There is simply no doubt that the startup space in India and across the globe is thriving despite the many roadblocks such as policies, taxation issues, etc. However, one major impediment experienced in this ecosystem is angel investment. And it isn’t a one-way street where only startups find themselves struggling to raise funds from angel investors; angel investors, who are seeking to invest in startups, too find themselves exerting to find a venture worth investing in.
Some might argue that if a venture has customer validation, the decision to invest shouldn’t be that hard. Unfortunately, customer validation isn’t always indicative of the startup’s ability to sustain and succeed.
In fact, every angel who is contemplating the decision to invest in a startup, even if it has customer validation, must do the following things to ensure that the venture is indeed worth investing in.
10 Things Every Angel Investor Should Know
- There are many things about a startup that are essential to its ability to function and succeed. Among the most important such factors is the founding team. Hence, every angel investor must ensure the team’s culture fit, background, experience, and relevance in reference to the problem the venture is solving.
- It never hurts to get expert advice, no matter the context. And when it concerns investing, a domain expert opinion of the startup’s product or service is extremely important.
- It isn’t wise to blindly trust claims and angels must acquire real customer data in order to validate the startup’s claims.
- Angels should evaluate the solution’s scalability in market i.e. how big can the startup grow. Every industry today has to contend with cut-throat competition and in view of that fact, it becomes imperative to assess the product or service’s potential to grow and scale.
- Today everyone is at least vaguely aware of just how intense the competition has become in the market. Every industry is brimming with both new-age players and established brands offering new technologies and solutions practically every day. Hence, it is doubly important to appraise the startup’s ability to sustain in such a market.
- Investing isn’t only about handing over cash to the venture. Early stage startups need mentoring and proper guidance too. So, ask yourself what value you, as an angel investor, can contribute to the growth of the startup.
- The decision to invest is an extremely practical decision. This is why it is of vital importance that angels have all the details about startup’s current valuation. In addition to that, as an angel, you must also have absolute clarity about your stake in the venture you are considering investing in.
- An exit strategy is a pivotal facet for any angel investor for that is how one gets a return on their investment and ignoring it can cost them dearly. Hence, it is imperative that angel investors have a complete understanding of the exit strategy. Also, the entrepreneur and angel should be aligned in this context to make sure that each party’s expectations are managed accordingly.
- It is also important to evaluate how the startup will grow over the course of the next 12 months once it has the funds and your support.
- Lastly, but most importantly, angels must also carefully deliberate upon the angel-founder culture fit i.e. how well do you connect with the startup’s founders.
This is not to say that it is simple to find deserving startups. It is admittedly an arduous process that requires high levels of diligence. But these tips can help make the angel investor’s life quite easy in the context of investing in an early-stage startup.
About The Author: This article is contributed by Prashant Pansare – Serial Entrepreneur & CoFounder at Eagle 10 Ventures and co-authored by Pramod D’Souza – CoFounder Eagle10 Ventures.