Want funding? Here's how to pitch to angel investors

September 23, 2013: 5:55 PM ET
angel investors
NEW YORK (CNNMoney)

If you're trying to raise seed capital for your business, it helps to know an angel or two -- those wealthy individuals who shell out startup money in exchange for a chunk of equity.

But be warned: This bunch has been burned by investing in flops over the past few years and "the amateurs have pulled out," said investor Brian Cohen. "Those who are left are much more businesslike -- and more demanding. They're doing much more due diligence before they'll invest."

The result, according to Cohen, is that "angels also expect a higher level of professionalism in the founders of companies they fund."

He should know. He has backed dozens of winners, including Pinterest, where he was the first outside investor back in 2007. Cohen chairs the New York Angels, a consortium of 75 investors who have put more than $45 million into fledgling enterprises, and he co-authored "What Every Angel Investor Wants You to Know."

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Here's his checklist of what angel investors want to hear before they open their checkbooks:

You have a great management team. Business models and product specs are a lot easier to change than the partners you've chosen, Cohen said. A long history of working together "is usually a good sign," he says. "I love it when I see a fluid conversation between founders."

You want to launch sooner rather than later. "Research and focus groups are fine," said Cohen. "But nothing educates a startup about what it should be developing until a product or service is out there in the marketplace."

You understand your customers. Angels are far more impressed by "founders who work harder at asking intelligent questions than at having all the answers," Cohen said.

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You're committed to metrics and analytics. Cohen acknowledged that "measurement is rarely simple." Even so, winning over the new breed of angel investor takes "a belief in measurement and the discipline to adapt, as quickly as possible, to what the metrics reveal."

You're willing to pinch pennies. Before committing any cash, angels now want to see "a culture of frugality in everything the company touches," said Cohen.

One more thing: Rehearse your pitch until you can hit all five of these notes persuasively in just 10 minutes. "If you can't convince an investor in 10 minutes that your business idea has potential, he or she will move on to the next one, and you won't get the funding," said Cohen.

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