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… You think you have the “chutzpah” to become an entrepreneur? You have an idea for an awesome startup (at least you think it’s an awesome idea-stage) and you’re ready to dive into the glittering world of startups angel funding?
Do you relish the idea of getting accepted to a startup incubator and launching your company to the adulation that awaits you when customers discover your spectacular startup. WAIT. Getting $ does not make you a certified startup. You just took a loan. This series will introduce many of the important things you’ll need to know about Angel investors, and what they want to hear. Buckle up…
The fact that you’re selling a piece of yourself like a corner street-walker is just the cost of doing business in Startupland. Before you sprint longingly towards the bright lights and Internet fame that await you, you would be well-advised to review the following truths that no one talks about.
Startupland is highly clique-oriented. You better learn early to associate with the “cool” crowd; becoming a part of the favored few will take you far in the land of angel investors and entrepreneurs. They’ll never admit it, but the startup ecosystem is just like the grown-up version of college life with its fraternities and sororities.
A growing number of today’s entrepreneurs are choosing to work at a startup company prior to launching their own businesses. Not only does working at a startup help you get a feel for multiple facets of the business world, but your entrepreneurial experience at a startup can also be a fabulous launching point for the next stage of your career. But working at a startup is a move you should make only if But working at a startup is a move you should make only if you are prepared for what lies ahead.
Don’t join a startup unless you have taken off your rose-colored glasses & prepared to learn a few harsh lessons.
Bear the following prepared to learn a few harsh lessons. Bear the following five truths in mind and the time you spend working at a startup could be some of the most beneficial months/years of your life. The experience you gain from working at a startup is likely to be worth more than the stock options/equity offered by the startup. Many of today’s startups offer equity in the business in exchange for a reduced salary. Since the majority of startups fail within their first five years, your equity stake isn’t going to be worth much. years, your equity stake isn’t going to be worth much.
** Happiness is choice. You make your happiness on your own accomplishments. — As quoted in the Movie "Easy Living" **
There no nightmare, no hard stop, quite like being unable to secure funding. While many small businesses can survive being bootstrapped, It’s often a more arduous endeavor. The sooner you sort out that you’re going to have problems, the sooner you can start setting up contingencies. Here are few signs that you’re going to run into funding woes.
Your Target Market is Unresponsive
You need to show investors that people are interested, even before you’ve started generating revenue or profit. If before you’ve started generating revenue or profit If you’re not selling your product yet, have a sample of customers try out the product and record their responses. If you are, gather reviews and testimonials to use as social proof. Keep in mind that some investors may want to interact with your customers, so make sure you’re ready to put them in touch.
“If you don’t build your dream, someone will hire you to help build theirs.”
Getting Investor Meetings is Difficult
If you’re having trouble just meeting investors in the first place, you have a lot of problems to fix. That means that they’re not Interested In hearing what you have to say for one reason or another. This could mean anything, from not having enough credibility to approaching the wrong people. You need to take a step back and figure out if you’re actually to attract outside money.
The Meeting
You’re in a room with a group of impatient executives. They’ll be deciding whether your startup company gets to run and prove itself, or slips back into the shadows They’re Angel Investors, and they have the money to make it happen. And, you have 20 minutes for a chance at hundreds of thousands, or a million in capital.
Every entrepreneur facing such a presentation is counting on making the right points, having the right answers. Whether you succeed or not depends on knowing what these Investors are looking for, and specifically, what it will take to get them to write that check.
If done successfully quite a few times, and you’re well prepared, you can too. But before we start, is this your first or third startup? If it is and your first two were successful, you’ve already got 50% of what Angels want: a winning track record, and a clue about the next big thing. If that’s not you, then you have a little more work to do.
First point: there is no single correct or winning pitch for successfully raising Angel capital. Angel investors are individuals, and as different as everyone else you know. You and your venture will dick with some and not others
While most Angels will expect you to have all business plan fundamentals covered, including, including valuation (subjects we’ll cover in Part 2), don’t make the mistake of assuming that’s the bulk of what they’re looking for. If it were, investment proposals would process like loan does. They don’t.
… The truth is, Angel investment decisions are pretty subjective. Criteria differ from one investor to the next.
