Welcome to a new and improved Tuesday Tips!
Thank you for all your love and appreciation! After a lot of research and brainstorming, we have come up with a new format. And here’s the first article! We hope you love it as much as we have loved creating it!
So, you have a great new idea for a startup. Now you need some money to take it off the ground.
Shows like Shark Tank encourage you to dream big. It’s not a bad thing to dream. In fact, if you want to be your own boss doing work that you really love, you should dream big. But, your big dream should also be pragmatic – especially when it comes to money.
Are you considering approaching an angel investor to in your great idea? Then stop obsessing over Shark Tank and look for them in the real world. Start by reading this article first!
1 Challenge
- “To find an angel investor for my startup”
2 Questions
- “Where should I look for angel investors?”
- “How do I get them to invest in my idea?”
3 Tips
#1 Challenge: “To find an angel investor for my startup”
In India, the number of enterprises funded by angel investors has grown over the past two decades.
Angel investors are individuals who invest in startups or early-stage companies, usually in exchange for an equity ownership interest. The angel investment market comprises two types of investors, namely angels who invest as individuals (also known as ‘lone wolves’) and angels who invest as a group or as part of an ‘angel network’.
To invest in startups, angel networks use several routes such as creating a fund out of their pooled capital, or investing directly into the funded enterprises as individuals. In the latter case, they use the network only for sourcing and for evaluating deals. Angels can also invest in enterprises that have been created specifically for funding another enterprise. These different approaches indicate that angels have plenty of flexibility when it comes to channelling and investing their funds in startups. This is one reason why angel investors (as individuals or as networks) usually fund more enterprises than Venture Capital firms. In other words, your chances of getting your startup funded by an angel are higher than with a Venture Capital firm (although not always).
When should you approach an angel investor?
It’s best to approach angel investors when:
- You have a solid business plan
- Your product is ready or you at least have a working prototype
- You already have a base of current or potential customers
- You have already invested your own money and/or have exhausted other alternatives (e.g. family or friends)
- You can demonstrate that your business is likely to grow rapidly in the next X number of years
What does an angel investor look for while investing in a startup?
Experienced angel investors always do their homework before investing in a startup. This includes asking questions like:
- How big is the market for your idea?
- Do you have the required domain expertise to execute this idea?
- How much momentum have you achieved so far in terms of revenue, clients, projects, etc?
All in all, it is not difficult to find an angel investor if you are an Indian startup. Just be prepared to work hard and don’t expect that everything will just fall into place very easily.
#2 Questions
Q1: “Where should I look for angel investors?
Here are some ways to angel investors:
- Through other entrepreneurs
- Through senior-level managers working in the private sector
- Ask lawyers or CAs
- Search angel investor networks in your country, state or city
- Check with Venture Capitalists (VC) and investment bankers
- On crowdfunding sites
A lot of former entrepreneurs become angel investors so you can also look in your own network and approach them when you need funds.
Some of the most well-known angel investor networks in India are:
- Indian Angel Investors
- Indian Angel Investors Network
- Indian Angel Network
- Angel Investors in India
- LetsVenture
Q2: “How do I get them to invest in my idea?”
Before approaching an angel investor, make sure you have:
- A clearly thought out business plan
- Done research about your industry and market
- Completed an appropriate valuation of your business with reasonable terms
- Answers to questions like what is your business’ USP, what challenges will your product/service address, how will you deal with regulatory requirements, etc
You should also have answers to these questions before you approach an angel investor:
- Am I willing to give up some ownership in and control of my company?
- Can I demonstrate that my company will produce a significant RoI?
- Am I willing take advice from investors and accept decisions I may not always agree with?
- Do I have an exit plan for the company?
Also read:
#3 Tips
Tip1: Do your homework
This one sounds like an obvious piece of advice, but a lot of startup owners fail to follow it – to their ultimate detriment. One reason is that they’re desperate for funds and ‘someone’ told them that an angel investor is their best bet. After a lot of heartache, they realise their mistake. Another reason is that they think they have exhausted every other financial avenue, even if it’s not necessarily true. Regardless of the reason, it’s important to do your homework before you approach an angel investor.
Also, the name ‘angel’ does not make them truly angels. In general, angel investors who invest in startups are not purely driven by monetary concerns. They also want to participate in the entrepreneurial process and give something back to their communities. But this does not mean that they will invest in your idea if they don’t see the monetary value in it. Be prepared to explain how your idea will make them money, when and how much.
Finally, ‘due diligence’ is a two-way street. A potential angel investor will always do due diligence on you and your idea. Why shouldn’t you do the same? You have a lot to gain if they come onboard, but you also have a lot to lose, right?
Tip2: Get your pitch right
You have a great idea? Great! But is it a convincing idea? If not, go back to the drawing board and rewrite your pitch. Make sure you have a solid business plan, accurate financial statements and detailed projections.
The angel will want to know what your goals are what you plan to do with their money. Put your ego aside and be prepared to answer their uncomfortable questions – because there will be many!
Tip3: Focus on building a relationship
To some people, this sounds like weird advice.
“Relationship? I need their money, not their hand in marriage!”
If this sounds like you, stop and think for a while. Would you not prefer to do business with someone who invests time and effort in building a relationship with you? Think about your favourite brands. Do you not prefer to engage with them because they make you feel unique and special, not like one of a million unknown ‘customers’, ‘cases’ or ‘patients’?
This is exactly why building a relationship with an angel also works. Remember that they’re not just investing their money in your venture. They’re also investing their trust. And something so tangible – and precious – should not be transactional and left to chance. Invest your time in the relationship. It will yield a big return.
Conclusion
India’s angel investor ecosystem is growing by leaps and bounds. So if you have a wonderful new idea for a startup but money is your biggest stumbling block, consider approaching an angel investor. The returns – for you – can be worth it.
Also read:
Tuesday Tips: Starting a new business? Read this first
Did you like this post? Would you like create such powerful content for your brand? Cynergi can help! From websites and blogs to newsletters and social media – we can create content to grow your brand’s presence and establish your thought leadership in your industry! Contact us today!!
- Website: cynergi.org | www.cynergiconnects.com
- Phone: +91 9833837428
- Email: mailto:minfo@cynergi.org