular one being Angel Investment Network. If you like to manage the 1-1 communications and target select individuals then this could be a good middle layer for you in between funding through syndicate or LinkedIn. You may have to pay to play with some but once you’re on you can hopefully expect to pick-up some interest.
Pitch events – These are usually annoying. Every investor has their guard up and is usually playing the power card. Yet, they are great for building momentum after you’ve got an angel or two committed. Big checks and big names are always helpful additions on a deck and move conversations along more quickly and efficiently. However, they are not the gold standard. Once you’ve got even a family or friend investor, start going out there and pitching if you can stomach it. Preferably where there is no alcohol involved as you will probably end up wasting your time with people who just want to socialise.
Industry events – This can be seen as enemy territory for many start-ups. Why hang out with people representing the incumbents of the industry you’re trying to disrupt? A lot of HNWIs’ are still working and the best way to get face time is to go and take it. You may end up with a super-connected industry veteran who also is an HNWI and can serve as the big check, advisor and the door opener. Search on Eventbrite or 10Times to see what’s happening near you.
Social events – The least suspect way of getting yourself in front of HNWIs is through attending social events. HNWIs invest their money into many things, these are often tied to their passions. Page 79 of the 2021 Knight Frank Wealth Report has a table of what these passion investments usually are. They include art, classic cars, watches, wine, jewellery, rare whiskey, furniture, coloured diamonds, coins and hand bags. If you have a genuine interest in any of these types of objects, you should consider attending related events. You may find yourself surrounded by potential angels with their guard totally down. Let the conversations flow naturally and focus on making the connection on the first day before making a pitch on another day.
Conclusion
Hopefully you’ve learned a little about why finding angel investors in the UK can be tricky. If you agree/disagree with any of the above feel free to drop a comment below. If you’re looking for funding, feel free to reach out and I’ll try to help (no guarantees!).