What are angel Investors looking for in your start-up?
Are you seeking investment for your start-up or business? First things first, take a look at whether or not your business is a good contender. Many of the businesses are really good but are not attractive to angel investors as it is more complicated than growths or profits.
The truth being, there are a vast majority of potentially successful start-ups & small businesses that won’t get angel investment no matter how good their pitch or plan is. So, what is? And how do you catch an angel’s attention?
Here are a few questions that’ll help you figure out whether your business is likely to be interesting to angel investors.
1. Does your business have a major potential for growth? Angel investors are looking for businesses that can help them increase their sales over the period of next three years. They aren’t interested in sharing your profits, they require the company to go public or sell to a larger company. That’s how they make their money. That takes major growth and hence you need to be capable of acquiring a larger customer base. It also means that you can’t just showcase numbers on the spreadsheets, but you need a market that the investors themselves will believe in. Angel investors look for businesses that solve real problems for lots of people.
2. Is your company scalable? Scalability means the business is capable of sustaining major growth without the need for too many services or employees. Is it possible to grow without losing quality? Do you need to increase the number of employees to increase sales? Answers to these questions make a huge difference. You need to keep your future in mind. Angel investors want businesses that have the potential to increase sales without increasing fixed costs.
Watch this video to learn more about scalability and Angel Investors:
3. Is your business defensible? Angel investors look for businesses that can’t be easily duplicated by competitors. They look for something proprietary, like copyrights, trademarks, trade secrets and patents. Even possessing specific market knowledge is considered important. You have to be able to maintain the advantage into the future. You need to see if there are any barriers to entry. All of these things make business defensible.
4. Does your team possess management & start-up experience? Risk is a big factor when it comes to start-ups, especially for investors. If you haven’t been involved in a start-up or had some form of management experience concerned with start-ups it’ll be difficult for you to find someone who’ll take a chance on you. You need to have people on board with start-up & management experience. Don’t be afraid to reveal your failed experience at a start-up because it shows that you have experience and have gained insights that can prove helpful for this start-up.
5. Is your exit strategy feasible for investors? Angel investors are willing to help you start your business, but in return for their money, they get a share in your company. The only way they make money is by selling their share of ownership for money; which is called the exit. Angel investors don’t want to invest in a company that grows potentially but never sells out & that’s why you’ll need a good exit strategy!
If you aren’t able to answer “yes” to all of the questions above you shouldn’t be thinking about angel investment at this moment. You might need to change your funding strategy or look for other funding options at the moment. You could also tweak your business model so that it is appealing to angel investors but make sure you aren’t missing out on the points that are mentioned above.
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About Devansh Lakhani
Director of Lakhani Financial Services, and a Chartered Accountant, he helps start-ups raise funds from his network of investors. He guides and advises start-ups to scale up by providing efficient sales, marketing, team building, and business management strategies. He has executed fundraising by block deals on the stock exchange and conducted IPOs and right issues on the SME platform to the tune of over Rs. 50 Crore. He is currently working with start-ups from various sectors to help them channelize their business models and investments.