Monthly Archives: August 2017

Investors Will Fund Your Company

If you’re looking for an angel investor to fund your business, you may want to consider exactly what the investor is looking for to improve your chances of success.

Angel investors are individuals who invest in early stage or startup companies in exchange for an equity ownership interest. In a Business Insider article, renowned investor Ben Horowitz explained that, unlike traditional venture capitalists, angel investors usually invest smaller amounts of money, make their investment decisions quickly, and rarely require a board seat as a condition of investment. This makes them an attractive funding option for startups that don’t need large investments and want to retain more control over their business.

A survey by Propel(x), an online angel investment platform, revealed the top three reasons angel investors choose a specific business.

Exceptional management is vital for any business. Three-quarters of survey respondents said the management team of a startup was their biggest consideration for investing.

“Startups are not only about the technology or business idea but also very much about the people behind them,” said Swati Chaturvedi, CEO and co-founder of Propel(x). “A compelling, experienced team that can sell the vision and the potential impact is key to success, and something savvy angels look at closely.”

Some exceptional qualities to have as part of a management team are integrity, clarity of strategy and approach, professionalism and determination, Chaturvedi said.

 

Ability to understand the technology

Angel investors want to understand exactly what they are financing, especially for startups in the tech field. More than 50 percent of respondents claimed this as one of their top reasons for investing, and 94 percent find it helpful to have subject-matter experts explain the technologies within their company before investing. In fact, many choose not to invest in specific businesses due to their inability to grasp their technology efficiently.

“The easier we make it for angel investors to discover, evaluate and participate in science and technology startups, the more we’ll see money going into these worthy companies and the benefits to humanity accrue,” Chaturvedi said.

 

Potential return on investment (ROI)

Naturally, angels look for opportunities that will benefit them as well. Forty-nine percent ranked potential ROI as their top motivator for making an investment decision.

While some investors are indeed looking for financial compensation, not all are primarily interested in just the money. Some want a different kind of return: The ability to solve the world’s biggest challenges through the businesses they fund. Nearly one-third of angels will choose to invest in a company based on its connection to important social issues.

“Having an impact matters, especially when it comes to investing in things like curing diseases, feeding a growing global population, fueling the planet with clean energy and even taking us into space,” Lisheng Wang, Propel(x)’s co-founder and head of investor development, said in a statement. “Science and technology startups especially should take note that when raising capital, they should emphasize the impact of their solution besides potential returns to investors. It’s not only about the ‘what,’ it’s also about the ‘so what?'”

Over Startup Investors

If you’re looking for startup investors, having a good business idea is only half the battle. You won’t convince them based on your idea alone. The person deciding whether your business is worthy of their investment requires a well-thought-out plan, with details about the business, its growth potential, target market and more.

Business News Daily spoke with Michael Mocatta, partner and COO of Neta Ventures, and Keri Gohman, president of online accounting software company Xero Americas, about investor pitch meetings and how to ensure the relationship is a win-win for you and your investors.

 

1. Show investors you’re a low risk.

Benchmarks for raising venture capital have gone up over time as the cost of product development has decreased, said Gohman. Investors need to see a realistic business model and, in many cases, some initial traction. They also want to see how well the business has been thought out, an acute understanding of the business’s unit economics, and the lifetime value and cost of customer acquisition.

“Investors like to fund growth, rather than product development,” Gohman said. “A startup needs to be able to show an investor month-over-month growth over a certain period.”

 

2. Sell them on your team.

Your team is what makes your idea happen, and potential investors are looking at the people behind the idea.

“When fundraising, it’s important for business owners to show that they’ve been able to recruit a team, inspire the team to develop a solid product, a small subset of people who like using the product, and that the product has grown toward product-market fit,” Gohman said.

Mocatta noted that a common mistake is presenting yourself to a potential investor with a missing link, such as when you’re still looking for the “tech guru.”

“You’ll stand out for the right reasons if the people on your team have experience as well as contacts,” he said. “A diverse team with complementary strengths is what will turn an idea into reality.”

 

3. Create a simple tagline that shows your value proposition.

Entrepreneurs who live and breathe details of innovation find it hard to distill a concept into a simple idea that grabs the imagination of investors. You need to condense the vision of the business into a clear benefit that is compelling and dramatic, said Mocatta. A tagline is even more succinct than an elevator pitch, he added, so have this worked out and memorized before presenting your vision to others.

To define a meaningful vision, Gohman advises going beyond the business’s day-to-day operations and think about the “why.”

“A business with a true vision empowers those involved, giving them a reason to wake up in the morning,” Gohman said. “A vision should be used as a north star, guiding an organization in everything it does: hiring, development, customer acquisition.