September 22, 2022

How to Find Angel Investors for Your B2B SaaS Company

Mandy Leavell
Director of Marketing

How to Find Angel Investors for Your B2B SaaS Company

SaaS companies provide software solutions for businesses of all industries. Cloud-based software can assist organizations with finances, office productivity, customer communication, and more.

Starting a new B2B SaaS company requires a significant amount of planning. One crucial aspect of company development is investors. These individuals or organizations help your company get started by providing funds early on. In return, they receive financial returns after the SaaS business profits. With so many investor types, deciding which to seek out can be a process in and of itself.

One investor type for B2B SaaS companies is angel investors. Angel investors for B2B SaaS are a great option to help your company grow and scale.

What Are B2B SaaS Angel Investors?

B2B SaaS angel investing is a type of investment funding for SaaS companies. Like other investor types, angel investors offer funding in exchange for business returns once your company turns a profit. These business returns usually consist of equity pieces or royalties. Additionally, angel investors often use their own money for investment funds.

There are generally two kinds of angel investors for SaaS companies:

  • Individuals: An individual angel investor is often a successful entrepreneur or financial advisor who can recognize future success in a newer SaaS business. Other business professionals, like doctors or lawyers, might also be interested in business investment as a side venture.
  • Angel networks: These networks consist of groups of 10 angels or more. The group makes unified decisions about business selection and funding amounts. B2B SaaS angel investor groups vary by organizational level.

B2B SaaS angel funding begins in the early stages of company development. An angel or team of angels might provide money when your business is only an idea or in the initial development stages. An angel investor usually enters the process after your initial funding is in place and before your SaaS company requires significant funding from other ventures.

Angel Investor vs. Venture Capitalist

As you learn more about angel investors, you might find similarities in venture capitalists. While angel investors and venture capitalists have similar purposes, the two investor types have key differences that separate them.

In short, venture capitalists are firms or companies that combine money from groups of investors into a larger pool. Then, they split the combined funds and give them to new or startup businesses. These investors are responsible for managing their client's money and finding the greatest possible financial returns.

The two investor types differ by:

  • Size: While venture capitalists are structured companies, angel investors usually work individually or in small groups.
  • Money origin: Unlike angel investors, who fund startups with their own money, venture capitalists use money from a larger pool of investors.
  • Funding amount: Because of their access to many investors, venture capitalists can provide more funds for businesses. In contrast, angel investors are limited to what they can afford to invest personally.

Pros and Cons of Angel Investors for B2B SaaS Businesses

If you're considering enlisting the help of an angel investor for your B2B SaaS company, it's important to think about the advantages and disadvantages. Overall, weighing the pros and cons of the many investment types can help you narrow down the best strategy for your business.

SaaS angel investors can provide many advantages for your business, such as:

  • No payback needed: Unlike a bank loan, angel investors provide funds without expecting you to pay them back. They give you the money you need to get your SaaS business going, then receive an ownership stake in return. If your B2B SaaS company succeeds, both you and the angel investor will receive financial gains. If you fail to generate significant revenue, the angel investor won't expect you to pay them back. You also won't have any monthly payments, in contrast to regular loan payments.
  • A willingness to take risks: Bank loans and other financial help often require proof of prior financial success or credit history. In comparison, angel investors are ready to take (calculated) risks on new businesses and provide them with the necessary funds. They invest money based on company potential rather than previous successes, giving you a wider opportunity to get started.
  • Extra support and guidance: Many B2B SaaS companies create relationships beyond funding with their angel investors. Investors can offer expert advice on industry trends and business decisions. If you're new to the SaaS industry, this feedback can help you grow your business even in times of uncertainty.
  • Networking opportunities: Angel investors can also help your SaaS company connect with other businesses. Networking opportunities allow you to create strategic partnerships or learn about industry trends. Your angel investor could introduce you to companies you might not have been able to speak with in other circumstances.

Of course, there are a few drawbacks to be aware of when working with an angel investor:

  • Challenging to find an investor: If you're new to the SaaS industry, finding an angel investor right away might be challenging. Many B2B SaaS businesses rely on existing business partnerships to find initial investors. If you're just entering the field, you might not have any connections, making this strategy difficult.
  • Ambiguous terms: Angel investments are much less formal than other funding types. You and your angel investor have to work together to find the best deal. As you work back and forth, you might never settle on an official, written agreement. This uncertainty can make it more challenging for financials later on.
  • Investors expect rapid results: Angel investors have high expectations when they invest in your B2B SaaS company. They provide funds to get you started and expect the investment to pay off. They might pressure you for more business expansion even if that doesn't align with your business goals.
  • Loss in equity: The more funds you raise with angel investors, the more equity you lose in your company. As a result, more investors could make it more challenging to set leadership roles or may give you a reduced say in business decisions.

What Do Angel Investors Look for in B2B SaaS Companies?

Knowing what angel investors want in a B2B SaaS company is key to preparing to work with one. That way, you can optimize your presentation to meet their expectations and increase your chances of an investor choosing your company.

These are factors a B2B SaaS angel investor will likely look for:

  • Strong founder and management team: Even if your SaaS platform is perfect, angel investors likely want to see proof that your management team has the skills and drive necessary to manage a new business. The investor might also look for leaders with like-minded values or personality traits. In other words, an angel investor seeks a capable management team they'll get along with comfortably.
  • Early company traction: Investors will probably also look for signs of early traction in your company. Examples of traction could include interested customers, successful beta software, or strategic partnerships. These signs show investors early promise for your company and could persuade them to invest sooner.
  • Understanding of financials: You also need to show potential investors a comprehensive understanding of your business's financials and other crucial metrics. Preparing a financial presentation with key figures and plans can help you show investors your dedication.
  • Innovative software: The B2B SaaS industry is growing rapidly, meaning new businesses have strong competition. Angel investors likely want to work with innovative and outstanding new software. Consider how your B2B SaaS software differs from competitors and include that in your investor pitch.

