Raising money is tough these days. But try asking for money from someone that just saw their portfolio value decline by twenty to forty percent in 2008. Now that is a tough assignment… and what is occurring more often these days as promising startups pitch to individual Angels or Angel associations.

If you plan to reach out to private individuals and contacts, or formal Angel groups, this post has some helpful information – including where to look and how to target your efforts.

We all know 2008 was a tough year for individuals that might be looking to invest in startups. So be aware that adding a risky startup to their portfolio may be hard to stomach for some individual investors. But smart investors know that now offers the opportunity to ‘buy low’ into many very promising startups that are in dire need of important money. Finding the right investor can be a win-win situation for you.

A bit about Angels…

Angel investors represent a crucial piece of the startup infrastructure. According to the Center for Venture Research at the University of New Hampshire and the MIT Entrepreneurship Center, more money is invested annually by angels (approximately $23 billion annually) than venture capital firms (approximately $21.9 billion annually). And so it goes without saying that looking to Angels for startup capital will continue to be crucial, even as money remains tight from other funding sources.

As you are probably aware, Angel Investors are simply individuals who back emerging entrepreneurial investors. (They supposedly get the name “Angels” from the people that used to anonymously give money to Broadway theater productions – known as angels for saving the production.) Generally, angels are willing to invest at an earlier stage of the business compared to VCs or other institutional monies, and will contribute money to help move the company to a stage where it can attract venture capital investment. Funding levels vary greatly, but usually range from $50,000 to $2 million. Oftentimes certain industries or regions will have groups of angels that meet together to listen to presentations of startup businesses to give angels opportunities to decide whether to invest in any of the businesses. Here in the Pacific Northwest, we have several of such associations that are discussed below.

Finding where Angels Gather

The Pacific Northwest is fortunate to have a number of excellent Angel Associations including Alliance of Angels - Seattle, WA, Bellingham Angel Group - Bellingham, WA, Boise Angel Alliance - Boise, ID, Keiretsu Forum – Seattle, WA Oregon Angel Fund - Portland, OR, Puget Sound Venture Club - Bellevue, WA, Seraph Capital Forum - Seattle, WA, Tacoma Angel Network - Tacoma, WA, and ZINO Society - Seattle, WA.  You can find a great deal of information on their websites and oftentimes these groups host sessions to prepare entrepreneurs and aid in preparation of materials required by the associations.  The odds to present your company can be steep — so don’t be surprised if you don’t make the cut.  But be prepared to ask how to improve your materials and resubmit when you may have improved your odds.

After you’ve checked out the familiar parties, you may consider using AngelSoft 3.0 to help find the right Angel Networks or find others in geographies outside of the Pacific Northwest (that could involve travel and may be a challenge, but if you have a connection or a reason to make it worthwhile, consider it). AngelSoft is a website with software that will help point you in the right direction, and for a $250 fee, you can use it to contact multiple angel associations. If you don’t want to pay the fee, then you’ll have access to up to three angel groups. The benefit is that, oftentimes, you can submit the same information rather than having to do multiple submissions to each Association. It is a helpful tool and can help you find targeted Angels too (for example, there are some Angels who specify they are interested in investing in energy-related startups).

In terms of working with Angel Associations, I’ll defer to the experts on this one. Rebecca Lovell of the Alliance of Angels has an excellent post on how to get on the good side (by staying off the bad side) of Angel investors. I will add the following observation which many entrepreneurs don’t realize – an Angel Association is just that: a group of individual investors. Remember that you’ll usually need to convince a number of individual Angels from any given Angel Association or Angel Associations to invest in your business. This isn’t a process whereby the Association votes and decides to depart with the group’s money to you. Presenting to the group is just the first step, with personal meetings with the interested investors following.  For the most part, these are individuals that meet together to listen to pitches but don’t always invest together (probably more accurately, seldom invest together).

Another important thing to note about Angel Associations is that it is helpful to already bring some investors or potential investors to the table before you meet with an Angel group. It is much more attractive to be able to say, “We’ve got five other individual investors that are investing and we are coming to you looking to fill out the round with another $150,000.”

And finally, remember that by flooding the inboxes of angel groups, you won’t win any points. Fit the angel groups into a broader fundraising strategy to maximize the chance of success.

Where else do those pesky Angels fly?

While many businesses find success in going through angel associations, oftentimes the best place to start your search for angel funds is to go to your (and your team’s) personal networks. Remember, Angels are just individual investors – so where better to start than people you already know and who already know you.

One strategy is to start by searching your current advisors, board members, etc. or to search for advisors or board members and try and turn those folks into investors in the business. Oftentimes those personal connections who are willing to invest can then help you further by working to leverage their networks to help pull in others or help you get some ‘ins’ at the angel associations.

Some people are cautious to get their friends or family or colleagues to invest. However, there are times when it makes a great deal of sense. If that is the case, perhaps you can find some peers who are also interested or involved in the industry, technology or space and tap them to be advisers and to contribute some angel capital. That may be a way to help raise additional startup funds.

Another strategy is to find individuals involved in the entrepreneurial community and target them. Let’s suppose you are only looking to raise $250,000, which is most likely too small of an amount for any venture capital fund. However, oftentimes individual venture capitalist may take an interest personally and be willing to invest on their own. Or you may find a successful entrepreneur looking for a new challenge that may take a personal interest in another startup.  So one approach is to do some research on a site like PWC MoneyTree (which is free) or to use one of the other sites that charge to see what VCs or individuals have invested in similar companies.

I like to encourage folks to start with MoneyTree, which is a great, free way to research recent investments in the space. Check out the MoneyTree “Custom Search” function. This search can be used to find out specific companies that received funding in the most recent quarter and their investors.

An example: Let’s say you are just starting an early stage company here in the Pacific Northwest focusing on the Media and Entertainment Industry. So, you would check out any first-stage investments in the Northwest in that Industry. Assuming you wanted to find out who had invested in a seed/startup financing of Northwest companies focusing on Media and Entertainment in the third quarter of 2008, simply input those parameters (Northwest, Early Stage/Seed, Media and Entertainment) and submit the report. The report would give you the following companies: TrackSimple, Inc. and Treemo, Inc. Reading further, you can find that Ignition and another undisclosed fund invested $2.8M into TrackSimple and JK&B Capital invested $500K into Treemo. Check out those investors and target them. Or connect with those companies to see where they focused their efforts. Or expand your search to find all Media and Entertainment investments in Seattle or all Early Stage/Seed investments in companies throughout the US.

Do some research on those folks and see if you can get any leads from there. Again, just setting up an informal or initial meeting with any of these guys may expand your network and lead you to an angel or other funding source. Remember, getting investors (be it angels or VCs) is a networking game. Continue to build your network of believers and the investment will ultimately come.

Good luck with fundraising efforts. If you are looking for seed/angel money, remember that you need to cast your net wide, involve the personal contacts of your team and advisors, and understand that the process may take time. But once you find someone to lead the round (a lead investor) oftentimes the process will start to come together much quicker.