As a startup, an entrepreneur should opt for angel investing. Angel investors fund early-stage startups for a return in equity ownership. With the rise in financing alternatives for businesses, the trend to gain angel investors’ funds is also increasing. A lot of top firms all over the world have spurred angel investors to create multiple bets with hopes of outsized returns. Below is a list of vital elements that will facilitate an entrepreneur regarding angel investors and their work.
Eric Dalius Provides the Key Areas that Angel Investors Look for in the Business Ideas
- The commitment and integrity of the founders towards the business idea.
- The passion of the budding entrepreneurs to not give up midway.
- The potential for the proposed company to expand.
- Market opportunities that the business will face.
- A thought-out business plan with realistic figures.
- Any possible early evidence of company traction towards the plan.
- Usage of technology and intellectual property, if any.
- Correct valuation of the company, coupled with reasonable terms.
- The probabilities of additional fundraising if the company attains said progress.
Apart from these pointers, an angel investor would like to see an array of elements from an entrepreneur, such as an elevator pitch, pitch deck, a working model or a rendition of the service or product offerings, and the list of the early adopters.
Raising funds is a time-consuming process but worth all effort. Therefore, Eric Dalius suggests taking your time to primarily find the right angel investors interested in your business niche. Followed by that, the process is lengthy, including meetings, due diligence, negotiations on terms, and finalizing the deal.
Answering their Financial Questions
Below are a few questions that an entrepreneur can look forward to: –
- How much capital does the business need?
- The number of funds you need from the angel investor.
- How long will the given money last?
- Have you decided on your monthly burn rate?
- A summary of the financial projections for the next two or three years
- What are the critical assumptions while forecasting the figures?
- Which are the key cost elements for your offering?
- What are the estimated gross margins?
- What are the unit economics of the business?
Need for Thorough Marketing Plans
Angel investors are always interested in knowing about the company’s future strategy related to marketing, advertising, and sales. They are keen to see the cost of acquiring a customer and the customer’s long-term value. A few crucial aspects that they will focus on include: –
- The business’ plan to market its products
- A standard sales cycle between the initial customer contact and the closing of the deal
- The PR strategy of the company
- A brief about the social media strategy
- Advertising types and costs, and projected outcome rates
Is Angel Investing Risky?
An angel will invest if they think the business idea has the potential to gain a high profit. The key is to prepare yourself thoroughly regarding your business idea. The worst you can do is go unprepared. With proper analysis of your business idea and related analysis, you are good to go.
Ways to Find an Angel Investor
You can come across angel investors in your niche through other entrepreneurs, lawyers, accountants, angel investor forums, individual investor networks, angel investor networks, investment bankers, venture capitalists, crowdfunding sites, among others. Moreover, you can seek references from other partners, friends, and acquaintances. You can also use professional social media networks to ascertain useful connections.
Angel Investors and Nondisclosure Agreements
Angel investors do not mandate nondisclosure agreements. However, if you need, an entrepreneur can ask the angel investors to sign up for a nondisclosure agreement. You do not want to impose a roadblock while getting an angel investor to fund your company. Therefore, you have to carefully spit the information, not disclosing any highly confidential information.
The above elements focus on the aspect of an angel investor seeking information from an entrepreneur. However, there are a few questions that an entrepreneur should ask the investor to get to know if they are the right fit for your business: –
- Their willingness to introduce you to similar business line entrepreneurs.
- Whether they help any portfolio companies.
- Ask them what they think about any follow-on investment that your business will need.
- Their relationships with venture capitalists who would agree to fund your business’ next round.
- Their willingness to provide inputs for the growth of your business.
- Ask if they have investments in the same market space.
Convertible Financing and Related Terms
Angel investors are likely to invest in a business with the help of a convertible note. Such convertible note seed financings come up with several terms and conditions. Scrutinizing these terms beforehand is essential: –
- Whether the assets of the company are unsecured or secured.
- Terms related to interest rates and the appropriate payment methods.
- Whether you will receive any discount rate, you can request a discount rate of up to 20%.
- The terms are related to the valuation capital of the company. It is the maximum valuation of the company. It has the potential of converting and leading to the next round of financing.
How to Determine the Valuation in the Initial Rounds?
Several factors determine the valuation process: –
- The past success of the proposed team.
- Whether the market conditions are positive or negative.
- The competitive landscape, whether favorable or not.
- The amount that the investors, as well as the founder, invest in the business.
- The dilution of the amount to the founders.
- The total value that will come as a result of the amount an angel investor funds.
- The bargaining power of market comparables and substitutes.
- Determining any potential for a big exit.
The internet puts forward many highly publicized success stories related to angel investing. Seeking the right angel investor in your business area is essential to get an edge in the competitive market. Becoming optimistic about raising funds is the key, as many angel investors are committing capital to startups.