“I want to work for a company that contributes to and is part of the community. I want something not just to invest in. I want something to believe in.” Anita Roddick
Angel investors consist mostly of high net individuals. They have domain expertise in some specific area and are very well connected. Once a company decides that it wants to take itself to the next level, angel investors are usually a good first step. At this point, the advice I give startups is , find an angel investor who has domain expertise in their particular industry or field. They become an excellent reference point for you to get connected, gain exposure and set yourself up for a much larger round of funding. To begin the search for an appropriate angel investor you should;
- Prepare a formal business plan with an attractive executive summary.
- Get your elevator pitch and presentation fine tuned.
- Preferable to have a working prototype or demo of your product/service.
Angel investors usually fill the void for investments ranging from $100k – $1m. Assessing your companies valuation (This process will be talked about in a couple of weeks) is an essential step before pitching to them. This will help you to gauge how much equity you will have to give up to raise the amount of capital you require. Armed with this information you are ready to begin your search. If possible get a referral from someone who may have contact with an angel group or the angel him/herself. This will increase the likely hood of getting an appointment. Without a referral, search for prominent angel groups in your city or country. Such as BANSEA in the SEA region.
Angel investors provide startups with flexibility which is not available in venture backed companies. Angel investors provide you with the ability to sell or buy your stock from them during the initial stages. This gives cash strapped founders the ability to benefit along the way. This flexibility also brings with it some unique challenges. Angels can be a lot more intrusive than venture capitalists. Some take advantage of cash strapped founders by increasing their shareholding at the expense of the founders and may even take an active role in the company which may lead to undermining the founders authority. Some ways you can guard against this scenario’s is to have a lawyer draft out a comprehensive agreement. In this way you can ensure that your rights remain guarded and you will not be caught off guard by the angels contract agreement terms. Making sure both parties understand the agreement fully before entering into this partnership is vital.
This is the stage in a startup venture when your dreams begin to take shape. When an angel shows interest don’t reach the conclusion that it is a done deal. Continue to market yourself, this will raise your companies exposure level. With a greater level of exposure you will have considerable leverage to ensure that you get the better end of the deal. Rushing this stage is never a good idea, you are selecting a partner who is essential in your journey to an IPO or acquisition stage. Keep your eyes and ears peeled and once you get that “right” feeling just go with it.