Who are angel investors?

I would personally like to use the word ‘angel’ for them rather than the conventional term ‘angel investors’, a term formulated in 1978 by a professor, at the University of New Hampshire – William Wetzel.

Influential and rich people from across the world, who invest in your very own startup idea in exchange for convertible debt or ownership equity are what comprises of angel investors. These people have a much bigger motto than just earning money, i.e. to break the conventional norms of the society and enjoy the risk that comes along with it.

These angles may come to you in the form of friends and family or individual investors or via fundraising adviser. Wait a minute! They even come in the form of a vivid investment network wherein a few of them come together to form a joint pool known as an angel network. Such network is widespread across the globe and provide the required funds to any potential startup.

If I was you in such a scenario, I would have definitely gone with network investors as the scope of investment that may come from them is unmatchable. Don’t forget that branding is best done via corporate relations.

What is angel funding?
The chunks of money that you receive from angels as investment for your very own innovative startup company is termed as angel funding. This is certainly one thing that can propel your business to new levels and also provide you that cutting edge over your other competitors in the market.
How to find angel investors?

Anonymity is closely related to angles since our childhood, and it still continues in the 21st century. The angels make sure that their identity is hidden and this makes the search for the investors even more tedious. Unless you have already got a few big investors in your company, the challenge level rises exponentially. Just to help out the readers, here is a small list of the leading angel networks.

  1. Ohio TechAngel funds
  2. Tech coast angels
  3. Investors’ circle
  4. Golden seeds LLC
  5. North coast angel fund
  6. Band of angels
  7. Hyde park angel network
  8. Alliance of angels

The list is exceptionally long, but the right amount of time devotion and hard work can give you the taste of success easily. Isn’t it so?!

One more important thing, don’t forget to research for the right type of angel for your startup as not all angels may suit your type of work. Therefore, you should have a complete background check of the investor you are about to approach.

Where to find such angels?
  1. You need to establish your credibility in the market before jumping to find investors. Personal contacts can do no harm in such a scenario and if any investor does eventually refuse to invest, you can always ask for corporate contacts and leads from him/her.
  2. Apart from that, the internet is flooded with angel networks but working on the net might not be that effective as a face to face meeting would be. So be ready to go that long mile to get the investment.
What the angel investors want?

A quick catchy idea with a great future potential. Apart from this quick money making source and a dedicated founding team are other things which attract the investor like a magnet. They are also looking for a secure partnership with the founders of the startup and their investment should reap them hefty profits.

I would share my experience with you to explain

  1. What really are the investors looking for in a startup company?

Before I come to the experience, it’s of utmost importance for the reader to understand what a startup company actually is. It’s nothing but a venture designed to search for a scalable and repeatable business model of the person. They are relatively new to the market and are trying to build their market share or earn profits. So guys get you’re thinking hats on and a pen down your very own idea ASAP.

Now, coming back to the story.

Sheer sawari, a startup on the food truck was started by six of my friends including me. After a lot of calling and searching, we were finally able to fix a 2 minutes elevator ride meeting with an angel investor. A meagre 120 seconds, that’s all we got to pitch in our idea. And guess what? We nailed a whopping 10 lakhs investment from him! Fascinated by what we actually did in those 120 seconds? Well, the overview of the whole scenario follows-

Pros and cons of pitching your idea

Time is money.

A concise and befitting tagline to define every investor on this planet. For them every second count and make full usage of the 120 seconds of money they are offering you.

  1. First things first, always mention the problem that your startup addresses and how it is unique from all the pre-existing start-ups in that particular field. What we did in our case was the start from the basic fact of unavailability of hygienic and mouth-watering food. A worldwide problem that every foodie faces in his/her life. Basically, the investor is interested in your USP- unique selling point and not the beating around the bush that you may offer.
  2. Secondly, never offer too much equity to them easily, as that might be seen as the lack of other investors or confidence shown in our idea by you also. What I offered to the investor was a mere 30% equity share and the rest was divided among 6 of us.
  3. Thirdly, be good with your numbers and pitch in your forecast sales practically and the research to match it. Being good in maths, it was fairly easy for me to calculate the future scope of our venture and thereby an accurate forecast of sales followed soon. The investor did look pretty impressed!
  4. Fourthly, in order to captivate the investor’s mind, narrate everything to him in a story format as this would save the investor from the same old monotonous conversations. My strategy was simple yet effective. I narrated him the story of the chronicles of every college going student in the search for cheap yet fulfilling food. All the hostellers out there do feel me right?!
  5. Fifthly, be accommodating completely and open to new revenue earning opportunities. What I mean by this is that don’t be too strict on the pre-existing guidelines and always look at the bigger scale of things. The vast amount of experience that the angel investor holds is something which you should respect and learn from always.
  6. Last but not the least, your body language does matter and having the right type of affection for your own idea is something which helps you make the cut.

