As investing is a risky business and it often doesn’t bring expected profit ‒ only a half of startups pay off ‒, investors choose startups carefully.
You need to consider many factors that can persuade business angels to invest money in your startup. For example, one of the factors is a business sphere they’re familiar with: The Inc. Magazine states that angel investors are likely to invest in what they know, so they’ll make smarter unbiased decisions.
A great team matters as well. Peter Lynch, an American investor, emphasizes that angels realize that they deal with people in the first place. Therefore, they assess your skills, motivation and professionalism that are critical to a business success.
However, your product matters the most. Investors admit that while they're assessing a startup, they wonder how fast they’ll get their money back. According to Randall Reade, an American angel investor, getting funded without at least a minimum viable product (MVP) is almost impossible. Investors are overloaded with requests from other startups; so they need to “touch” and test your product in order to make a right decision.
Therefore, you should consider building an MVP upfront to stand out from the crowd and prove workability of your idea. A minimum viable product helps you test the waters and get your audience’s feedback before you even launch. As a result, you’re able to avoid failures and financial losses.
However, remember that having an MVP doesn’t prevent you from failures to find an investor. You need to back up your idea with extensive data like a marketing strategy and a business plan. This post aims at finding out how to get funded with just an MVP and don’t get insane in the process.
To convince an investor of funding your project, you obviously have to prove that your startup idea is viable. Traditionally, startup owners opt for a a SWOT and a business plan to detect external factors that may cause a project to fail or to succeed and state the business goals and means of their achieving.
However, more and more startups rely on a Lean startup methodology to introduce their product. Put it shortly, a Lean startup approach preaches validating a business idea through introducing a minimum viable product rather than concentrating on releasing a full-fledged product in a first place.
According to Eric Ries, a creator of a Lean methodology, all startups are functioning in an uncertain environment; therefore, you can’t be 100% about success of your business idea. To solve the problem of uncertainty, you should build a raw product with the basic functionality and see if it satisfies people’s needs.
Here are a few tips that’ll help you validate your startup idea with an MVP:
One of the differences between angel investors and venture capitalists is that angel investors are often motivated in something more than just making money. For instance, business angels are willing to help startups become successful in a particular field.
Yet, angel investors are prone to appreciating the most valuable assets: people. According to a Forbes article, investors are likely to invest in a startup with a good team and a good product that can potentially return their investments. The tips below help you get a team that will charm your investors.
Many successful companies are often associated with their creators rather than their products. People often mention the names of Steve Jobs and Steve Wozniak when they talk about Apple; Facebook is associated with Mark Zuckerberg.
Speaking about Steve Jobs, people who personally knew him always point out his fantastic enthusiasm and energy that beamed through his eyes. In fact, everyone admits that Apple became successful mainly because of charismatic and persistent Jobs.
My point here is that you should look for talented and energetic people that will inspire the rest of the team. Nolan Bushnell, Atari Inc. founder, wrote that you shouldn’t waste yourself on people that come to work just to earn some money and keep on their living. Instead, you better hire people who come to you with a bunch of ideas, not their polished CVs.
Many companies practice hiring people even if there’s no suitable position for them. Surely, finding a top-notch worker isn’t easy and companies realize that there might be no second chance to catch such a worker. But while big companies can afford paying six-figure salaries to keep their employers, startups should hold on.
When you hire a person for a position that doesn’t even exist, you appoint them for a meaningless position and come up with useless errands. Without challenging tasks, talented workers lose their motivation which does more harm than good to your company.
Another pitfall is staff overage. According to Jason Fried, Basecamp CEO, hiring every excellent worker causes problems. To engage people with work, you start to do “artificial” projects that snowball into additional time and money expenditures. Besides, nobody likes to fulfill dull tasks.
Hire doers ‒ independent people that generate new ideas and put them into action. Doers simply do the work for you, they don’t need your control and babysitting. Such people are able to organize themselves, determine their scope of work and deadlines, and manage their time efficiently.
Doers are especially valuable from the perspective of remote work. If you’re working with geographically dispersed employers, you can’t physically reach your employees. However, proactive doers let you rely on them and get the work done.
To detect doers, consider the projects a person participated in when studying a CV:
Questions like these may help you find out if a right person is in front of you.
Corporate culture determines how you and your employees interact with each other and manage day-to-day business deals.
Corporate culture isn’t just about a set of rules everyone should fit in; corporate culture is also about sharing the same values and being on the same wavelength. For example, Zappos claims that their employees are “a bit silly and adventurous. However, they’re also modest and willing to help with any impediment”.
Think about your company’s culture and ask yourself what people you’d like to see around you. What values are important for you and your business? How do you want your business to be perceived by other people? What things do you want to be associated with? How are going to promote the corporate culture?
Remember that a great corporate culture doesn’t happen in one night; you have to engage your employees with great activities, elaborate a company’s policy, promote the culture, be an inspirational example, and much more.
After you created a business plan, gathered a great team and built your first MVP, your next move is to find an investor. At this stage, don’t plunge into getting funded as fast as possible.
People are looking hard for a team of like-minded people and skilled professionals, so why don’t follow the same strategy when searching for an angel investor ‒ a person who’ll support your financially and with relevant advice?
One of touchpoints that connect you with an angel investor is an industry you’re targeting at. Ralph Kroman, a business law expert, says that a typical business angel likes to invest in a trade he’s familiar with. According to the Halo Report, the most attractive fields include IT (37,4%), healthcare (23,5%), and telecom sectors (10,4%).
Also, angel investors are more likely to engage with business that are geographically close. Since many investors enjoy being involved in a business and give their advice and consulting services, they like to get in touch with you regularly and have a conversation by a cup of coffee.
Remember that angel investors are sociable people that enjoy networking; they often belong to groups and associations. Consider global platforms like AngelList, F6S, Gust Launch, and Tech Coast Angels that help you hook up with an investor. There are platforms for specific location though. For example, Angel Forum and Angel Capital Association that prefer to work with Canadian and North American startups.
Specialized events like meetups and conferences are a great chance to talk to your potential investor face-to-face and create a nice impression.
Besides angel investors themselves, you’re able to meet people who can refer you to an investor. Since business angels often rely on referrals and recommendations when choosing a startup to invest in, engaging with as many “right” people as possible eventually pays off.
At events like AngelSummit.io and Webit Festival Europe you’re able to hear from venture capitalists and angel investors who share the best practices in startups and give their mentorship. Or, if you want to give a pitch to a potential investor, you should visit events like SVOD, Charleston Angel Conference, and MoneyConf that are held annually.
Related Read: Investor Updates: What you need to include
First and foremost, investors are ordinary people driven by their emotions and tastes. That’s why it’s important to create a good first impression and show that you have something in common. Ron Conway, American angel investor, says that he invests in startups because he loves helping entrepreneurs and watching them learn and succeed; he also appreciates the teams that share his views.
Here are a few tips on how to better appeal to angel investors:
As you can see, getting funded isn’t easy. However, it’s worth it: in addition to financial support, you get advice from more experienced people who, as a rule, know the industry and the business well.
Surely, suggestions above can’t be applied to every business. Remember that you and your startup are paramount; keep in mind your background when looking for an investor and choose investors well.