Startups take many shapes and forms. Some focus exclusively on tech. Others offer services. Some pose innovative solutions to an existing problem. Others aim to transform the way we do things. Whatever their nature or type, however, virtually all startups have one common uniting factor. That is, of course, an ever-present need for funds and liquidity.
Money is the lifeblood of every organization working towards a profit. All businesses need funds to meet their costs and generate profits. But some firms often have a more pressing and urgent need than most, depending on their size. Startups are usually much smaller than full-scale enterprises or even mid-level firms. And as such, they often lack the significant financial cushion these larger firms have. This limits their ability to deliver better services to customers, source better talent from the top staffing agency, and manage everyday expenditures. An angel investor offers the ideal business solution, but how do you get one? Read on to find one.
Businesses thrive on investment. Capital and revenue expenditures for a business can often amount to very large figures. With startups, the risk of this investment becoming a sunk cost is far greater, which means there are fewer investors willing to take on that risk. That is why most investors are typically high net-worth individuals or firms with the financial capacity to absorb potential financial losses. Investors typically receive an equity or profit share in return for their funds, essentially making them part-owners of the business. Angel investors, also known as seed investors, are individuals or firms that specialize in offering financial backing to promising entrepreneurs and startup firms.
Getting an angel investor to back a startup is an ideal situation for most entrepreneurs. You need the cash, they need a share of the profits you will generate as a result of it. The relationship is often very similar to that of a silent partner, where the angel investor usually has little say in the day-to-day operations of a business. This allows the entrepreneur sufficient space to continue working towards their business vision without unnecessary intrusion or interference and simply share an equitable portion of the profits in return. Other investors may prefer a more active role, depending on their way of doing things. The problem is, for every startup that successfully secures an angel investor, there are hundreds that go under due to lack of funds. So how do you increase your chances of finding one? The following points are good places to start:
Create An Angel Investor Profile
If you want to improve your chances of finding a suitable angel investor, you must first put some work into defining what you are looking for. Most sales and marketing veterans are well-versed in creating customer profiles to define their ideal customer. The same principle will help a lot in your search for an angel investor. Some typical metrics you can use as a benchmark may include:
- Aged between 40-60 years.
- Has a net worth exceeding $1 million.
- Has an annual income above $100,000.
- Is open to a long-term (5-7 years) payout.
- Has an interest in nurturing startups like yours?
- Can offer referrals to other investors.
- Can use their network to bring more business your way.
The thing about angel investors is that they are always on the lookout for the next big profitable ventures. While all startups may not ■■■■ up into billion-dollar enterprises like Amazon or Facebook, many of them become significantly profitable and sustainable concerns. This is usually the point where the investor will cash out and make a tidy profit from their investment. The trick is knowing that you are pitching to the right angel investor.
Start Looking Within Your Social or Professional Circle
If you read through the list of metrics above and thought, “Wait! I know someone like that!”, you’re already at a significant advantage. Many entrepreneurs already have an angel investor somewhere in their social or professional networks. This is an ideal situation if you are a budding entrepreneur looking to inject investments into your startup. Most angel investors prefer to work with local businesses so it helps if you already have a rapport or a good working relationship with them. It assures them that their investment is in safe and capable hands, and makes them more likely to invest in your business instead of a stranger’s.
Expand Your Existing Professional Network
Of course, not all emerging entrepreneurs have access to friends, family, or mentors with deep pockets. For example, if you’ve just moved to a new city, you may have trouble locating suitable investors for your new startup. But that doesn’t mean you should give up home. Networking is a huge part of running a business. You are by far the best-qualified person to explain and pitch your business to a potential investor. It is your passion, your idea, and your hard work, so it makes sense that you should do everything necessary to do it justice. That includes getting your business the visibility it needs from the right people. Professional networking events, startup incubators, and even sites like LinkedIn improve your ability to make sure this visibility increases.
Be Ready to Accept More Than One Investor
Too many cooks spoil the broth, or so the old saying goes. Unfortunately, most startups find it extremely hard to secure the investment they need from a single source. More often than not, you will have to deal with a syndicate of investors, each with an equity share corresponding to their investment. This means you will have to make the tough decision of choosing the survival and continuity of your startup over your aversion to sharing control. It may not be an easy decision, but if it can get your startup the funds needed to survive and grow, it is perhaps the only decision to make.
Explore Online Platforms Connecting Investors and Businesses
The internet has been a revolutionary force in terms of business. You can get in touch with anything from reputed manufacturing recruiters to a reliable logistics partner. It’s the same for virtually every aspect of a business. While making pitches in-person to a single investor or a panel is always a crucial part of securing investment, the Digital Age has opened up several new avenues. Websites like Gust, Angel Capital Association, and others offer entrepreneurs the chance to connect with like-minded investors. While they may initially lack the capacity to help you make a personal pitch, if done rightly, your business profile could attract several interested investors.