Angel Investor: Everything That New Startups Owners Can't Miss

A must read for Startup owners that are on a search of a perfect pre-seed investor.

Every startup requires significant funding and experienced guidance to get off the ground. A robust business model and innovative ideas are likely to attract private investors. One of those investors is an angel investor.

“I look at only two things when angel investing. Are you solving an important problem? Do you care about the end users?”

- Gary Vaynerchuk

Angel Investor

What's Angel Investor?

An angel investor is a person who has surplus money to invest in startups in exchange for equity or part of ownership in that company. These types of investors are considered explicitly investors for startups. They invest in the initial stage of startups when there is a severe need for funds and support to survive in the market. They work as business angels for startups, and that’s why they are known as angel investors.

These investors can be your friends and family members. Unknown investors can also provide private angel funding. That’s why angel investors are called private investors. As mentors, they offer useful resources, and they keep an eye on your business performance. Leveraging their experience and knowledge, helps startups grow. The network and contacts startups need for the startup are also provided by them.

Types of Angel Investors?

Angel investors can be an individual or a group.

An individual angel investor involves only one investor in angel financing. Generally, this type of angel investor can provide small finance. Also, there is only one person who guides you.

Angel investors can come together and pool their funds to form one angel group. In these groups, investors contribute their capital to create larger angel capital. Groups of angel investors have larger funds compared to individual angel investors. The angel group offers you experienced guidance from its members. Angel group members can provide better networking and contact opportunities for your startup.

How to contact an Angel Investor?

Here is how you can find angel investors for a startup:

1. Social Media

Social media platforms like LinkedIn and Shapr are a great way to find angel investors for your startup. Angel investors have their Angel Network on social media. Social media allow startups to introduce themselves to potential investors and the market. You can mail a short yet attention-grabber outline of your startup to your preferred angel investor.

Angel investor keeps an eagle eye on upcoming startups. So, it is important to manage your social media profile effectively. You must keep in mind that unique ideas with promising markets attract angel companies the most.

2. Startup Meeting Events/Forums

Many events that occur around the theme of entrepreneurship like TiE, NASSCOM, CES, Y-Combinator, etc. These events give exposure to your startup, inviting many angel investors.

3. Personal Network

You can also find angel or pre-seed investors through your private network and connections. It would be helpful if you exploit whatever reach you have. Let’s check out some smart tips for you:

Convince your family member to be your angel investor. Explain your startup idea to them as you know they are so helpful and trustworthy.
Suppose someone in your friends, family, or social network is involved in any business activity. You can contact them, pitch your business idea to their angel investor, and set a meeting with them. Remember, referrals can attract more attention and trust from angel investors to your startup. It is one of the excellent tips you should try.
Start attending business gatherings and events. Interact with people and introduce your startup idea. Who knows, you may get the investment you were looking for. You can also enter events organized for startup incubation, which can get you some targeted or interested people who would like to invest in your startup.

How to select an perfect Angel Investor?

If you are a startup founder, you should be mindful while selecting an angel investor. Here is what you must check:

1. Niche

Always check for the niche and industry experience of the investor. You have to check their interest, like in which type of business he likes to invest in. If your startup matches their interest, it is best to deal with them as they would have more experience in your field.

Let’s understand this with a case study:

Mr. A has found an angel investor who has never invested in a chip programming or tech-related startup before. Before, he only invested in startups like spongy bread and milky butter. Hence, the angel investor cannot guide Mr. A’s chip programming startup. He cannot identify upcoming threats in his business because of his lack of experience in that field. As a result, Mr. A’s startup fails.

The same angel investor invests in Mr. B’s Crunchy Rusk startup. Already, he has invested in startups such as spongy bread and milky butter. That angel investor provided Mr. B with the experience and guidance he needed in the food industry to make his startup successful.

2. Connect

Every investor has their own style and principles for dealing with new startups. In some cases, you might not feel a connection with them or be able to relate to their thought process. It’s wise to pitch to investors with whom you feel more connected and excited about working, as this will ensure maximum productivity and coordination.

What does an Angel Investor look for in a business?

To convince any angel investor, you should know the thinking of angel investors. So, here are few points that explain their approach:

1. Team and Passion

In angel investing, investors look for your team’s strengths and capabilities with achievements. They expect your full-time involvement in the business. Angel investor likes to ensure that you will give full attention to the company in the future. So always remember to show your passion for your business.

2. Feedback and Data

Angel investors always want feedback before investing in your business. The feedback data should be an actual survey, not some assumed data. Angel investors are pre-seed investors. So, they need to know the market mood before investing in your startup. Traction and scalability are significant for a startup.

3. Plan to use Invested Money

Angel investors want to know what changes you would make in your business. How will you execute them on receiving angel money? You should know why you want angel investors to invest money and resources in your startup. You should be clear with your vision and beliefs about your startup.

4. Business Plan & Market Awareness

Angel investors wants you ready with an effective business plan with proper research. You should know your competition and also your unique selling point. The business plan should have Proper calculated data. There should be adequate planning to beat your competitors in the market.

You can check our complete guide on How To Write A Business Plan

5. SWOT Analysis

Angle investors take SWOT analysis to check the business strength, weaknesses, and threats. They will decide either to invest angel capital in your startup or not based on its result. So, you should be ready with a proper SWOT analysis.

6. Market Size & Competition

Angel investors want to know about the size of your target business market. If Your product is excellent and has your proper business plan, but your targeted market is small. Then your business cannot generate adequate revenue, which is not a good deal. They always expect a return on investment. If your targeted market is large, there will be more competition and risk. Hence again, it is not a good deal. So, you should always have a proper market analysis.

7. Reasonable Valuation

The startup valuation is an essential aspect that an angel investor checks before deciding to invest money. You must avoid overvaluing or undervaluing your startup. All standard measures of business and standard methods must be involved while calculating the company’s valuation. Otherwise, it could turn off the investor as he would doubt your claims’ validity and trust quotient.

8. Exit Strategy

Though Angel investors mostly prefer long-term investment strategies. But as Investors, they also look to reap quick and reasonable profits. So, they check out exit strategies available to them in the company to exit easily with ample profits. There are many preferable exit strategies like selling shares to the company’s founders or selling them to strategic buyers. Some even sell in exchange for IPO.

Where to find Angel Investors

Angel Websites: There are websites which works as a bridge between budding startups and investors from various niches.

Here are a few websites you can check out to get your first angel investors on board for your startup:

Also, you can get yourself into Crowdfunding platforms where many Angel Investors can navigate through your startup profile. Here are some websites:

You can also find some of the best Angel Investors as per your country and niche on the internet. Check out their LinkedIn or drop a mail to contact them.

How Angel Investing Works

Here is a stepwise process as to how Angel Investing works:

Angel Investors first identify and checkout for some great ideas and startups in their initial stages through social media, online forums, business seminars or events, referrals, and many other sources at their disposal.
After identifying the business with the potential to invest in, Angel investors establish contact between the founders and company for complete details of their business structure. Then he checks all factors, including MVP, market, and scalability, before making the final decision.
If everything falls in place and verbal agreement happens. Then a rough contract or term sheet is designed to outline the agreements and demands on which the deal is progressing.

Here are a few factors that are prominent in such contracts:

Investment Type and Amount
Percentage of Equity Ownership
Role and Rights in the company’s board of directors.
Exit Strategy

Once the Contract is final after mutual agreement from both parties on all the points, a legal agreement is created and signed to complete the deal officially. All the processes, equity, and funds transfers take place after that.