Here's How To Look For an Angel Investor For Your Startup
Building a start-up is like walking on a tightrope and the balance depends on how well you manage your finances and how you serve customers
Lindsay Manseau famously said, "Starting your own business is like riding a roller coaster. There are highs and lows and every turn you take is another twist. The lows are really low, but the highs can be really high. You have to be strong, keep your stomach tight and ride along with the roller coaster that you started."
Building a start-up is like walking on a tightrope and the balance depends on how well you manage your finances and how you serve customers. Though finance holds a little bit more weightage in this equation in the beginning as without funding it is not possible to serve products or services. There are various ways in which a start-up gets funded. It can be friends, family, or can be angel investors.
Basics of startup funding
A startup has various life stages and depending on each stage, the type of funding comes in.
The formative stage: This includes three phases: angel investing, the seed stage, and the early stage. Angel investing happens at the ‘idea’ stage of a startup and is used for business plan execution and assessing market potential. The seed-stage involves venture capitalists and the fund is used for product development, marketing and research. The last stage is known as the early-stage where funds are used for commercial predictions and sales.
Later stage(s): At this point, a startup is already selling products or services, and funds are used here for expanding products or the overall business.
Mezzanine stage: This stage involves funding for the purpose of making the firm public, aka launching the initial public offering.
Let’s bring the focus back to angel investors now.
Angel investors are high net-worth individuals that offer financing to startups in return for an ownership equity stake. They help the startup to grow at every step and are less concerned about profit-making.
As per an article published on RazorPay, according to Ralph Kroman of WeirFoulds LLP, a typical angel investor: has an income of more than $100,000; has an age of around 40 to 60 years; has a net worth of more than $1,000,000; has previous successful entrepreneurial experience; expects to hold on to the investment for 5-7 years.
An angel investor funds you with a belief in your idea but at times it is hard to find the right one. Angel investors can come from any profession; they can be doctors, lawyers, businessmen, artists, etc. There are many websites available now that list angel investors and their history for startups to find the right one easily. Such websites include the Angel Capital Association (ACA), Carrefour Capital Connexion, The BC Angel Forum, etc.
Angel investor looks for
To approach an angel investor and source funding for your startup, be prepared with the key areas as indicated below.
A good team: Funding your team with passionate and like-minded individuals is as important as financial funding. Team members having previous successful startup experience or background works well to attract angel investors. It creates a sense of credibility. If your teammates are new, then too, the way they collaborate in your startup and your ability to showcase the same holds high importance as well.
The pitch deck: A pitch deck is your shot at convincing angel investors by presenting your business plan, market type, customer base, competition comparison, usage of funding, your vision in 1-2 years, why your startup is worth the funding, etc. It should be simple yet should answer all the questions that an angel investor may come up with. It is your key to open the doors of investment for your business.
Product/service prototype: This part holds a significant impact as this shows how practical your product or services are. After all, no investors would want to invest on the basis of high numbers if they are not possible to achieve in reality. Thus try to build a prototype or demo to showcase your vision and how compatible it is. This is a great way to build trust from angel investors and your chance to start your dream.
Vision: Apart from having the materials ready to present to angel investors, having a long vision and the ability to convey it in pitch meetings is just as crucial. Prepare in-depth answers or documents on where do you see your start-up in the 5-10 years? What would be the market scenario? How tough would be the competition? How and what would be your customer growth base? How would you plan for the challenges?
Be proactive in stating such visions as it shows your commitment. And of course, be confident.
An angel investor is an accredited investor with a high net worth who is willing to provide personal financial backing to promising startups. But it is on the startup owner to take the business to the next level.
In the end, I would like to conclude it with just one line from the book UX Design for Growth by Molly Norris Walker. It is written for products but works well on the start-up culture as well. “Test small, bet big. Build on what works, get rid of what doesn't. Repeat.”
Amit Kumar is a business leader who has built multiple internet consumer businesses in the last decade. He was earlier Managing Director of Kaymu (Merged with Jumia, Listed on NYSE). He likes to write about Leadership, Startups and Economics.