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How to Raise Money from Angels the Right Way
What is an angel investor, exactly?
An angel investor is a wealthy person who invests in small companies or startups in return for a share of the company's ownership. Angel investors care more about helping companies grow than they do about the company's profits. The primary distinction between angel investors and venture capitalists is this.
What role do angel investors play?
Angel investors come from a wide range of backgrounds. A doctor, a lawyer, a business partner, or even another entrepreneur may be one of them. They are motivated by the business's success rather than income.
They assist the company at every level and act as mentors since they are passionate about the industry. Angel investors are mostly senior professionals who have worked for Fortune 500 companies.
As a consequence, their coaching is very useful to your company's development. Because of their aid and mentorship, angel money is crucial for the startup ecosystem.
Before investing, an angel investor would check for the following in a company.
1. The founders' genuine conviction and dedication
The founders' vision and devotion to their clients are the driving forces behind every firm.
One of India's top investors, Rajan Anandan, emphasizes that he would back the original team or founders. He feels has perseverance, vision, and the ability to establish a team and generate funds and is tackling a genuine issue.
2. Your company's traction and scalability
Company traction is defined as the presence of momentum or evidence of a growing business, such as a quantifiable customer base, increased revenues, and so on. As a result, the stronger the traction, the more investors are drawn to the company.
A scalable company is one that has the ability to double the revenue at a low additional cost. Software services are the finest illustration. The initial copy of the program costs a lot of money, but any number of further copies may be made for a modest extra fee.
3. Employ a competent management staff.
There's no use in having a brilliant company concept if your crew is inefficient. To assess the founder's and management team's quality, angel investors want to connect with them.
4. Target market size
The target market determines the amount of revenue generated. Investors will be interested in investing in your concept if your product or service appeals to a broad public.
5. Evaluate the business plan
Be extremely honest while evaluating your financial estimates for your business plan. Both overvaluation and undervaluation should be avoided. To arrive at a credible value assessment, do a comprehensive investigation.
Exit Strategies That Work
Angel investors are patient and prepared to put money into a business for the long haul. They anticipate a return on their investment, even if profit is not their primary motivation. As a result, it's understandable that they'd seek an exit plan to maximize their profits.
The selling of shares to the company's primary founders is the most usual exit plan. Another popular idea is to sell the company to strategic investors. Some firms even attempt to persuade their angel investors to go public.
1. Make your company simple to comprehend. Do just one thing, and do it well.
Rome was not constructed overnight. One of the main reasons why entrepreneurs have a hard time raising funds is because they can't select which of their ideas is their "core competence," so they attempt to create them all.
Customers, investors, and even staff, on the other hand, will have a hard time understanding what the company truly performs as a result of this.
If you can't describe what issue your company addresses, how it solves it, and why it solves it in a sentence or two, chances are you don't know. Investors won't know what they're investing in if you're not 100 per cent clear about what issue your firm is tackling in the world.
2. Before attempting to obtain funds, get close to profitability.
Almost all of the investments I've made in the last several years have been in successful or almost profitable businesses.
This isn't true for every angel investor (in Silicon Valley, there are plenty of investors who bet on firms that won't be successful for years). However, since I usually work with consumer firms, I want the original team to have generated some money before seeking more funding. The reason for this is because, in 2021, it will be simpler than ever to beta test consumer items, get user feedback and begin making cash over the Internet.
Once that milestone is hit, and the team has collected data on their unit economics, customer acquisition costs, and other metrics, the company can become much more investable—as they know their money is being used to accelerate something that is already functioning.
3. Demonstrate that you have the drive and commitment to establish a successful business.
Angel investors gamble on founders and founding teams at the end of the day.
I've made a couple of investments that were based on the founder rather than the company. I call these sorts of entrepreneurs "hustlers" because their enthusiasm suggests that they are prepared to go to any length to develop a company. They may have to go through many iterations to get there, but they are committed to doing so.
Angel Investors check for the following signs:
The creators have a lot of enthusiasm and a genuine passion for what they're doing and how they can benefit others.
The founders have an unfair edge, such as access to other powerful individuals, a significant social media following, a unique collection of skill sets, and so on.
The founders are terrific listeners, inquisitive, and have a lot of grit. However, your company must make sense in order for investors to join. Few angel investors would "take a chance" on someone who is passionate about launching a company (and those angels are almost always family members or family friends). The actual test of whether or not your business is investable is whether or not you can tell someone what you're working on without them making a comment.