Entrepreneurs tend to face numerous challenges while starting a business, especially challenges related to funding sources. Startups need capital to survive and thrive, whether from personal funds, bank loans, or angel investors. This article discusses angel investors and the correct ways to approach them to fund your startup.
Angel Investors: An Overview
Angel investors are high-net-worth individuals who draw out funding and extend it to startups in exchange for equity. They are comfortable investing for longer before they see any returns.
Finding them, ensuring that they’re the right fit for you, and onboarding them to finance your startup — all boils down to catching their attention and earning their trust. Angel investors often look for businesses that have the potential to disrupt the market.
Let’s look at ways to help you determine why and how to approach them.
Approaching Angel Investors In India
Approaching angel investors in India depends highly on the founders and entrepreneurs. They can reach out to angel investors with their proposals or apply to present an elevator pitch through various startup groups and networks. It takes several rounds of iterations and a ten-minute presentation to get shortlisted. Once through, you will have a face-to-face meeting.
Angel investors look at hundreds of companies. Therefore, entrepreneurs must find a unique way to capture investors' attention. Ensure that your pitch is crisp, personalised, and has credible information.
What Do Angel Investors Look For in Startups?
The angel investors you wish to partner with must be confident about your ideas. Most angel investors look for a clear picture of the business, teams, market, and future scope. Ensure that your angel investors are familiar with the following aspects of your startups.
1. Your Team
Angel investors look for teams with passionate and skilled individuals. You can affirm your startup's credibility by detailing your team members' professional backgrounds. You can also mention the successful ventures that you or your team have worked on in the past.
2. Data And Metrics
Make sure you sketch a complete business plan, including analytics and metrics about the present and future. Share your plans regarding revenue growth, net income, runway, industry multiplier, return on investment (ROI), customer acquisition cost, lifetime value of your customer, and more.
3. Market Information And Investment Plans
Have a clear picture of the competition before you approach investors. It’ll define your market share in an industry ruled by your biggest competitors. Specify how your product or service is different from your competitors.
Prepare a detailed plan about how you will use the funds and the potential risks involved. Share all this information with your investors so that they get an idea about the future of their investment.
How To Successfully Approach Angel Investors
Besides the points mentioned above, it is important to remember that the entrepreneur-angel investor relationship demands a few more things. Consider the following aspects before approaching an investor.
1. Prepare in Advance
Angel investors expect entrepreneurs to be well-prepared before approaching them. Investors are not interested in spending money on things that won’t provide a good ROI. Ensure that you remember these three things before approaching an angel investor:
1. You have a finance plan in order.
2. You have a great management team in place.
3. You have a detailed, ready-to-present business plan.
2. The Entrepreneur-Angel Investor Relationship
The second aspect is your relationship with your angel investors. Unlike private equity and venture capital firms, angel investment is much more intimate in terms of a relationship. It is your responsibility as a founder to determine which angel investor will be the right fit for your startup.
Determine if they have experience working in your industry and if you can get along with their personality. It could get harder in the long run if the personalities do not match.
3. Due Diligence
Angel investors are willing to take risks but also look for plans to mitigate those risks. It is an entrepreneur’s responsibility to sketch proactive ideas for growth and deal with potential obstacles.
Investors will ask you tough questions to determine the risks involved and your ability to handle them. They might sound discouraging at times. So, ensure that you’re prepared for these questions and provide them with well-grounded answers.
It is critical to determine if an investor and founder can develop a healthy relationship and collectively take the startup forward. Often, the personal connection is what drives investors to support early-stage businesses.
Not all startups are deemed ready for investment, and many don’t get it instantly. Being an entrepreneur and finding the right investors needs patience and persistence.