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Angel investors are the bedrock of a startup's early days. They can be a startup's first users, partners, and employees. Angel investors are also sometimes referred to as "backers".
Angel investors are often a vital part of the startup ecosystem and play a key role in ensuring companies get off the ground. Angel investors can be anyone from family members to friends to millionaires who've made their fortunes in other areas but want to invest in some new ideas.
Angel's typically fund early-stage startup companies for various reasons ranging from sheer ambition to validating an idea or solving a problem with an existing business model. Many startup founders try to figure out the best time to raise angel or seed funding. Here are some guidelines based on experience and statistics.
Table of Contents
Why is Angel Investing better than loan financing?
How to Raise Angel Investment?
Raising angel investment is the process of finding private investors to fund your startup. There are many ways you can raise angel investment and attract interest from wealthy individuals or groups who have already achieved success and want to invest in new ventures.
One of the most popular methods is crowdfunding platforms like AngelList or SeedFund. These sites allow entrepreneurs to post their pitches for investors and receive money from people interested in investing in their business ideas.
The most common types of angels include:
Family members of the entrepreneur (parents, relatives, etc.)- Call your network.
The first step is to list people you know who might be interested in investing in your business. You can reach out to friends, family members, the local community, and colleagues for help finding these people.
This is one of the most common ways to raise initial funds. Friends and family usually come with a lot of experience in different areas, which is why they can make good investors. You should explain your business idea to them and ask them for advice, but don't expect them to invest money on your behalf. It's better to let them know you're looking for investment opportunities and ask them if they're interested in giving you some money.
Regardless of whom you have in mind, make sure that they clearly understand what you are trying to achieve with your business idea. If they do not understand the concept, they will not be able to support you regarding investment decisions.
Friends who have some expertise in the field.
Business leaders who have experience starting and growing companies.
Entrepreneurs who have already established themselves as successful entrepreneurs.
External Investors:
The second way to raise angel investment is by approaching external investors such as venture capitalists, investment banking advisors, private equity firms, and angel groups. These types of investors will be able to provide funding for existing businesses rather than new ones so they will likely require much more information about what your business does and how it plans on growing in the future than a friend or family member would.
How Important is it to Raise from External Investors?
If you have external investors who know about your business idea and are willing to invest in it, this is a great way to raise angel investment capital. Before approaching external angels, ensure they understand what you're trying to do and how their money will be used in the company's growth process (e.g., marketing budget).
You should have a good idea about their type of investor, their location, and how much time they usually spend reading information about new companies. You should also have a good plan on how you want to present yourself to them so that they can easily understand what kind of company you are running and why they should invest in it.
It's important to raise from external investors because they have more experience and knowledge than the company. They can help you reach your goals faster and more effectively.
It's important to note that not every investor is interested in participating in your company as an employee. Many investors prefer not to work with you or directly with you. Instead, they'll want to set up a meeting to hear more about your business and make their decision based on that information alone.
It’s best to find an angel investor who will provide the same amount of money as a friend or family member but who has more experience in the industry and can help you with your business plan.
In today's global economy, you can't rely on just your local community to support you. You need to attract funding from people who understand what it takes to build a successful business and want to help you succeed.
External investors are also important because they provide an outside perspective on your business that helps you make better decisions about how to grow. If you don't have an outside source of feedback, it can be difficult for your company to mature quickly and become sustainable.
Why is Angel Investing better than loan financing?
Angel investing is a great way to get your feet wet in the startup world. However, you need to be aware of the many benefits of angel investing versus other forms of financing. There are two main reasons why angel investing is better than loan financing:
1. It’s riskier. Loans are usually secured by collateral such as real estate, equipment, or inventory. The borrower typically must repay the loan in full at its maturity date, regardless of whether they’re profitable or not. If they fail to repay their loan, they lose their collateral and face foreclosure proceedings.
2. It can be more tax-friendly. Loan contracts generally have provisions that protect interest payments from being taxed as income (e.g., interest earned on bank loans), which means that investors can avoid paying taxes on them (at least until their investments are cashed out).
The main difference between angel investing and loan financing is that with angel investment, the investor does not have to make any repayments for a certain period. On the other hand, if you want to get a loan from a bank, you must pay back the money within a certain period, or else you will pay more interest on your loan.
They also tend to be risk-takers, giving their money without expecting an immediate return. That's exactly what you want from your loan—someone willing to take risks.
Lenders are focused on making money today and tomorrow, while angel investors see opportunities in the long term. Angel investing is also much “riskier” than lending because no significant data is available about early-stage companies' ability to succeed (yet).
Loan financing deals typically require a company's existing revenue stream or revenue projections, which can make it difficult for startups with little experience generating revenue or projections at all—especially those who may not be able to demonstrate how they'll be able to generate enough revenue within a given time frame.
Conclusions
You have determined that you have a strong business plan and a proven track record. You've identified your business's key metrics and how to use them to succeed. You've identified your core market sector and a growth strategy to capitalize on its opportunities. You're prepared to put in the hard work that starting your own company requires. Now it's time to get the funding that will allow you to act upon your plans and carry out the ambitious goals you have set forth.