How to Raise Angel Funding in a Start-up?

Ashish M. Shaji

16 Dec, 2020

Angel Funding is a crucial milestone for any startup. A large number of successful startups that we see today went through this stage. It is an important leap forward for any business. It creates a positive image for the startup in the industry.

In this article, we will discuss the process and the mindset of angel investment in a startup. However, one should ensure that they have some revenue or prototype ready before the fundraising process.

What is meant by the term Angel Investor & Angel Funding?

People who provide angel funds are known as angel investors. These are high net-worth individuals^[1]. They invest in a startup for a minority share in the business.

They invest from themselves or in a group of individuals who pool in funds to invest. Delhi NCR is ranked as No. 1 funding destination in India.

They invest in a particular company based on various factors and they can be partners or entrepreneurs themselves. The general perception of them is that they are loaded with money.

However, there are lots of investors present in the market today but it is difficult to get investors for your company especially for start-ups.

Fundraising is very important in case you have limited capital for your business. This type of funding is accounted legally nowadays.

Usually, angel investors come into the picture when the business idea is just a concept and entire funding is done based on your Business plan. As startups are risky propositions, angel investors don’t put huge sum.

How to Raise Angel Funding for Start-ups?

If you are at the idea stage then 1^st process should be Company registration and you also need to obtain GST registration i.e. licensing and registration should be completed before you approach the Angel investor.

Angel funding seems to be difficult but it depends on the investor for startups. In the case of angel investors, once they are convinced with your business model then surely they will review your business plan.

After a review and analysis, they invest without any security in terms of assets but they want security in terms of profits & good strategies.

Business Angels

Business angel varies from silent investors to those investors who get involved in operations of the company. Silent investors are those who sit back & wait for the results whereas other investors are those who get involved in operations of the company as a part-time consultant or full-time partner.

Following are the categories in which business angels are classified:

• Entrepreneurial angels

They are those who are carrying their own business but also looking for investing in other firms. They are considered as more experienced and they have a fair idea of how the market works.

• Corporate Angels

They are the one who is linked to the corporate world as they have established themselves in multinational companies and looking for investments.

• Professional Angels

They are the silent investors generally who invest their savings. They are the ones with professional jobs such as doctors or lawyers or Actors or CA.

• Enthusiast Angels

They invest in startups as a hobby. Generally, they are retired entrepreneurs.

Investors

Generally, investors invest in exchange for equity ownership interests. They particularly deal on the basis of attitude, quality, commitment, and passion of entrepreneurs.

They are concerned with the potential of a startup in the market and business plan and interest of the customers. On the name of humanity, they also invest in the beliefs of a particular start-up.

Angel Investors Expectations

Investors expect particular things from start-up. Initially, investors keep close tabs on the profits and bank statements and also on the customers and marketing. Sometimes they act as part-time consultants to establish a start-up in the market.

Sometimes it becomes difficult for an entrepreneur to meet all the expectations and to find out angels investors in the market. To raise funds one has to look in the right way.

Before investment, wise angel investigates the entrepreneur, likewise, the entrepreneur should also find out about the potential business angel. Some of the important points to remember are as follows:

• Firstly, it is required to make sure that investor should be interested in the field one is starting up their business.
• A true prospectus should be given with the aim to achieve that aim.
• One should be clear about their beliefs and having a clear idea of using the money invested by the investors.
• A legal document stating terms & conditions should be established to avoid any legal issue.
• One must be aware of how to make negotiations and prepare yourself to go through meetings and expect failure.
• One can look up for investors online.
• An effective offer should be made and reasonable funds should be asked for.
• Legal advice can be taken.
• A proper plan should be prepared.
• One should look up to similar start-ups and get to know about the angel investors who helped them by investing. It can help to get angel investors.
• To gain attraction, one should make strategies for marketing. With this it will not only attract customers but also investors for your business.
• Investors look for promising start-ups. For this purpose, the marketing team should be set up.

Conclusion

Seeking angel investments needs an investment business plan and a sound financial model. Therefore, one should take the help of industry professionals before proceeding further for seeking investment.

Read our article: Angel Tax For Startups in India: A Complete Overview