How to Approach Angel Investors – Most Effective Tips to Raise Capital
How to approach angel Investors for seed funding? Most young entrepreneurs make common mistakes when they’re seeking angel investment or when they’re pitching to Investors.
Lack of presentation skills and other few mistakes when approaching potential Investors are often why so many startups fail to attract inflow to fund their vision.
It’s easier to make a presentation when you’re trying to raise money from private funding sources, the likes of family members or colleagues. However, it’s much harder to draw Angel Investors that genuinely believe in your vision and business idea.
In this piece, I will provide some tips that will help you learn how to approach angel investors for seed funding.
What you need to understand about angel investors
It is not so much as how to approach them rather what you have to offer that speaks to their core value,
As most angel Investors want to fund high-risk, high-return investments, it’s essential that you fully understand what dream your selling to them.
And it’s worthy of mention that I consider this one of the biggest mistakes that I see young startup companies making. They try to raise capital with too much diversity.
While Angel Investors do like to invest in companies with a wide range of expertise, certain types of businesses are much more appropriate to be funded through pre-seed and Seed Capital, as opposed to Series A or B funding.
Your homework is finding out the proper stage you’re in and don’t overbite when seeking funding.
Before deciding what type of investment you need to attract and the type of investor, it should go without saying that you will need to get an idea and a plan to persuade them.
To simply put it, you have to be intelligent with your business plan. You have to model your vision from start to finish and how your idea makes it to the market. Some of the logistics entailed possible competition, budgeting, and timelines of conclusion.
Some of the key things investors look out for
Assemble competent people
Along with that, you’ll also have to have your bases covered with employees or advisors for each of your startup, technological, fiscal, and public outreach requirements.
If you’re working on something highly specialized, it may help you in having board members with PhDs and industry specialists.
If you’re working on a program, using a CEO and CTO, which are both capable with code, will be equally beneficial. Each team will be different, but that notion will play into the strengths of the corporation, and it will always be necessary.
Craft a product that solves a problem you feel the investors have.
What are you creating? Explain it in the lamest term. If you’ve got this as only an idea point, odds are you don’t require financing and won’t receive it either way.
If you’re building a program, have your initial iteration at least partially fleshed out or get something that you could get feedback from prospective customers with. This is called an MVP “minimum viable product.”
It may be 3D printed, a simulation, a prototype, or something reasonably cheap, but showing that you’ve thought about how to turn this idea into something tangible (and what’s more, marketable) will reveal that you have the know-how to take the job on,
In addition to demonstrating that you’ve got skin in the game. If you can get immediate feedback from clients and present that to the investors, then you can truly get an edge.
Model Your Valuation
There are several approaches to get a valuation.
For an early-stage company with a high potential for expansion, an early phase valuation can be primarily random, and most investors can relate to that,
So a rule of thumb is that you shouldn’t undervalue as not to give away too much equity. On the other hand, if you overvalue, you will seem cocky. In short, your valuation must be justifiable.
In the most fundamental of sensations, a valuation is a sign of just how much you believe a proportion of equity in your organization is at that stage.
When an investor gives you $100,000 to get a 20% share of equity, he’s effectively saying that he believes the business is worth a total of $500,000. Have this in your mind before you consider meeting with an investor.
You may wish to know how much cash you need and how much equity you’re willing to part with to get that cash. Now that you have planned out your strategy, you will want to prepare for your meeting.
As a potential investor, I have absolutely no interest in parting with money or connecting with individuals or businesses that haven’t done the bearest minimum in mentioning the above or aren’t going to offer a return on investment.
I speak with such a tone to demonstrate the harshness of this industry and the atmosphere it works on, so wear your battle suit and always come prepared.
On your part, it is your duty to ascertain which angel investor is going to be the ideal fit. Do they have expertise in your industry?
Furthermore, do they have a character which you can get along with? On the opposite side of the desk, I must ask myself the very same questions.
If there’s no personality match, then it’s more challenging to get along later on. Relationships matter because angel investors aren’t just investing in the business. They are investing in the people.
The last part of the procedure is due diligence.
Your idea should be made to exploit inefficiencies present in the market.
This should be your advantage, and it is equal to the competitive edge an entrepreneur seeks in any company. The competitive edge has to add greater value than trade costs of time, or you won’t gain.
Your idea should always generate profits equivalent to this inefficiency given by the marketplace after subtracting the charge to exploit the inefficiency.
As I’ve seen during my career, angel investors are prepared to take risks, but they need to mitigate those risks. An entrepreneur has to bring as much advice and visionary ideas to the table as much as you can.
They must ask challenging questions to learn what risks are involved and how to solve them. You cannot be discouraged by these questions but rather prepare for them.
If and when you choose to think about pursuing angel investors, keep the above elements in mind. Naturally, the way you communicate with investors as soon as you meet them and present your idea and get them talking is vital to your success and is also a sign of acceptance.
These are the most critical parts of a startup presentation to answer the question of how to approach an angel investor. Of course, it is up to you to know how to approach these sources.
Each investor works differently based upon their own investment goals and desires. Asking the right questions is critical to your overall success. You can improve your odds dramatically if you develop strong exhibit skills.