And believe it or not a spouse’s opinion can make or break the decision. We’re dealing with retirement money here. To be fair, early stage investing is part science and part palm reading.
You’re asking investors to evaluate new products, potential markets, returns, risks, and people, and then make calculated judgments about the future. So It’snot surprising most won’t stray too far outside of their comfort zone.
Investor mood has a big influence, just as it does with the big markets.
But there’s a reason you should persist. In the first half of last years, Angels put nearly $9 billion dollars into 26,300 companies, with an average deal size of $338,000. Angel investing was up nearly 5% from a year previous.
So how can you cut the odds and position for the best chances of landing some of this money? The most important first step, according to Angel Investors themselves, is to know what Angels are, and what they’re looking for. As the statistics imply, Angels are financially successful, and both able and willing to back highly risky ventures — provided they also promise very high returns. Typically they’re mature, often retired, professionals.
They come out of business management, technology or other fields, with a mix of experience they believe helps them find and turn small ventures Into global winners. Many have been entrepreneurs or CEO’s themselves.
Some have been investing for a couple decades, so they’ve heard hundreds and thousands of people just like you. Most will appreciate if you stay focused and cut to the chase, as long as you back up all claims with facts Most have a pretty good idea of what they’re looking for, and good instinct for when someone’s blowing smoke.
In a nutshell, the most important factor in closing an Angel investment is the investor’s opinion of you. Are you trustworthy? Do you know what you’re talking about? Are you worth taking a risk on?
Follow-Up Meetings are Rare
Investments are rarely signed at first blush. Investors often need time to consider and will schedule follow-up meetings to gain more information or to sign up. More often than not, not being able to secure those meetings is a sign that you’re meeting with the wrong people.
.. Bury what is dead and is past its time #failfast #startup
Make sure that than not, not being able to secure those meetings is a sign that you’re meeting with the wrong people. Make sure that you’re talking to investors who are interested in your industry or who are in the right part of the cycle. Alternatively, your presentation or materials may be lacking. Take a second look at how you’re selling your small business’s offering and see where you can improve.
You Haven’t Accomplished Enough
Investors are rarely interested in your idea in a vacuum. They want proof of concept. They want a company that works For example, having met key milestones in terms of growth and sales will go a long way towards convincing investors that you’re committed to the task and that your business plan has potential.
Communicating Your Unique Selling Point Is Difficult
Your elevator pitch is one of the most powerful weapons in your arsenal. This succinct communication is what will keep investors thinking about your product long after the meeting’s done being unable to articulate what sets your product apart can spell doom. If you’re lucky, it’s a matter of crafting the right pitch. If you’re unlucky, it might be a problem inherent in your small business.
You’re Having Trouble Forming a Core Team
Investors aren’t just interested in numbers. They want to know who you have at the office, and if these people have the right stuff. If you’re having trouble hiring top talent, you’ll need to take a look at your brand and how people see your company. Most people are perfectly willing to work for a small business, but if word-of-mouth says your company isn’t worth their time, you’ll never get the best.
Venture Capital Investors fund Startups for Growth. Not Survival. Having Bad Debts is just Your Problem 101.
Your Capital’s Running Out
A small business whose coffers are dwindling is rarely seen as worth an Investor’s time. Often, that’s a business as worth an Investor’s time. Often, that’s a business that mismanaged Its resources, or one that couldn’t get attention from other Investors. Neither situation Is appealing. If someone does show Interest while you’re in this position, be extremely wary. These people are often predatory in nature and will take you for all you’ve got during negotiations.
Your Cash Flow is Weak
Your small business is surviving, barely, on what salesyou manage to get. You understand that it will take time for the market to warm up due to your specific offering, but Investors often won’t care. They want something that promises great returns already, not something that might eventually become promising.
Growth Is Slow and/or the Market is Small
Investors, especially venture capitalists, are Interested In how quickly you can start making money for them and how much you can make down the line. One out of two Isn’t good enough. If your small business looks like It’s going to stay small for a while, or if your niche is too tight, you may not be ready to call for outside capital. Look for ways to prove that your company is worth its salt.
Attrition Numbers are High
Attrition Is to be expected from any small business. However, losing huge swaths of your personnel and having to replace them constantly can drive away investors. You replace them constantly can drive away investors. Your people are responsible for executing your plans If you can’t keep them In the office, you need to take a step back and examine your hiring strategy, as well as your company culture.
