Every startup needs to secure funding from a credible investor to grow its enterprise. A startup may pursue different sources of investment to secure its funding. One of these sources is Venture Capital firms that look to invest in startups that have already shown significant product-market fit and are fairly successful. Other options include crowdfunding and approaching an accelerator for early-stage support. Angel investors are another popular source of funding startups, providing guidance, mentorship, and funding. They invest in startups at the earliest stage of their growth in exchange for a stake in the company.
Angel investors may be industry-specific and meet the requirements of startups that belong only to a particular industry. On the other hand, sector agnostic angel investors fund startups across different industries and sectors. Inflection Point Ventures (IPV) is one such angel investing firm which supports new-age entrepreneurs, providing them monetary & experiential capital by connecting them with a diverse group of investors. In 2021, IPV invested in 53 startups with a cumulative investment worth INR 162 Cr. The NASSCOM Foundation featured IPV as one of the most active investors in 2021.
It has been estimated that about 90% of startups shut down before they achieve growth, with 29% running out of funding to support their venture. Catching the attention of angel investors is an important goal in the lifecycle of a startup. That additional funding or support provided by an angel investor can keep it going for a longer duration and proves crucial for its expansion. Here are some important factors that help attract angel investors to startups.
Factors that help attract angel investment for startups
- Present a solid business plan – The startup needs to present a formal, iron-clad agreement to their potential investors that accounts for various contingencies. Giving your investors flexibility and security over the investment will give them more confidence about their investment. The plan must also cover the startup’s feasibility, scalability, and financial projections and assure the investor of a solid margin of success.
- Market size – The startup needs to show that their product or service has a good product-market fit, where the product can satisfy a targeted market. The startup’s targeted market needs to be significant to gain large investments.
- Positive early momentum – Startups need to showcase their success in satisfying customers and gaining traction. Positive reviews by early customers through a pilot or beta version of the product or service will assure investors of its success. Building a solid minimum viable product (MVP) that customers want is a key requirement while pitching the startup to angel investors.
- The founder’s mindset – Investors are not just investing in the product or service but are also investing in the people behind it. The founder needs to display leadership skills, be passionate about the enterprise, and choose an appropriate team to support them.
- A solid exit strategy – At the end of the day, investors need to be assured of their returns. By presenting a mutually-beneficial strategy for exit and a timeframe, angel investors can feel secure about their investments. Startups need to assure their investors of when their returns can be expected and how any potential losses can be mitigated.
Tips for Startups Seeking Angel Investment
Apart from these factors, some important points need to be considered while pitching your ideas to investors.
Find the right kind of investor – Choose carefully among the different types of investment opportunities that are available. Venture capitalists, angel investors, and accelerators have different expectations and requirements that need to align with what the startup can provide.
Study the investment patterns of potential investors – Some may be looking to invest in startups that are beneficial to society, while others may be looking for a safe investment that guarantees financial returns. Pitching a high-risk, high-reward idea to an investor looking to play it safe with their money may not be successful.
Expand and diversify your networks – Interact and network with individuals or organizations looking to invest in particular industries. Investors are willing to fund startups that have specialists in that particular field.
Identify the startup’s competitive advantage – Investors need to be convinced that the product or service has an edge over its competitors in the market and cannot be easily replaced. Showcasing the startup’s differentiating factor is critical for a successful pitch.
Have a balanced pitch – Some startups may try to gain large amounts of funding from investors at one go and end up giving away too much equity. It is necessary to look for a reasonably-sized investment that ensures their growth.
Does the product or service rendered by the startup have a good fit in the market? Is it better than alternative solutions, and can it compete in the market? Does the founding team have a clear idea of the startup’s scalability and potential for growth? These are some key questions that angel investors ask before supporting a venture. One can build a successful pitch and attract angel investors for their startup by accounting for these factors. Angel investors have emerged as an essential source of investment for startups, providing financial assistance, guidance, and mentorship. Receiving their support can be a game-changer for startups.