Startup Guide: How Can Early Stage Startups Secure Angel Funding?

Angel investments as a way to raise funds for startups has picked up pace recently in India, and a lot of the credit goes to the success of startups like Ola, Oyo, Swiggy, BharatPe and others, where the angel investors got multifold returns on their investment. Typically, as a young startup comes up with an MVP (minimum viable product), gets some traction (like paying customers or user engagement in some form) and reaches the initial level of product-market fit, they are considered by angels for funding.

Angels are usually high net-worth individuals, who not only provide capital but also get involved deeply in the process of scaling up the business and provide much-needed direction, mentorship, and open their networks for the budding entrepreneur. Angel investors often are visionaries and experts in their fields and focus more on the potential of the business rather than simply accelerating profits, making their guidance extremely useful. For these reasons, generally the most sought after angel investors are ex-entrepreneurs themselves, who can empathise with the unpredictable journey and continuous turbulence of a founder’s life. But how does an early-stage startup secure angel funding?

What do Angel Investors look for?

Angel investors usually have an investment thesis of their own and do not invest with only profit as their immediate motive. They’re patient and willing to invest long term, provide advice and work with the entrepreneurs for the growth of the business. They are aware of the associated risks of putting their money in an asset class where the mortality rate is as high as 90%, and generally look for companies in specific sectors where they have either deep domain knowledge or experience. They look for certain things in the startup before committing, such as scrutinising the entrepreneur’s vision and commitment, business traction and scalability, a well-rounded team, realistic valuation, and a reasonable exit strategy.

These expectations vary depending on the angel’s preferences and strategies, but it is safe to say if a startup idea/product ticks off these boxes, they have a fair shot in convincing the angel investor of choice.

The Process of angel funding

The process of acquiring funds from angel investors starts with researching the right investors for your company, then approaching them, followed by pitching and securing the investment.

Currently, there are many active angel networks in India where like-minded investors put in the capital as a group. Their biggest advantage is the network they bring for further growth and scaling the company. Funding marketplaces as a concept has also evolved with some prominent ones making prolific investments.

Finding the right angel investors

Good news is that in this day and age of LinkedIn and Twitter, it's quite easy to directly approach preferred investors through direct messages on social networks or mailing them the investment pitch deck on the email addresses listed on their website. But the best way remains if there is a warm introduction between the founder and the investor, and this is where angel networks play a big role. A network understands the investor’s requirements and basis that they help the startup create the right pitch, with the financial numbers and projections in place. They also guide towards realistic valuations and vouch for a company in front of the investors.

Closing the investment round

Once the presentation covering your business idea, team, business model, USPs, competitors, and other key aspects have been made, the investor will take a call basis their personal preferences. Post this pitch, there is a detailed analysis of the financial, legal, and regulatory compliances of the startup, generally called the process of due diligence. Once everything is verified, capital transfer is made, and the investment round is closed.

Nemesisa Ujjain, Director - Innovation Projects at The Circle.Work>