Six reasons angel investors say no - Natwest Content Live coverage

Standing in front of an angel investor can be daunting, and things will quickly fall apart if they don’t believe in you. Three UK angels tell us what makes them say “I’m out”.

John Stapleton, serial entrepreneur and angel who co-founded the New Covent Garden Soup Co:

1. The entrepreneur won’t listen

Some founders, says Stapleton, simply cannot handle advice. “They claim to want the value-added ‘smart money’ that angels bring, but in truth they believe they have it all figured out and are not interested in what the investors have to say,” he says.

Stapleton has a way of weeding out such people: he will ask them to justify some of their fundamental business assumptions during their pitch. “Founders who don’t listen tend to get defensive and their answers either demonstrate this, or suggest that they think you’re not ‘getting it’,” he says.

Another gripe of his: “Many founders believe they know exactly what their target customer wants, but haven’t actually asked them.”

While angels definitely don’t like know-it-alls, they give equally short shrift to wishy-washy ‘yes men’ or people who expect their investor to hand-hold them through every step of their business journey.

2. The product or concept is not scaleable

“Many times, an entrepreneur doesn’t understand the commercial reality of setting up and growing a business,” says Stapleton. “It turns out that what they really want to do is to build a lifestyle business in which they plan to draw a decent salary.” That’s fine, he says, but it doesn’t constitute a growth plan and it probably doesn’t warrant much external investment.

What has often happened, he explains, is that the initial motivation to develop the product was born out of frustration that it did not exist – but the founder often failed to seek out real consumer insight. “They end up designing a product which is relevant only to themselves,” he says. “For angels, the return on investment will be non-existent.”

When owners do have loftier ambitions, they sometimes fail to see that they can’t produce their product at margins that are attractive enough. It’s another frustrating example of a business that won’t scale.


Phil Mitchell, angel investor and co-founder of funding experts Harbour Key:

3. The business is overvalued

Angels see red when people value their business at hundreds of thousands or even millions of pounds when they haven’t even got off the ground.

“You need the founder to have a realistic expectation of what stage they are at and therefore what value they really have,” says Mitchell. He explains that if a business has already established a revenue stream or has a product that has been patented – perhaps alongside some big customers who are ready to take it – then they’re going to be a much more valuable business to an investor than “if you’d just stepped out of your bedroom with two bits of plastic”.

If a business has barely begun, he says, then potential investors should be viewed as more of a partner – and the equity the founder is prepared to surrender should reflect that.

4. The management team fails to make a strong impression

“When we have the initial meeting, angels want to know who the people are and feel that they have not just passion but also the skill set to take the business to where they want to go,” says Mitchell. “I like to understand where these people come from. What’s their story?”

The easy way to convey this, says Mitchell, is to add a team sheet in your pitch deck with a bit of information about who you are and why you’ve gone into this. “The angel needs to feel that these people are going to make it happen,” he says, “because it could be two or three years before they take any money out.”

What angels really like are people like the man Mitchell saw last week: a founder on his fourth start-up, who had sold his previous three. “He sells and comes back with another idea: you could see he had a lot of drive, good skills and you could have a lot of faith in him,” Mitchell says.


Jamie Waller, entrepreneur, investor and committee member at The Supper Club, a community of founders and CEOs of high-growth businesses:

5. The founder wants a large salary

About 90% of the investment decks Waller is sent don’t give him the vital data he requires: numbers. “Not just pie-in-the-sky revenue forecasts, but actual costs,” he says. “What are you going to spend my money on and when?”

When these details find their way to him, he says that in more than half of all cases he is stunned to see founder/CEO salaries at £150,000 – £250,000. “I built my business for seven years before paying myself £100,000,” he says. “It took me 10 years to get to £200,000. Entrepreneurship is about taking risk. Paying yourself £150,000 in year one of a start-up because you can afford to with investors’ money is not risk.”

A more reasonable salary for a founder in their first venture, he says, would be between £50,000 and £80,000.

6. There is too much focus on perks and fun

“I get around two investment pitches a week in which the founder has budgeted for pool tables, weekly staff entertaining and unlimited holiday entitlements,” says Waller, who was once very close to making a £100,000 investment in a business only to be told by the boss to “come along on Thursday after 3pm as the team will have stopped working as we have pizza and beer on Thursday afternoons”. He cancelled the meeting and closed his wallet.

“Investors want to see money being used in the right way and at the right time,” Waller says. “A good example is a business I invested in recently that had a £15,000 budget for a staff party – but the criteria for the party was hitting a £5m sales figure that year. That’s good business. You’re paying a fee for success.”