How to Find B2B SaaS Angel Investors

Once you decide you want to use angel funding in your B2B SaaS company, you might speculate on how to reach out to angel investors. You can start your search for a SaaS angel seed investor at any time in the early stages of your company's development.

It's typically best to look for angel investors who have previously worked with B2B SaaS businesses, so they can lend their experience and insight. With various types of angel investors available, it's essential to stick with ones familiar with your industry for the best results.

Many new business officials wonder how to meet angel investors. These are common places to look for B2B angel investors:

  • Investor platforms and websites: Investors use a variety of websites and applications to connect with startup businesses. For instance, the website AngelList allows you to build a profile for your company and adds you to a directory. The Angel Investment Network gives you access to over 275,000 angel investors, and you can register a pitch, publish it online, and communicate directly with investors. You can tailor these platforms for B2B SaaS by filtering for investors who have previously worked in the same industry.
  • Social media: Social media is another option for connecting with investors. Building social media pages is a crucial tool for your SaaS company. As you create original and engaging content, it might catch the eye of angel investors and get them to reach out, and you can even find their profiles and strike up a conversation.
  • Networking events: If you prefer in-person connections, networking events are always great opportunities for your SaaS business. You can look at upcoming networking events for SaaS or tech as a whole. Angel investors might attend these events and look for new software investment opportunities, and you can look for B2B angel investors while speaking about your SaaS software.

What to Prepare for B2B SaaS Company's Angel Investor Pitch

After successfully connecting with an investor, you need to prepare a convincing sales pitch. This presentation will describe your B2B SaaS technology, expected financial returns, and how much funding you need from the angel investor.

You should dedicate as much time as possible to your sales pitch. The more confident and knowledgeable you seem, the more likely an angel investor is to move forward with your SaaS platform.

Make sure to include:

  1. Passion: This sales pitch occurs early on in your SaaS company's development, so you might not have every detail sketched out or years’ worth of data. Instead, you should strive to fill in any knowledge gaps with passion and a demonstrated knowledge of your market fit. Investors want to know what drives you and see the hard work you've put into your project. Talk about what sparked your interest in the field, the steps you've taken so far, and the goals you want to achieve.
  2. Explanation of your features: Next, provide a detailed list of your SaaS software's capabilities. Explain how each component will help other businesses and how your software differs from others on the market. Even if you don't have a complete list, provide a specific overview and be ready to answer any questions the investor might have. Show you have a firm understanding of your SaaS platform and convince the investor why they should choose yours over other options.
  3. Description of market conditions: You should also be prepared to talk about the current conditions of the B2B SaaS industry. Explain how your product will fit into existing trends and benefit other businesses. If the investor has worked with the B2B SaaS industry previously, they probably understand the growing nature of the market. You should be ready to describe how your B2B SaaS platform will perform in the current environment.
  4. Financial projections: Providing your angel investor with specific financial information can support your pitch with a rational argument. If your numbers prove it's a worthwhile investment, the angel investor will be more likely to consider the offer. Prepare information about projected growth revenue, gross margins, and other key performance indicators (KPIs). Be ready to answer the investor's questions and show confidence in your company's financials.
  5. Personalization: Lastly, customize your presentation for the angel investor as much as possible. Research the investor and find out what companies they've invested in previously or their typical business interests. You can tailor your pitch to feature some of the investor's interests, making it more likely they'll form a personal connection with your software.

You might also prepare a list of questions to ask angel investors to get their input on your plan.

How to Review an Angel Investor Term Sheet

If you've made a successful connection with an angel investor, the next step is to create a term sheet. This document contains the proposed terms and conditions of the investment deal. It serves as a sort of an angel investor template for the agreement. Either the SaaS company or the angel investor can prepare a term sheet.

It's crucial to review the angel investor term sheet thoroughly before signing. You should consider the legal and financial implications of the agreement and how it could affect your B2B SaaS business later.

For example, these features are likely to be included on a sample term sheet for angel investors:

  1. Investment structure: This term refers to the type of security the angel wants to invest in. While angel structures vary widely, they typically choose common shares, preferred convertible shares, or convertible debt. Angels frequently select convertible debt, which involves the money they loaned to the business being converted into equity shares. Be sure to review the angel investor's desired investment structure, and consider if you're comfortable with the terms.
  2. Key economic terms: Next, you should review the financial terms of the document, including the preferred returns or accruing earnings desired by both parties. The term sheet should give a quantifiable amount for both of these options. Preferred returns usually shouldn't be higher than the original investment amount, while accrued amounts should be converted into equity shares for the angel investor.
  3. Due diligence: Lastly, the term sheet should outline all the necessary steps, from signing the term sheet to closing the deal. One of the final steps should be due diligence, which is the process of examining financial records before officially closing a deal. You should review the final steps carefully and look over other factors, like confidentiality agreements.

You can always ask financial or legal advisors for help with the term sheet to ensure you understand the agreement.

Reach Out to KPI Sense Today

If this feels overwhelming—don’t worry! We help SaaS companies every day prepare and understand their data based on what investors want to see. We can eliminate the guesswork of your pitch and help you set your best put forward. After investment, we can ease the burden of reporting and proving growth.

Our financial database is built for B2B SaaS companies, streamlining many data procedures and making communication with investors easier than ever. We aggregate, optimize, and prepare reports of your B2B SaaS data. In turn, you can improve your business decision-making and keep investors informed.

To get started with KPI Sense, reach out to us today.

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