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.
#1 Validate Your Business Idea
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:
Create a landing page for your product. To build a digital presence for your product, you don’t necessarily need a full-fledged website or a mobile app. A simple landing page is easy to create on your own using out-of-the-box solutions like Wix or Weebly.
Create clickable prototypes. Clickable prototypes are a great way to test user’s reaction to your IT product and find out what features are important to them.
Use SaaS products. Use SaaS software to rapidly launch a website ‒ no installations and support required. For example, a Shopify platform enables you to start an ecommerce website within a few hours. Groupon used Wordpress to post daily deals and validate people’s interest.
Find your MVP model. Find out which MVP model works out for you. For example, a Wizard of Oz MVP means that you deliver all the services and products manually. Zappos started exactly as a Wizard of Oz ‒ Nick Swinmurn, founder, took pictures of shoes in offline stores and posted them on the internet as if it was a real online shoe store. Even though, such MVP model didn’t bring any profit, Nick had a chance to make sure his idea is viable and people are willing to buy shoes online.
Tip#2 Get a Great Team
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.
1. Recruit High-Quality Talents
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.
2. Don’t Hire People You Don’t Currently Need
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.
3. Hire Doers
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:
- What role did applicant take?
- What achievements did applicant demonstrate?
- How does applicant estimate his accomplishments?
- What could be improved?
Questions like these may help you find out if a right person is in front of you.
4. Make Sure You Share the Same Values
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.
Tip#3 Find Angel Investors That Match Your Startup
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.
Meetups and Conferences
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
Tip#4 Prepare in Advance to Appeal to Angel Investors
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:
Do some research about in investor. People appreciate when other people take interest in them. This rule also applies to business angels: they appreciate if you know their background, the projects they dealt with, the sphere they work in, their hobbies and tastes. The more you know about your investor, the better. Therefore, you’ll delight the investor with your knowledge and be able to pull necessary strings.
Find investors that feel an affinity for you. Previously, I’ve mentioned that angels are more likely to invest in your business if they’re familiar with that industry. However, the sense of affinity can be built upon other concepts, like family connections, personal qualities, science degrees, hobbies and more.
Make a great pitch. By a great pitch I mean a personalized pitch that is sent directly to an investor you’re going to reach, not an email@example.com email box no one ever checks. A personalized email should include the investor’s name and tailored specifically for the person you’re writing to. Include a small note on why you write to this specific person, tell your story and little bit about yourself.
Engage with your investors on social media. Social media open multiple opportunities to get in touch with investors. For example, don’t neglect social media like Twitter. On Twitter, you can participate in discussions with a person, mention people in your tweets, and have private conversations in direct messages. A casual atmosphere of Twitter allows for a friendly chat with many entrepreneurs and investors. Just try it.
Rely on referrals. Gain support of a contact who can introduce you to the investor. A personal contact, a LinkedIn contact or a recommendation of other business angel may be a deciding factor. People tend to believe to recommendations of other people, especially in such a risky business as investment.
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.