The “Why?” “When?” “How Much?” questions of raising money are enough to keep a founder awake at night. And the reasons you might raise external funds are numerous- from acquiring inventory, hiring sales resources to marketing, and expanding product lines.
And knowing when you’re ready to pitch to angels is an essential discussion for you, any co-founders, and closest advisors to have. You might raise when you have proven to investors that you can realize your vision or the opportunity has a large market to sustain a business. Investors may come into the business when you have identified and mitigated enough risks to invest their money.
And then there is the question of “How?”… “How do I prepare my business for investment?”
Preparing for your first investment round can be a daunting task. It requires meticulous planning and a comprehensive understanding of your business.
Businesses that are ready for an angel round of funding:
- Have an MVP: Investors are looking for proof that an MVP- or minimum viable product- has a good product-market fit. You should have a clear value proposition and an understanding of the market.
- Have a compelling business plan: A solid business plan is the foundation of any successful startup seeking investment. Your plan should clearly outline your business model, target market, competitive landscape, revenue streams, and growth projections. Investors want to see that you’ve thoroughly analyzed your market and have a well-thought-out strategy for success.
- Have built a ‘moat’: Moat is another term for a sustainable competitive advantage. This is your ability to maintain a competitive advantage for protecting its market share and long-term profits from its competitors.
- Have demonstratable scalability: Investors are interested in startups with the potential for scalability- ensure that your business model is effective in its current state and can grow and adapt as your customer base expands.
- Have a financial plan: A clear understanding of your financials is not only expected from a startup at this stage but is non-negotiable. You should present a realistic and well-researched financial model that includes revenue projections, expense forecasts, and a clear path to profitability. This will help investors gauge the financial health of your startup and assess its potential for long-term success.
- Have a data room: A data room is a storage space, digital or physical, where companies store information relevant to due diligence. It is never too early to put together data. Using Dropbox or Google Drive to host your data room is common. In a data room, you can include your pitch deck, videos of product demos, financial statements, articles of incorporation, shareholder agreements, patents, etc. You will also want to have your cap table, employee contacts, and the list goes on. Watch AIO’s Knowledge Hub course on Data Rooms to learn more.
As a founder, you should run your fundraising process like a sales process. Use sales tools available to you to make the most of your process. Use a CRM for tracking every touchpoint, consider upgrading to LinkedIn Sales Navigator for research, use DocSend when you send out your deck, and use HubSpot to send out updates and tracking opens. Treat your fundraising like a professional sales process — because that’s precisely what it is.
Angel investment is really “smart money”! It is a financial investment into your business and a strategic investment – angel investors offer access to mentorship, advisors, and connections into networks and industry.
Remember, the investment process is not just about securing funds; it’s about building a foundation for sustained growth and development.
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