Turning a burning idea into a fully-fledged entity takes you on a rollercoaster of emotions that only those who experience it can truly understand. Little surprise then, that the impact this journey has can make it all the more difficult for you to give up control.
But as hard as it may be, you have to be prepared to take advantage of investment when the time is right. Even if that means offering an investor a large chunk of equity to catapult yourself forward. There are, however, a number of words of wisdom to take on board and pitfalls for a business to avoid when taking their first big step. What about going lower still? Why not opt for a series of smaller raises instead? The investor wants the entrepreneur to grow and succeed and to get them their exit.
There are longer term relationship implications here too. Depending on the opportunity involved, they are willing to invest more to retain a larger equity percentage.
Not only are you tasked with having to find the right investors who typically invest in your business sector, but you will have to go through numerous meetings, complete your due diligence, come to agreement on the negotiations of terms, and much more. The act of raising capital can be a very time-consuming and frustrating process. An angel investor will need to have a strategic outline of how the company plans to market itself, what are the cost of acquiring a customer, and the long-term value of an ideal customer.
Therefore, an entrepreneur should be prepared to answer the following:. There is a great deal of risk involved, and it is a huge gamble. An angel will only invest if he or she is comfortable with potentially losing all of their investment. At best, only one in ten startups are successful. Related : 16 Singapore start-up grants and schemes. The best way to increase your odds of securing an angel investor is through a warm introduction from a colleague or friend of an angel.
Using a social media platform like LinkedIn to find powerful connections can also be quite useful. Angel investors are presented with many options of deals to choose from daily. You will just have to be careful and not disclose highly confidential information.
An entrepreneur should be thorough in analyzing whether a prospective angel investor will be a good match for them. Here are questions that should be asked:. Angels will often choose to invest in start-ups through a convertible note.
The key terms negotiated are:. Angel investors get tons of emails from start-ups, asking for consideration in investing in their company. It is advisable to give monthly updates to your angel investors, no matter if you have good or bad news. If you are experiencing issues, this can be an opportunity to seek help or advice. And if you are in need extra investment, this might warrant a discussion. No one likes to be blindsided, so regular communication is very important.
They want to give you more!!! If you keep your investors engaged with honest updates, they will reward you by participating in future rounds. Related : Investing in Startups Spring Singapore. There are numerous reasons as to why an angel investor will reject your pitch.
Honestly, the majority of prospective investors are likely to reject you. Here are some of the typical reasons for rejection:. An investor will expect these specific documents prepared by experienced counsel to already be in place:.
Beyond investment capital, a few or all of these benefits are obtainable from good angel investors:. Equity stakes — general principles Finding the right percentages when it comes to gaining a stake in a startup is more of an art than a science. Yet there are some good, time-honoured principles: Expect a significant ownership stake. As an angel investor, it is unlikely that you will want to settle for a single-digit percentage stake. Seek ways to safeguard your money.
Keep a long term view. Some business owners are poor negotiators and, therefore, it is possible for angel investors to take advantage of this. However, consider the fact that a poor negotiator could represent a bad deal. Shop around for the right deals. Of course, not every negotiation with a startup needs to end in an agreement. Alternatively, perhaps the business owner will simply not budge from their untenable negotiating position.
Fortunately, the great news is that there are plenty of other opportunities which could be a better fit. Here at Bure Valley Group, for instance, our investor network offers a wide range of projects in a diverse range of sectors which could be perfect for your portfolio.
Investment Disclaimer Investing in startups and early stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution. Entrepreneurs face the difficult question as to what share of interest is a fair exchange for an investor's capital.
These days, angels ask for up to 50 percent of the companies they help. Although there is no concrete rule dictating how much equity an angel investor will take in exchange for financial support, the general expectation is between 20 and 40 percent.
Angel investors usually take between 20 and 50 percent stake in the companies they help. Sometimes the exact amount is determined strictly by negotiation. However, frequently angel investors use a company's valuation as a measure for how much ownership they should take.
The amount of total value the angel investor brings guides the percentage of ownership it gets.
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