Before we dive in, if you are here, the underlying assumption is that you are an early-stage startup founder looking to raise their first round of funding. In startup parlance, you are trying to raise what many would call — depending on their dietary preferences 🙈 — either a seed round or a pre-seed round.
At this stage, you have an idea that requires an influx of external funds (what doesn’t?) to get off the ground. Fair to say that you are part of an increasingly sought-after set of folks trying to change and/or create a world that they have only just imagined thus far.
As founders and operators who have worked with several entrepreneurs in our journeys so far, here’s what we will say before getting started: we get it. It’s not going to get any easier but it’s going to be a fun, enthralling ride every step of the way.
Alright, so who really are Angel Investors?
Well, most angel investors or at least the ones you would want investing in your startup are successful entrepreneurs themselves. Having seen the ecosystem up close, these are often people who understand the risk-reward that comes with investing in startups when they are merely an idea.
They come in not just with a bunch of dollar notes hanging through their deep AF pockets but also a wealth of industry knowledge, a sense of what makes or breaks successful businesses as well as connections that can go a long way in building your startup.
And they come in different forms too!
Like we said earlier, many angels are successful startup founders themselves and are now into investing in others to give back to the community. These people understand the highs and lows of starting and running a company, and can act as a mentor when you need them. Although you must remember that if angel investing is only something they do on the side while running a company, they may not be able to give much time to you.
There are also operator investors who hold or have held C-level positions at top companies, and domain experts such as Lenny Rachitsky who can add value and aid you with deep insights in any specific field.
Not to forget that there’s also an increasingly-used jargon for angels who are (mostly) extremely active: Super Angels. Prolific investors with connections that run really deep, having them onboard often comes with a tag that might make your startup more attractive to customers, future investors or even the media.
What do Angel Investors look for in a startup?
When it comes to raising funds from angels, meaningful relationships are essential. It often takes a lot of work to build solid connections online, which is why in-person meetings can be beneficial — attending fundraising events and conventions is an easy way to meet potential angel investors.
But before you approach one, being prepared is essential. What do they look for when they invest? While different investors may have different strategies and biases, it largely comes down to these things given the stage you are likely at:
A burning problem statement with a large market
Investors want you solving a problem that needs solving for a significantly large number of people. If your target audience is too small, the company will never grow to a size that gives them the outsized returns they are expecting.
If it’s a problem they relate to, even better! This will not only make it easier for you to convince them, but also open up possibilities for collaborations with them and leveraging their network.
Experienced founding team
This is perhaps among the strongest reasons for your startup being able to raise from investors. A team that has seasoned professionals who have solved problems at scale is a green flag.
This gets even better in case of repeat founders. Several investors love investing in entrepreneurs who have been through the grind before, for they already have an idea of what works and what does not.
Solid business plan
If you are lucky, you may just be able to raise without knowing how to monetise your million free users 👀 but with the recession no longer an impending reality, investors are more aware of what they are investing.
In simpler words, you need to have a plan of action that has competitor analysis, deep insights about the industry you are operating in, financial projections and a roadmap of when things go from point A to B to C.
Some things to keep in mind
Who you raise from is as important as much as how much
How much you raise will depend on your early requirements to get off the ground and reach a minimum viable product (MVP), but who you raise from can set the course for how fast you ship or how much easier your journey becomes.
For instance, if you are starting a fintech, having former or current founders from the same domain can prove to be a big headstart. They will be able to help you with mentorship and access to an already-built network of experts that you can tap into.
When you are early, these little things become invaluable. So, keep an eye out for domain expertise and what each investor will be adding to the table apart from money.
Don’t let your preparation be half-baked
Investors are going to entrust you with their hard-earned money, and if they feel you don’t know enough about what you are solving, it’s not going to help your case.
Many founders fall short when it comes to preparing a pitch for what they are building. While a viable product demo may come much later, having a pitch that is good enough to get you a 1:1 meeting is the first thing you need to create.
Next, create an investment memo or a deck (or both!) that you can tap into when those meetings eventually materialise. This is your space to shine. Fill it with details and metrics relating to what you are solving and how, define who your target customer is and how you plan to grow into a viable business. Here’s an example of an investment memo from spend management platform Airbase.
Closing a round is more difficult than you think
Okay, so you have the investors onboard and money is about to flow in. Exciting times, right?
Well, it’s not easy as it sounds. Closing funding rounds has long been a tedious process that involves shelling out plenty to lawyers and/or legal firms, multiple followups with investors for signatures and wire transfers, and don’t even get us started on the regulatory mayhem involved!
The good news is that we at Infinyte are solving for exactly that. If investors are ready to put in the money, we have a platform that makes it a breeze. Get in touch with the team and we’ll take care of everything!