Tue, 28 Sep 2021

How to Attract Angel Investors for Your Startup?

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23 Jul 2021, 22:24 GMT+10

How can a business operate successfully without the required funds? That is like attempting to drive a car without wheels; it'll lead to a disaster. That is why you must emphasize using angel investors to generate the funds required to achieve your business goals. This is no news for businesses that have been in the game for a long time. They already understand the dynamics of engaging angel investors; however, we cannot say the same for startups. For this reason, this article aims to help startups, CTOs, and other business owners who still have issues in attracting investors.

Attracting angel investors requires a lot of planning and hard work. However, with this guide given below, achieving this would become a piece of cake compared to doing this without any prior knowledge.

Know What Makes Your Business Different?

An essential factor that attracts angel investors to your business is the unique quality of your business. However, these investors might not know what that quality is only by looking at your business from a distance. Therefore, it would be best if you showed it to them. Here lies the bone of contention, "how can you show them if you don't also know what makes your business different from others?" You don't have to worry if this is your situation; it's an easy fix. Determining the unique qualities of your business requires the following factors:

  1. Product: what does your product have that other similar products don't?
  2. Price: try to go for giving more value for less cost.
  3. Service: your customer service aspect should be outstanding.
  4. Reputation: what reputation do you want to establish for your business?
  5. Channels of distribution: what channels of distribution would be the most profitable for your business?
  6. Relationship with customers: establish a good relationship with your customers. It makes them come back for your products.

Below is a diagram that encapsulates these factors into one table

Photo Credit: Market Research Blog

Avoid Funding Consultant

'Consultancy' has become a dominant practice, which many now see as an attractive occupation. There is no doubt that it has its perks and can add substantial value to a business. However, it is advisable to avoid the practice altogether. Although it seems like there are many good sides to hiring a consultant, it does more harm than good.

Among other things, consultants create a hindrance for members of the company to learn and develop. Furthermore, hiring consultants could create additional costs to your business that you might eventually cut off. To expound on this, Warren Buffet, CEO of Berkshire Hathaway, joked at his 2017 shareholder meeting that he would come back from the grave only to stop consultancy. You might dismiss this as one person's point of view out of millions, but he has a point there.

Many startups believe that they need consultants to show them the ropes because they are new to the game. However, consultants don't necessarily produce the results you desire, and if they do, they might not produce them as fast as you want. Moreover, consultancy is like a plague that you can't easily eradicate once it gets into your company. The consultants might not fully eradicate the problems you're facing. Even if they do, you become dependent on them to fix every problem for you.

Learn Your Angel Audience and Act Accordingly

Angel investors invest in areas within the domain of their expertise. This means that you need to understand your industry dynamics and key business metrics when pitching angels. Unfortunately, most startups try to understand their industry dynamics by looking at other startups, which is the wrong approach. Furthermore, those other startups should not be the standard you set for your business because they're just starting just as you are.

Instead, it would help if you considered the following market dynamics:

  • Customer: your business should be all about meeting the unmet needs and desires of your customers. It would be best if you also considered adopting reliable customer channels.
  • Product: in making your product, it should be based on solving your customers' problems in that area. This implies that your product can only gain the customers' attention when adding value to them.
  • Competition: your competition isn't those other startups around you but the other established business within your industry. So, you need to focus on gaining insight into their digital marketing strategies and tactics.
  • Timing: the world is moving at a fast pace; you should do the same. Your products should provide lasting solutions that can fit into any further innovations that society might later create.
  • Finance: all of the above cannot materialize without finance. Once you've sorted out the dynamics of the others, you now have something to show to your potential investors.

Apart from the industry dynamics, you also need to take note of some key business metrics. This is illustrated in the table below.

Financial MetricsSales revenue, gross profit margin, net cash flow, working capital, etc.
Marketing MetricsConversion rate, social media followers, web traffic sources, etc.
Product Performance MetricsDaily/monthly active users
Sales MetricsSales win rate, sales cycle, total customers, etc.
Human Resources MetricsEmployee turnover rate, absenteeism rate, cost per hire, etc.

Be Prepared for The Deal

Now that you've gotten the attention of angel investors, what next? You need to prepare for any deals they might be bringing to the table. When doing this, you need to have a detailed outline of the following:

  • Your competition
  • Product
  • Pricing
  • Business and financial model
  • Leadership background
  • Regulatory and legal aspects

Be Realistic and Confident

Preparation only takes you to the front of your potential investors. What turns them into actual investors is your confidence, backed by realistic data. As a result, the value of a startup is often created before they even make their first profit.

The best way to be both realistic and confident is to nail your elevator pitch. You might be stating facts with confidence and still not attract investors if your pitch is faulty. Here is a pitch presentation template created by Chance Barnett, CEO of Crowdfunder.

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