How To Attract Angel Investors To Fund Your Startup?
The key to make a successful startup hugely relies on funding. Gone are the days, when just having a unique concept was enough to attract the mass and get users on board eventually. Today, the market is tough and competition is too high that it becomes tough for a startup to get even noticed without any marketing or advertisement campaigns.
For initiating such marketing or advertisement campaigns, a startup needs at least one single round of funding. Many startup founders or entrepreneurs either move towards Crowdfunding sites or try to contact venture capital firms for investments. While the former is unpredictable, the latter wouldn’t even consider your startup unless it has already shown any promise on the lines of Google, Twitter, Facebook or WhatsApp.
At these times, the best alternative to receive funding is through Angel Investors. There are some sites that allow searching for Angels such as AngelList and Gust, however the approach to dealing with an Angel Investor is completely different and must be dealt smartly. Remember, these are the folks who fund over $25 billion annually on startups which is higher than all the other ventures together.
One thing you must understand while approaching an Angel Investor is that they are not some Venture Capital firms or a corporate company. They are actually individuals with loads of money looking for reliable and promising prospects to invest in order to earn a quality return or equity share from the business. The best way to approach them would be trying to understand their background and type of investments in the past which would then help you focus on the right Angel Investors based on your location, startup stage, and industry.
Here are some interesting findings that would help you find the right investor who could be a perfect Angel for your startup:
1. Angels Look For Equity Ownership.
Nobody would invest money in a startup for free and the same applies for Angel Investors as well. Most Angel Investors look for opportunities to own a percentage of the business while investing in a startup. They are looking for long-term partnerships with the startup through equity ownership in order to reduce the risk to entrepreneurs.
2. They Are Not Just In For Returns On Their Investment.
Angels are mostly current or former successful entrepreneurs who have earned loads of money and now look for good and promising projects where they could invest their money for greater returns. But, they are not just for the returns only. Besides investment, they also try to get involved in the venture by sharing their expertise and knowledge. Hence, most of them prefer local business opportunities or startup ventures where they could work together with the core team.
3. Individual Investment Limit Is Often Less Than $100,000.
In the hierarchy based on the total amount of funding, Angel Investors often fall between Crowdfunding and Venture Capital Firms. Hence, if your initial funding requirement exceeds $100, 000 then Angel Investors would disappoint you. However, a group of Angel Investors may up the scale up to $1 million, but if it exceeds $ 1 million, you only alternative would be to focus on VC firms.
4. Angels Favor Strong Teams Than Big Startup Ideas.
Angel Investors are more interested in you and your team rather that your technology. Their core strategy is to invest in the right team as they believe that the success of a startup highly relies on the core team. No matter how big or unique the startup idea is, if it isn’t executed well, then it is going to be a disaster. Hence, try to network with potential future investors and build relations before asking any kind of funding. Once they trust your expertise as an individual, they will eventually trust your startup idea too.
5. Perfect Pitch And An Effective Business Plan Is The Key.
Having a business idea is just the first step of starting a venture. You must be prepared with a working business plan and an excellent startup pitch which is nicely demonstrated as a written plan while approaching an Angel Investor. Such dedication would convince the Angel about your commitment towards the project as well as help them understand the business model and the exit strategy which is the only way they could assess the magnitude of their returns after the investment.
6. Growth Opportunity And Financial Projections Are Very Important Factors.
Angel Investors are not going to invest in your project just for profits. They look for opportunities that promises double-digit growth in the long run. To convince the Angel Investor, your startup business plan must be ready with fifth year revenue projections that falls somewhere between the $20-$100 million range. Remember, larger numbers wouldn’t be reliable or believable while smaller ones wouldn’t attract the angels. Hence, set up the best fifth year revenue projections that falls in the acceptable range with reliable insights.
7. They Avoid Any Dodgy Schemes Or Business Domains.
Don’t waste either your own time or the time of Angel Investors by asking them to invest in work-at-home dodgy schemes, gambling portals or other unreliable business domains. Such notoriously risky business domains are usually avoided by angels.
8. Angel Investors Prefer A Working Business Model Rather Than A Promising One.
Remember, there are millions of startups out there and many new startups are being launched every day globally. It becomes difficult for the Angels to scale a business startup based on promises or ideas. Today, most of the Angel Investors look for a working business model with a real customer or two. Hence, try to build a working prototype and attract few sales or customers before approaching any Angel Investors to fund your startup. Once your business model is proven, it will eventually convince the Angels and encourage them to invest in your startup.
Follow these key findings about Angel Investors while approaching them. You must understand the fact that the Angels are just some business people like us who are looking for good business prospects in order to make money in the long run. Just like us, they too expect integrity and respect for their role. In short, don’t ruin your relations with them displaying your large egos or taking them for granted.
Also, don’t dishearten yourself, if you face rejection. Most of the Angel Investors don’t reject you literally, but invite you back when you have something more to offer. In short, they want you to return better prepared next time with more traction. Irrespective of that, there are 250,000 more Angel Investors to choose from, just in the U.S alone.