Angel Investors and Their Role in Your Start-up’s Growth | What I Learned From My Journey

You need money to keep the power on, the employees happy, and the momentum moving, no matter where you are in the startup life. Raising funds may not have been your top priority when you started your business, but your ability to do it will influence how far it can go.

Understanding the various requirements at each level of funding will give you the confidence to approach investors with a clear picture of what you both stand to gain from the transaction.

The initial source of funding for your firm is seed capital. Sources will include the Bank of F&F (friends and family), crowdfunding, credit cards, and your own savings, which you’ve relied on since childhood.

Angel investors typically step in as your startup’s demands grow and you need to scale or increase capital for product development, marketing, or simply to expand your team to keep up the momentum.

What is The Definition of an Angel Investor?

An angel investor is an individual, typically with a high net worth and business knowledge, who invests a portion of their assets directly in new and developing private firms. Individual business angels can venture alone or as part of a syndicate, with one angel often taking the lead.

Angel investors assist the entrepreneur with company management experience, skills, and contacts in addition to finance. Angel investors that have done their homework understand that they may have to wait for a return on their investment. As a result, they can be an excellent source of “wise and patient” money.

They differ from other types of investors, such as venture capital firms, in that they invest their own funds and should be treated as such when seeking funding. They have the option of investing individually or as part of a group.

What Are They Expecting When They Are Investing?

Angel investors typically seek a 20 to 50 percent ownership share in early-stage businesses. As a result, the valuation of the company comes first in structuring the sale and negotiating the terms. A firm’s valuation is its price tag, with the pre-money valuation representing the value of the company before it gets investor funds and the post-money valuation reflecting the number of investor funds raised.

Angel investors are typically interested in high-growth, high-potential firms with the potential to earn them several times their initial investment. To put it another way, the prospective returns must be large enough to outweigh the multiple dangers associated with investing in a company.

They expect strong futures such as:

• A Strong Management Team: When it comes to attracting investment of any kind, having a strong management team is essential.
• A Strong Leader: They want their entrepreneur to be coachable, understanding and hard-working. For a start-up manager, it is to be expected that they are a strong leader who is open for changes and is willing to improve.
• A Business Structured for Investment: While some angel investors provide direct financing to businesses, more than half prefer to possess a minority stake in the company.
• A Complete and Convincing Company Plan: Angel investors want to see a business plan that includes financial predictions, extensive marketing strategy, and specifics about a target market.
• A Solid Exit Plan: Angel investors expect to be supplied with a number of exit alternatives for their investment, as well as detailed risk analysis for each before any money changes hands.

My Angel Investor Experience with an Experienced Investor Ebru Dorman

Our company, Thread in Motion, has 3 different angel investors.

Ebru Dorman was the first to become Thread in Motion’s Angel Investor. Thanks to her previous professional background, knowledge and extensive experience in investment and consultancy, we have established a very strong relationship together. We understood in the degree of her approach to us that it was one of the decisions we made right.

So much so that I even had her as my wedding witness.

What I am trying to convey here is that; Your angel investor is not just the person who gives your company money. You should decide to move forward on this path with experienced, effective, and professional people who mentor you, support you and believe in you. This is a process that also requires an emotional bond of belief.

To continue with the example, Ebru Dorman has always made room for us and supported us in every difficult situation and when we have a bottleneck in making decisions.

In our first MVP period, a famous French automotive manufacturer brand came together with us to integrate our products into their factories. However, they were hesitant because of the small size of the team and the concern of whether we could provide a sustainable service. Ebru Dorman came together with senior managers and supported us at the service and support point, and we quickly realized our big sale.

The support of your angel investors is critical at points such as meeting investors on the global side and providing support in strategic suggestions.

In another example, we were negotiating partnership deals with our US-based client. We had some roadblocks when communicating with the other party. Ebru Dorman changed the process by personally attending our meetings with us.

In general, especially in B2B ventures, entrepreneurs and the team are young, and they need support from angel investors in areas such as networking, decision making, business communication, and so many more, not just financial support.

So, It’s Not All About The Money, It’s a Mentorship

Angel investors prefer to invest in startups and early-stage enterprises that can be scaled fast. This means that your company should be able grow drastically in the coming years, or in other words, you have to have a promise.

And they offer you a lot:

• Expertise. Angel investors frequently have industry knowledge. They could can offer you guidance and coaching to help you thrive.
• Connections. Angel investors have a large network of contacts in the business. They are able to introduce you to new clients, untapped financial resources, strategic business partners, and other people who can help you grow your firm.
• Support. Angel investors benefit when the business succeeds, they are now a part of your team. They are motivated to help you find new resources and tools, as well as technical training when you’re on a hunt for a new product or technology. Angel investors may offer follow-up investments if your small firm requires further funding in the future. Just dream big and request help on the way.

But also, consider these:

• Rejection is a possibility. Angel investors may reject your pitch even if you believe your firm has exceptional potential growth or a game-changing product. Investing in a company is, after all, a risky proposition.
• Control is shared. Some angel investors may want a substantial stake in company share, and you may find yourself selling more than you intended.
• It’s possible that this isn’t useful. Make sure an angel investor’s interests are matched with yours by conducting due diligence on them. Request references and, if possible, speak with other companies that have received funding from this investor. You could prefer an angel investor who would also work with you as a business partner, helping your company grow and succeed, rather than one who is only interested in making a profit.
• It takes time and effort. Prepare a lot of paperwork, including financial statements and estimations, accounting records, cash flow statements, and bank statements, so be prepared for a lengthy and time-consuming procedure.

What Happens if It Doesn’t Work Out?

Every Relationship May Come to an End, What If Yours Too?

Unless a tiny piece of an investor’s investment is repaid through the sale of any firm assets, investors will often lose all of their money. In that case, whatever cash remains in the firm after the disposal of investments and the settlement of any liabilities the company may have, the proceeds will be shared pro-rata among the owners. When a business collapses, investors typically lose all of their funds.

You Should Create a Solid Game Plan

It’s an exciting time for business owners who want to seek capital from angel investors. Make sure you’re ready for this phase if you’re ready.

• Examine your business plan and gather any relevant performance documents.
• Find an angel investor in your community by using online platforms, social media networks, or local business associations.
• Make connections with other business owners and leaders to see if they might introduce you to an investor.

You can reach them through various channels. Online webinars, live events, investor groups, and private events.

In Short, Find Yourself a Partner in Crime

Remember, like repeatedly uttered here at Thread in Motion, we’re looking for teammates or investors, we’re looking for partners in crime.