Entrepreneurs lay the foundation of their startups using their savings and taking funds from friends and family. Once you have completed that step, you need to accelerate your business growth and reach the market standard. But doing that will require a significant amount of investment, which can become a problem for any business founder.
A cash crunch can negatively affect your production, business expansion plans and recruitment strategies. If you don’t have adequate security and collateral, it is almost impossible to get financial backing from a bank. Even if you have sufficient collateral for a bank loan, too much debt at the starting stage will restrict your growth.
According to a report by New Hampshire University in 2018, the angel investor market for startups has seen a rise in market participation at smaller levels but in many companies. The total investments came up to $23.1 billion in 2018, down by 3.4% in 2017. However, active investors in 2018 increased to 3,34,565 from 66,110 in 2017, marking a growth of 16%.
Who is an Angel Investor for Startups, and What is Their Role?
Angel investors are individuals with high personal net-worth, who give financial support to startups and new businesses in exchange for equity and part-ownership. They help startups to accelerate their growth rather than just focusing on profits. This is the main difference between venture capitalists and angel investors.
Angel investors can belong to any background professionally. They don’t focus on profits. Instead, their aim is mentorship and support for a startup’s success. There are more angel investors today than before. According to the ACA (Angel Capital Association), these angels invest their personal funds into startup businesses, who in return grant them part ownership of the business. By their recommendation, you should work with accredited investors, people who can offer high-quality advice and mentoring and thus add value to your business.
Angel investors are passionate about the ideas that they invest in. They, therefore, assist businesses at every step and become mentors for new entrepreneurs. They are capable of doing this as most angel investors are experienced industry experts and former entrepreneurs who invest for one or more reasons. These reasons could be:
Getting a return or a profit
Becoming a part of the entrepreneurial process
Aiding economic growth within the nation in a bid to give back to society.
Are You Ready for an Angel Investor?
New startups cannot function without angel investments. But getting an angel investor for startups requires timing and preparation. To understand, if you’re ready, ask yourself or your business partners the following questions.
Am I ready to let up a part of ownership and lose control over a portion of my business?
Can I prove that my company will bring in impactful revenue and earning opportunities within the next few years?
Can I prove that investors will get a significant return on their investment?
Am I open to taking advice from investors and accept the decisions of a board of directors, even when I might not agree with them?
Do I have a plan for when I want to exit the company in the next few years?
When Should You Reach Out to an Angel Investor?
According to the ACA, angel investors are more likely to invest in your company when
Your business or product is almost completely developed.
You have a customer base and a potential market that has confirmed in some form that they will buy your product.
Your personal funds and other alternatives have been entirely exhausted.
You can prove that your business will grow at a high pace. One figure would be to prove you can achieve sales worth $50 million in the next 3-7 years.
You have a proper business strategy.
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