If you have these red flags, your small business may not be ready to accept investors. That’s okay! Now that you know, it’s up-to you to if you are ready to accept investors or not. Now that you know, you can take steps to improve your systems and processes so your next round of financing goes more smoothly.
Think like a VC. Do you still believe VCs don’t take kickbacks? What motives them to invest in you?
If you are an entrepreneur thinking about raising capital for your business, it is imperative you understand how investors think and act. Entrepreneurs who understand the intricacies of approaching investors have a much greater chance of raising funding than those who jump headfirst into fundraising without first understanding their targets. Your ability to impress investors not only influences your ability to raise capital initially, but your ability to scale and grow your company over the long haul.
Audience Analysis Matters
If you don’t understand your audience, good luck securing funding from investors. You need to know your target market better than others in your sector and have a clear better than others in your sector and have a clear understanding of their path-to-purchase journey.
Audience analysis is part of marketing.
Entrepreneurs who can demonstrate deep knowledge of their target market are much more likely to raise funding than those who say “we haven’t spent a dime on marketing yet”.
Traction Isn’t Enough
Most entrepreneurs understand demonstrating traction is crucial when raising Investment funds. If you can’t show traction, why are you even attempting to raise investment capital? In today’s hyper-competitive startup market, traction speed is what really matters.
The Expectation
Experienced Angels also want you to address key questions, to help them gauge you and your business’ potential. This isn’t the whole list, but you need to score well in each of the following:
**Is your venture different than what’s out there? ** If you can’t point out three major ways you’re better than your competition, go back and improve what you’re offering.
Does your product or service fix a “pain”? If customers can get by without you, they will. A fantastic new technology may change the future, but if it won’t let your customer make or save 20% more, or better, they probably won’t pay for it.
Can you identify the potential customers who need your product? Don’t try the — “If just 10% of everyone in China uses our product” market projection. It won’t fly. Use trade or market research information to bracket the market(s), but make the case for who your customers are and why.
Can your product be produced economically? Many, many truly outstanding technical solutions will never get to market outstanding technical solutions will never get to market because they can’t be made cheaply enough to generate sales and profits While it’s not unusual to start expensive and have a declining cost of manufacturing as you go through development and scale up, be prepared to go through development and scale up, be prepared to explain.
Can your company deliver big returns to early investors? Most Angel investments are losses. That means, to come out ahead, they need to see a 20x or 30x return from the winners. If your company can’t show that kind of potential in five to seven years, you’re not likely to get anyone interested. There are very, very, few exceptions, because there are a lot of other deals besides yours to choose from.
Will their investment help you complete valuable milestones? No Angel wants to invest money in a ‘bridge to nowhere’. They want to fill a finite gap in your road to success. it’s up to you to show how their money will close that gap — the results you expect from use of their funds.
Are you looking for the right amount of capital? If you’re looking for too little or too much money, Angels may decide you’re wasting their time, or you don’t have the you’re wasting their time, or you don’t have the financial savvy to plan realistically. They expect the reason you’re coming to them is because you can’t get money somewhere else.
Venture Capital funds won’t bother with small investments, and few entrepreneurs can self-fund or find friends and family for the hundreds of thousands or find friends and family for the hundreds of thousands needed to get to the VC stage. Angels are prepared to fill the gap.
Experienced investors, entrepreneurs, considered by experts to be one of the eminent Angels, are concerned by the fact that VC funding in India has steadily declined, and lesser VCs are inclined to invest under $4 million. This creates a gap above what Angels are willing to put in.
“…….. That doesn’t mean they can’t go back to Angels … but it does mean they need to meet their milestones.”
Who’s on your team, and can you really deliver? The investment highway is littered with thousands of great technologies and huge potential markets. Only people build great companies. A large part of an investor’s decision rides on their confidence In you and your team. That’s why they want to hear and see you.
Are you convinced you’ll succeed? Walt don’t skip this point. They’re reading your body language, and they want to know. Are you in with both feet, or just testing the water? Have you hocked your house to get this far? Do you have your own cash, or “skin”, in the venture? If you’re not willing to risk your own savings, why should they? If you have, they want to hear It.
… And, the questions still lurk!