Are Angel Investors Right for Your Startup?

Sourcing for funds is part of good financial management in a startup. Angel investors are just one way your business can obtain funding for business growth, but how do you know if they are the right option for you?

In 2014-15, the top five angel groups in India invested Rs 70.3 crore in startups and small to medium businesses (SMBs). This was an 81% increase from Rs 38.8 crore in 2013-14.

An angel investor is an affluent individual or group who invests capital in a company at an early stage, much earlier than a venture capitalist (VC), typically in return for equity. Angels can be individuals like Rajan Anandan, Sachin Bansal or part of a group like India Angel Network.

Read Some Usefull: Problem Solving for Beginners, How To How to Create your Own Business Plan, Getting to Know Your Investors Better

Angel investing has helped many Indian businesses, like e-commerce company Myntra and taxi service OlaCabs, take off. Consider these following points before you answer the question, ‘are angel investors right for my start-up?’

What Makes an Angel Investor Attractive?

•        Quick capital: In comparison to banks and VCs, it is relatively easy to get capital investments from angel investors and at a stage in the company’s growth cycle when traditional investors find it too risky to invest.
•        Mentorship: An experienced angel investor will and should spend time with you to guide you on how to run the business, build a solid reputation, create a business strategy, recruit the right people and proceed to the next stage of growth. The mentorship provided by a good angel can often prove to be extremely valuable.
•        Networks: It has been said that business is all about who you know. A well-connected angel investor who knows other investors can increase your credibility and enhance your ability to raise capital from other sources in the future.

The Other Side of Angels

•        Lack of experience: Sometimes, angels have money to invest, but not necessarily the business know-how to guide your company along the right path. If they’re not sure of what they’re doing, it could pose serious problems for your business.
•        Giving up equity: While this means you don’t have to pay the money back, it does mean that you are signing away some level of control and a portion of all future earnings.

So instead of asking a broad question, like ‘are angel investors right for your business?’, begin by asking a more focused question – ‘is this (or that) angel investor right for your start-up?’

What to Expect from Angel Investors

First and foremost, a potential investor will want to see the level of your passion and commitment. Then comes a clear pitch that articulates your market research, business plan, valuation and possibly a prototype of your product or service. Besides putting your best foot forward in your pitch, you should also expect a few things from angel investors.

•        Possible delays: Because angels are investing their own money in your business and not a corporation’s, expect delays from them to take time to do due diligence and discuss terms.
•        Questions: No matter how sure you are of your venture, be prepared to answer questions about everything from culture to leadership style to financial management. A quick and well-researched response will boost the confidence of your investor.
•        Rejection: Like any group of investors, angels probably get hundreds of proposals a day. If you face rejection at first, try to understand the reason behind it and revise your proposal for the next pitch.

All things considered, angel investors are a great way to raise capital for your business in its early stages. Think about all the upsides and downsides of obtaining funding this way and your business could be on its way to much bigger things to come.