How to raise funds for your next start-up
By James Martin
March 24th, 2020
Back in 2008, an ambitious group of young entrepreneurs at the University of Cape Town set out on a mission to improve transport links for students. Fast forward ten years and the well-established, popular app, WhereIsMyTransport, is the number one platform for getting about in South Africa. Devin de Vries and his team now hope that their most recent success of scoring $1.5 million in funds from angel investors will enable their app to hit the international stage, including reaching the Middle East and America. Having already relocated to London to draw additional investment, the company’s expansion is well underway.
Angel investors’ success stories, much like this of Devin de Vries and his colleagues, highlight the true essence of what start-ups are all about: pushing to create lasting change in the world, looking beyond just making money and fighting for something you really believe in.
So what are angel investors? Why are they so attractive to start-ups and early-stage investments? And how can you ensure you’re attracting the right deal?
Compared to loan companies, angel investors have some seriously seductive advantages. Firstly, in the event of business failure, angel investors do not require investment capital to be repaid, making financial sourcing from these avenues far less risky business than compared with loans companies. Furthermore, angel investors offer a great deal more than just a cash flow; they are reservoirs of expert knowledge, skilled individuals, and seasoned businessmen and women, providing a vast network of contacts. Accredited angel investors often buy stakes in accelerating start-ups, subsequently meaning many become co-owners, resulting in more involvement in the decision-making processes.
A paper published by the University of New Hampshire’s Centre for Venture research stated that in 2018 the number of active angel investors reached 334,565, a growth of 16% compared to the previous year. As for the start-ups, 66,110 received angel funding, constituting a rise of around 7% compared to 2017.
With the entrepreneurial space seeing more funding available than ever, it’s crucial your ability to navigate through the world of fundraising. Here are our top tips to make sense of the world of angel investing.
More than just a wallet
Given that angels investors often provide a service that extends beyond the parameters of lending money, get to grips with what the angels are expecting and asses what they can bring to your company. Angels will come with varying degrees of expertise in many areas, such as business development, strategy, and marketing, so make sure you’re clued up on what is on offer. Some angels even sit on advisory boards for their companies, helping them to strike up new contracts with investors, suppliers, or distributors. The bottom line is, do your research correctly; find out what is potentially coming with the cash, paying particular attention to the kind of experience and advice the angels are offering.
Less is not always more
Contrary to individual loan companies, angel groups can band together with their capital, allowing for much larger deals and a multidisciplinary approach to evaluating potential deals. By threading together a diverse range of expertise and pooling their investment the steaks are certainly higher, but that makes for a far more enticing deal. What’s more is that there are hundreds of angel investors groups, many with specific fundraising areas.
Finding these angels can be made easy by using platforms, such as LinkedIn or Angels Partners, where you can search up reputable angels with excellent track records. Even after seeking out an angel, contact the entrepreneurs who worked with them last to find out more about them
Aim for the stars
According to a recent study by the Angel Capital Association, US angels loose some, more or all their money in more than 50% of their deals due to company failures. This staggering number shows how risky and illiquid the world of angel investing really is. It is therefore not surprising that many angels are eager to secure deals with the next big thing. They’re looking for the next Uber, Facebook, and Amazon, staying well away from smaller businesses with stunted potential for business growth. Angels typically invest between $25,000 to $500,000 (see fig. 1) into innovative and creative companies, seeking to expand to an employee base over the hundred mark and sales of around $50 million within seven years of starting. Ever heard of that saying, ‘Go big or go home’? Well, that’s precisely what angel investors are about, searching for the next Elon Musk.
The shoe fits
According to Jeffrey Sohl, director of the University of New Hampshire’s Center for Venture Research, after securing a deal with an angel, you are no longer the boss. It is, therefore, imperative that you find an angel whose vision aligns with yours and with whom you share the same goals for the company. Being an entrepreneur generally means being an independent and passionate individual, but it’s important to realize, once the capital is coming in, you are not flying solo anymore.