How does Angel Investment work?
Do you know angel investors can make a difference between getting startup off the ground and burning it to death. It is very important to get initial fund injection by an investor and their ability to validate business model, build a pilot and connect with the first customers for an entrepreneur.
#1. How big is the market segment your company is targeting for?
This query is to evaluate whether your business are first ones to put a bet on and a promising industry.
“Big” in the query refer to current scope as well as future expansion. When someone refers to current scope or existing market, be prepared to answer how your offering are different from other players and at the same time if it’s emerging market, focus on growth drivers over next few years.
Most angel investors look to evaluate progress or momentum made so far by startups. This varies according to the company and the industry and can be revenue, channel partners, no of users, clients onboard etc. Actual data of business should help adjust assumptions.
This is a best opportunity for startups to showcase the investor the market has already started engaging with your startup’s service or product and these users are providing feedback. As compared to those in laboratory, commercial traction gives upper hand over competitors.
It’s like when you will be betting at a race whether you put your faith in the jockey or on the horse. A seasoned investor will be keen to know how well team is positioned to create and execute something to become market leader. Its an excellent opportunity to bring out strength of each team member. Few common questions include:
- What are domain expertise of each member?
- Do they have complementary skill set?
- How well they known in the market?
- How is the chemistry between them?
#4. Investor relevance
This is the most common style of investment. If an investor knows a founder and his style, he is more likely to invest. Investor-fit is one of the most important parameters for an entrepreneur to consider while opting for an angel investor. At the same time stage of company, targeted industry, investor’s experience in the relevant field plays an important role.
Majorly there’s click moment between investor and a founder that affects the investment decision e.g. affinity, common background, college or a mutually trusted and known connection, based on a shared workplace etc.
What does angel investor look for in a startup?
Every investor has certain criteria before they take interest in, inject money, give their time and hence it is important to do research before approaching anyone. An experienced angel investor is diligent in reviewing a proposal.
- Research on Angel Investors
- Make your pitch
- Investors gives fund in return of equity
- Mentors and guides your future
Active angel investor in ecosystem:
Typically angel investors are experienced entrepreneurs who understand what it takes to build a billion-dollar company since they’ve been through the same phase.
Example of few active angel investors in India,
Binny Bansal – Flipkart founder prefers healthcare, edtech and networking and community-based startups
Rajan Anandan – Former MD of Google in now part of leadership team at Sequoia Capital.
Girish Mathrubootham – Founder Freshworks prefers consumer internet, SaaS, and enterprise software to date
Krish Gopalakrishnan – one of the founder of Infosys also co-founded Axilor Ventures.
Dr Ritesh Malik – Co-founder of Innov8 prefers technology and hardware startups.
Angel Investment Network in India:
Indian Angel Network
An individual investor may want to start the investment by pumping in small amounts. The good thing here is that they will help you meet other investors, who would then invest as a group.