Though business has evolved since the dawn of time, one thing remains the same: entrepreneurs need money to succeed. But in this economy, getting your hands on cash can be tough—we know this firsthand (read about how we raised $1 million). And it’s even harder for tech startups raising capital in a market flooded by dime-a-dozen tech companies, all boasting a world-changing idea. So how does a tech-industry startup find financial backing? Enter the angel investor.

Angel investors are independently wealthy individuals who put money into startups (amounts vary from $10,000 to $1 million), often in exchange for convertible debt or ownership equity. In 2008, angel investors contributed $19.2 billion to 55,480 startups, according to the University of New Hampshire‘s Center for Venture Research. While that may not sound like much, the majority of investors preferred to invest in tech-industry areas such as software, IT, and biotech. That makes angel investing a great tool for tech startups in need of cash. But how do you woo angels to fund your business? Follow these tips to secure angel funding. [We have created a great list of angel investors here: Top Angel Investors]

Plan

Make a plan for an investor, not a techie. Before you convince an angel to give you money, you must create a business plan, identify demand, designate a financial model, prepare market research, etc. This may seem straightforward, but founders who are more thrilled about their service or product features can often lose sight of what exactly they’re trying to sell. Do the legwork to outline every detail, including your current competition and, most importantly for tech startups, what your competition will be in the next five years. Remember investors are looking for opportunities that have high growth potential and will give them a decent and timely return. Present a solid foundation that will convince them to pony up.

Research

Research angel investors in the tech field. There’s no better way to waste time than to blindly cast your net and hope someone bites. Instead, search for the angels most likely to invest. Is there a local investor who loves online gaming you may be able to pitch your console to, or one with a track record of investing in tech startups in your niche? Research investors in your area through the organizations and online sites that connect angels and entreprenuers, such as the Angel Capital Association and AngelList. Once you’ve pared down your list, you’re ready to work on getting a meeting.

Network

Network, network, network. Start networking and reaching out to professional contacts to try to set up a meeting. Go to conferences, ask friends of friends, use your social media networks, and keep an eye on the news and blogs in the tech industry for upcoming events or other opportunities to meet angels. Oftentimes it’s your immediate network (and reputation) that are vital to securing funding. For example, in addition to a solid business plan, angel investor Chris Dixon, who invested in companies like Skype, asks people who know the founders what they think of them to get their opinion before making an investment. Networking also give you an opportunity to hustle for more than just cash. Connecting with mentors who can provide invaluable advice, feedback, and open the door to other networking opportunities is equally as important. Other resources such as the Founder Institute, a program that provides training, feedback, and peer support to tech startups, can help you connect with a larger network.

Create a Goal

Know your goal. Before you head into a meeting, know exactly what you’re looking for. Though many angel investors are happy to write a check and leave you to your own devices, some require much more than you may be willing to offer in terms of control, equity, etc. Decide exactly what type of investor and terms you want before you get further along in the process. Carol Latham of tech startup Thermagon Inc. designated three criteria for potential investors: they must not seek controlling equity, they must contribute more than money (advice and expertise), and they must refer others to her. With these clear goals she initially attracted five investors, who were so impressed with her determination they encouraged more colleagues to invest.

Pitch

Make your pitch easy to understand. Though this may seem self-evident, those in the tech field tend to deal in abstract concepts or complex technologies that the average investor may not know. Make your pitch clear, easy-to-understand, and interesting. Break down your business plan simply, focusing on how your business will benefit the regular consumer, and therefore turn a profit for your investor. Anticipate investors’ questions and any weaknesses that may come to light. Your pitch should answer the basic questions: How does your business fill a need in the market? Who is interested?
Groupon’s simple model was easy to understand, making its angel investors confident enough to invest the first $1 million.

Be patient

If your first few leads don’t bite, don’t despair. Accept any feedback or constructive criticism you receive, and persevere. Once you do get an investor, closing the deal can still take several months, so don’t anticipate having a check in your pocket the day after your pitch. Above all: Don’t give up. Case in point: Google was rejected plenty of times before securing angel funding.

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