Looking for angel investors for your startup? Here’s all you need to know

Over the past decade, India’s startup ecosystem has boomed driven by enthusiastic, young, and determined entrepreneurs, and a very inclusive entrepreneurial environment. It is of little surprise then that India’s startup landscape is touted to be the third-largest in the world. 

Time and again, we have seen that crises can be a shot in the arm for entrepreneurship and innovation. The year 2020 is testimony to that as we saw 11 startups joining the unicorn club bang in the middle of a raging pandemic. However, the startup journey is not an easy one. And what’s more difficult is raising money or getting someone to invest in a startup.

At the recently held Resurgence TiEcon Delhi-NCR 2021, Padmaja Ruparel, Co-founder and President of IAN Fund, shared her views on the startup ecosystem and explained how to approach angel investors for fundraising. 

These are some key highlights from the virtual conference - points that will be most useful for first time entrepreneurs looking to raise angel funding.

“Two resources which are important to get a startup going - Talent and Fund. Talent is what you as entrepreneurs bring to the table, and fund is what you need from investors,” says Padmaja.

She further explains that out of a portfolio of investment or the total wealth of an angel, a small percentage gets earmarked for early-stage or angel investing. This is also termed as the highest risk asset class, as the fund is directed to young companies that are yet to prove themselves. Understandably, angel investors are extremely choosy about the investments they do or do not undertake.

According to Padmaja, when you are raising funds, you are not only competing for the investors’ money for your company or the companies in your sectors but also competing with companies across sectors. This means your company has to be the most promising in not just its own domain, but it has to be the best across other business plans and ventures too. It is therefore absolutely critical to be well prepared. 

High-quality angel investors will not expect dividends year on year. They would want all the cash that is created or generated by the company to be ploughed back into the company for growth, she says. 

On appropriate preparation before seeking investment, she says a thoroughly thought through process and understanding of the business model  is needed before approaching any investors. 

“What is important is the product, or a proposition, or some sort of an endorsement of the product. Understanding the different lines of revenue which the company will build over a period of time is necessary. Also, it is equally important to know where the entrepreneur is going to spend money,” says Padmaja.

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As an investor, her message to early-stage startups is, “It is not that we need a Balance Sheet or a P&l at this stage. But what we do need very clearly are the cash rules, very important when you begin to raise money. The difference between revenue and expense is called burn, which means that you're burning more money than you're receiving, and therefore, you need to raise money.”

According to Padmaja, some other points that first-time entrepreneurs need to be looked at are - 

Understanding the market - Study the market to be aware of the other players who are trying to bridge the same gaps. 

Customer acquisition strategy - Why will customers buy your product/solution? Find what sets you apart from the competition right from the beginning. 

Price strategy - If the product is great but the pricing is high, or if there are similar products in the market that is more affordable, then customers will prefer the latter.  

Product delivery - The process of delivering the product/solution to the customer in the most efficient manner - taking supply chain and timelines into consideration. 

Team - Investors look for startups that have a strong team put together, and makes sure the members complement each other with different skill sets. 

Company expenses - Having a clear understanding of company expenses and revenue is important. It is best not to dilute more fund into startups than is required. 

For a complete investment memorandum, and clearer financial models, it is imperative to have all the revenue-related information in place. Building investor pipeline for the company is another important parameter. It is very important to be aware of the people who have invested in the space and all the other details pertaining to the investment like - the company they have invested in, the amount they have they been able to invest, etc. 

“It's very important to have parameters against which you are building your investor information as well,” states Padmaja. 

After all the initial prep, once a startup gets called to present their pitch in front of the investors, it is important that the pitch is very well-rehearsed, and the deck is extremely sharp, adds Padmaja.

And finally, if a startup gets shortlisted, the next stage calls for some deep-dive due diligence. In this next stage, investors want to see the sales pipeline, they want to understand the entire startup and its product in full detail. According to Padmaja, besides investing, angel investors also add value to a startup, and leverage his or her domain expertise to bring more money from other investors to the table. 

She adds, “At IAN, depending on the domain, we would recommend a lead investor who has either built businesses in that space or understands that space. He or she will not be able to invest the entire cheque, but can bring in more investors who can pump more money into the startup”.