Busting the myths of angel investment: Separating hype from reality
By Mike Lebus
After two decades in the angel investment landscape, I’ve witnessed a seismic transformation. What was once an exclusive, invitation-only domain has evolved into a more accessible and dynamic ecosystem, driven by increased awareness, cross-border deals, and the rise of online platforms.
This has also brought a heightened profile for angel investors, with reality TV shows and celebrity endorsements bringing them into the mainstream. While this visibility has inspired new entrepreneurs, it has also led to misconceptions about the investment process.
Fundraising is particularly competitive in the current climate, so it is vital that startups seeking investment hit the ground running. They need to understand how to separate the myths from the reality of angel investment.
Myth 1: Angel investment is instant
The pugilistic nature of TV shows like Dragon’s Den or Shark Tank makes for great viewing. However, it also presents the mistaken impression that raising angel funding is instant, straightforward, and based on a single pitch meeting. The reality is very different, and an entrepreneur may need to have over 100 calls and meetings to raise the funding they need. Based on conversations with hundreds of investors, I have found that a lack of patience is one of the key reasons startups fail to raise investment.
Resilience is, above all else, the key quality that startups need to succeed. Entrepreneurs must be able to take rejection on the chin and use feedback to improve their pitch and proposition for future discussions.
Myth 2: The investor as a multi-millionaire
TV programmes and celebrity investors have led some entrepreneurs to believe that all angel investors are worth hundreds of millions of pounds. Celebrity angel investors like Ashton Kutcher, Mark Cuban, Andy Murray, Kevin Durant, Jay-Z, and Snoop Dogg have popularised this idea. However, their high-profile status and multi-million-pound portfolios do not represent the average angel.
The truth is that anyone with a bit of spare capital and a desire to invest can become an angel. According to a survey we conducted with angels across the Angel Investment Network, more than 50% of angels revealed their average investment per startup was less than £25,000 — much lower than most entrepreneurs might expect.
Many founders enter the fundraising process with preconceived notions of what their ideal investor should look like in terms of expertise, connections, and cheque size. However, it’s important to keep all options open and engage with anyone who shows an interest in investing, as you may end up needing them more than you initially realise.
Myth 3: Angel investors only invest in tech
While tech has undoubtedly fueled the explosion of interest in startups globally, it’s a myth to think this is the only sector that attracts angel investors. They are drawn to businesses with strong potential, regardless of industry. The key factors that attract angel investors include:
- A compelling idea: Does the business concept have a clear value proposition and address a genuine market need?
- Scalability: Can the business grow rapidly and efficiently?
- Revenue potential: Is there a clear path to generating significant revenue and profit?
A notable example of a non-tech startup that has attracted significant angel investment is BrewDog. This craft beer company has disrupted the traditional brewing industry with its innovative approach to marketing, distribution, and product development, securing multiple rounds of angel funding in the process.
Myth 4: Angel investors are only interested in potential unicorns
The meteoric rise of companies like Facebook, Uber, and Deliveroo once led many investors to focus exclusively on startups targeting billion-dollar valuations (also known as unicorns). However, this mentality has now shifted, with both startups and investors adopting a more realistic approach.
The hockey-stick growth trajectories that were once common in every pitch deck have become more conservative. Valuations, which were inflated for years, have now become more grounded throughout the entire startup cycle. Investors are increasingly focused on businesses with a clear pathway to profitability, prioritizing solid growth and exit strategies over vanity metrics.
Myth 5: Feedback from close connections is always accurate
This is a common pitfall for early-stage businesses. Friends, family, and colleagues will usually be kind and supportive — it’s human nature, especially when they know you’ve taken the big step to launch your own business, possibly even quitting a job to go solo.
However, they are far less likely to critique your business idea as honestly as someone more impartial. That’s why it’s crucial to conduct proper market research to gather genuine feedback. Startups should carry out customer surveys, seek input from industry experts, approach potential buyers or clients, and begin early discussions with investors.
Despite the growing interest and glamorisation of angel investing, the reality is often far more complex than how it’s portrayed in the media and popular culture. While the sector has evolved significantly over the past two decades, many misconceptions remain.
To succeed, startups must debunk these myths and approach the fundraising process with a clear understanding of its true dynamics. By doing so, they can significantly improve their chances of securing investment.
