We’ve compiled some tips and considerations to help first time Tech Founders prepare and understand the right time to seek angel investments.
Definition: For the purpose of this article
An Angel Investor is a high-net-worth individual who provides financial backing for small start-ups typically in exchange for equity in the company. In other words – they invest their personal cash into a business.
When do Angel Investors write these checks?
1. When they hear a compelling idea
2. They are persuaded that the team of Founders can realize its vision
3. They believe the opportunity described is real
4. The market is sufficiently large (“aka Big. Huge.”)
Founders who are ready to tell their story in a compelling way and persuasive style with the assistance of a concise pitch deck can raise money.
But…. Before you approach an Angel Investor ask yourself these 3 questions:
1. Are your finances in order?
2. Do you have a good management team?
3. Do you have a detailed business plan?
Business plans and solid finances are critical to securing investors.
Not all Angel Investors require you to provide a detailed business plan but some will. The process of creating a business plan makes you think through the details of what you are trying to do and what it will take to get there. You’ll be much more prepared to handle Q&A with confidence. You need to demonstrate an understanding of your industry and the market that you will be working in if you want to show your potential for growth and appeal to investors.
Do you need a large revenue line?
No – some Angel Investors will invest pre-revenue, however you do need evidence suggesting that buyers are out there and your product has been pre-tested. You should want this investment to expand operations and fund marketing efforts therefore you should already have successful sales or pre-sales proving that customers are standing by - ready and willing to buy.
Angel Investors are looking for commercialization stage opportunities, not concept stage opportunities.
If you aren’t yet past the concept stage, but you do have a business plan and your finances are in order then you can certainly start reaching out to Angel Investors to start building relationships. Time is a great variable in building “trust” so get started early.
Wondering about profitability?
Profitability is not essential – or even expected, but you do need to show that you are likely to become profitable. In general investors are going to want to know that you could reach profitability within 12-18 months.
If you need any assistance with preparing your finances, pitch decks, and want more guidance from seasoned financial professionals, reach out to numbercrunch for more information.