If you are able to fully follow the above 6-steps solution, then brace yourselves for large incoming of cash flow.

How to invest in start-ups?

Who doesn’t want to make a quick buck? Well for a quick buck that extra risk factor should surely be taken up. If investing in a startup is an item on your bucket list ill help you strike it off.

  1. Background check of the company founders- really very important to know the people on whose name you are writing your banker’s cheque on.
  2. Market problem the issue addresses- the market problem that the issue addresses helps in deciding the target audience and is also directly proportional to scope
  3. Future scope of the idea- identifying accurately the future potential of the idea is vital. Who knows this idea might just be the next big thing like google?
  4. Exit options- prevention is better than cure, hence always be prepared to exit the sinking ship with your money intact.
Statistics

Let’s have a look at where the angel investors actually invested in 2012 in terms of dollar volume

  1. Internet: 31.9 percent
  2. Healthcare: 20.9 percent
  3. Mobile and telecom: 13.3 percent
  4. Industrial: 6 percent
  5. Electronics: 3.8 percent
  6. Consumer product and services: 5.3 percent
  7. Services: 4.5 percent
  8. All industries that don’t fit into the aforementioned categories: 14.2 percent

Certainly, this is an era of e-commerce and that is one thing which has the brightest scope. Emergence of major e-commerce giants like Flipkart, Myntra, Alibaba etc. from scratch are success stories that every person can connect to and feel motivated by. Investors are also preferring the mobile sector more than the healthcare sector, if you are a budding entrepreneur then you certainly know where to streamline your thought process on?

Benefits of investing in a startup

It was March 1998, when Andy Bechtolsheim was pitched an idea about a search engine by two PhD students of Stanford university, namely Sergey Brinn and Larry Page. He could only see the USP of the idea and wrote out a 100,000 US collars cheque to them. This became the first real investment for the two young students and what followed was nothing short of a miracle. Within the next 15 years, Google (search engine) became the most used engine in the world and the brand value stood at a whopping 107.4 billion dollars, second in line only to Apple. This becomes a benchmark event in the minds of every investor as well as young entrepreneurs

  1. The benefits are straightforward i.e. high risk and high return guaranteed. Besides in this modern age, where so many start-ups are ruling the markets in various fields, this is the way to go! If I was an investor, I would certainly like to invest in a young and vibrant idea, an idea that has the potential to change the whole market scenario. A huge potential in your idea, clubbed with efficient management and funding can reap wonders indeed.
Who has the risk in case of failure?
Well, this is a very debatable topic and something which can break or make you investment scenario. Maintaining the perfect balance between the investor’s and the founder’s interests and yet keeping the investors happy is a tedious task indeed. More often than not, a failing company tries to find a buyer or sell all its assets. What I mean by this statement is that the startup company is bankrupted.
Exit option

What do you mean by this term? Exit options basically arise when an investor in your startup has lost interest and wants to get his money back along with the pre-detailed interests.

What we did? Considering that our venture has become successful and the investor loses interest in our business and seeks out, we co-founders will buy the investor out increasing our equity share. Now, considering that we are not able to generate enough profit which makes some of the investors seek out, then we will try and drain out their equity share keeping working capital available at all times.

The aforementioned are just a few viable options provided to the reader, there are many more that I would like the reader to dwell on.

In layman’s terms, the risk of failure is shared predominantly by the founders but a fraction of it is also shared by the angels among them. But considering the success stories and the trend, an investor should not worry about the exit options just so soon.