Angel Investors: Best Bet For Raising Funds For New Entrepreneurs
Kunal is a dynamic & a creative team player with interest of learning ability in all facets of Financial Services and capital markets
Where are various stages of raising funds starting from bootstrapping, banks and private loans, Angel investors, venture capitalist, private equities to public listing . Addition-ally, organisations may raise funds through debt securities and structured debt papers. Generally, it is very difficult to convince private equity or venture capital funds who follow a hard due diligence process for investing in a firm besides their ticket size for investments is also quite large.
In the initial stages businesses looking for funds may prefer to approach Angel investors as they can actually understand and bet on an idea and more importantly on teams which haven't yet delivered outcomes. Further, they can even provide small amount of funds which is generally required in the initial stages of a business and hence helps them survive and boost further growth. This sheer flexibility that angel investors provide makes them perfect source of fund raising for startups.
On the other hand, private equity funds try to fit in investments as a particular percentage of their overall portfolio then try to fit in the category of seed funding besides sector allocation. They further, align their investment plans with scheme objectives making it difficult to find or shortlist new enterprises for investments. There-fore, Angel investors form very core building blocks of various organizations.
Further in little mature stages when businesses have validated their models commercial cash inflows are in place and are looking to capture more geographical markets and or work on new products, angel investors play a role by not only funding but connecting such companies with other players, customers, and suppliers in the ecosystem. This is a priceless contribution to provide footing and creating awareness which helps scale.
Challenges in raising funds We regularly encounter companies which are struggling to raise funds and promoters often complain that due to adequate availability of liquidity in the system they are unable to meet their growth targets. The challenges they encounter are:
1. They don't know whom to approach
2. They don't get the right footing
3. Investors go by different investment objective and as a result do not entertain new businesses
4. Based on various feedback received by us, businesses say they get trapped in chicken and egg cycle. They first need to develop a better team, differentiated product, customer-base, more transactions and more turnover. These perceptually becomes minimum requirements for attracting funds.
5. Investors do not understand the potential of an idea and fail to build conviction. At times they believe a particular business space is already crowded with lot of similar players.
6. Valuation and not arriving at right terms with investors.
Overcoming challenges:
There is no step by step guide to overcoming these challenges however few common solutions that work are as follows
1. Persistence and perseverance open up a lot more possibilities.
2. Entrepreneurs need to follow the principle that "fund raise influences strategy and strategy influences fund raise”. Both are connected and the constant influence of one on another should be encouraged.
3. Start early on in a subtle manner say like publishing a targeted newsletter, so that there is sufficient visibility and awareness by the time you actually require funds besides as promoter you are also ready and have built-in attributes in your business, to raise funds, ready.
4. Make another startup promoter your good friend to guide you along the process of selling an idea, preparing the presentation and going about convincing investors. It is very important that an entrepreneur is passion-ate towards his idea and organization which should reflect in his behaviour and the way he talk about it.
5. You need to have a great story, more importantly, you need to write a good story for yourself which should be able to narrate your vision, market place you intend to capture and big business design to capture the appropriate valuation of the company. Focus and niche of the target segment give confidence while revenues and market size helps build valuation. Finally, you should be able to support your assumptions with execution and reliable market data.
When it comes to valuations, I will end with the statement of futurist Ralph Jensen who says that "the highest paid person of 21st century will be the storyteller”.
Where are various stages of raising funds starting from bootstrapping, banks and private loans, Angel investors, venture capitalist, private equities to public listing . Addition-ally, organisations may raise funds through debt securities and structured debt papers. Generally, it is very difficult to convince private equity or venture capital funds who follow a hard due diligence process for investing in a firm besides their ticket size for investments is also quite large.
In the initial stages businesses looking for funds may prefer to approach Angel investors as they can actually understand and bet on an idea and more importantly on teams which haven't yet delivered outcomes. Further, they can even provide small amount of funds which is generally required in the initial stages of a business and hence helps them survive and boost further growth. This sheer flexibility that angel investors provide makes them perfect source of fund raising for startups.
On the other hand, private equity funds try to fit in investments as a particular percentage of their overall portfolio then try to fit in the category of seed funding besides sector allocation. They further, align their investment plans with scheme objectives making it difficult to find or shortlist new enterprises for investments. There-fore, Angel investors form very core building blocks of various organizations.
Further in little mature stages when businesses have validated their models commercial cash inflows are in place and are looking to capture more geographical markets and or work on new products, angel investors play a role by not only funding but connecting such companies with other players, customers, and suppliers in the ecosystem. This is a priceless contribution to provide footing and creating awareness which helps scale.
Angel investors play a role by not only funding but connecting such companies with other players, customers, and suppliers in the ecosystem
Challenges in raising funds We regularly encounter companies which are struggling to raise funds and promoters often complain that due to adequate availability of liquidity in the system they are unable to meet their growth targets. The challenges they encounter are:
1. They don't know whom to approach
2. They don't get the right footing
3. Investors go by different investment objective and as a result do not entertain new businesses
4. Based on various feedback received by us, businesses say they get trapped in chicken and egg cycle. They first need to develop a better team, differentiated product, customer-base, more transactions and more turnover. These perceptually becomes minimum requirements for attracting funds.
5. Investors do not understand the potential of an idea and fail to build conviction. At times they believe a particular business space is already crowded with lot of similar players.
6. Valuation and not arriving at right terms with investors.
Overcoming challenges:
There is no step by step guide to overcoming these challenges however few common solutions that work are as follows
1. Persistence and perseverance open up a lot more possibilities.
2. Entrepreneurs need to follow the principle that "fund raise influences strategy and strategy influences fund raise”. Both are connected and the constant influence of one on another should be encouraged.
3. Start early on in a subtle manner say like publishing a targeted newsletter, so that there is sufficient visibility and awareness by the time you actually require funds besides as promoter you are also ready and have built-in attributes in your business, to raise funds, ready.
4. Make another startup promoter your good friend to guide you along the process of selling an idea, preparing the presentation and going about convincing investors. It is very important that an entrepreneur is passion-ate towards his idea and organization which should reflect in his behaviour and the way he talk about it.
5. You need to have a great story, more importantly, you need to write a good story for yourself which should be able to narrate your vision, market place you intend to capture and big business design to capture the appropriate valuation of the company. Focus and niche of the target segment give confidence while revenues and market size helps build valuation. Finally, you should be able to support your assumptions with execution and reliable market data.
When it comes to valuations, I will end with the statement of futurist Ralph Jensen who says that "the highest paid person of 21st century will be the storyteller”.
