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What An Investor Is Looking For In A Start Up Company

What An Investor Is Looking For In A Start Up Company
An angel investor is an individual who provides capital for a business start-up, in exchange for convertible debt or ownership equity. The capital provided by Angel Investors may be a one-time investment, or it may fund money during initial stage to support and carry the company through its early stages. Investing in startups, for example, is different than investing in other types of businesses, as startups don’t yet have the revenue and proven sales record of more established businesses. If you invest specifically in new startups that have yet to really establish themselves, you are considered an angel investor.
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Angel Investors are wealthy individuals who provide capital to help entrepreneurs and small businesses succeed. They are known as “angels” because they often invest in risky, unproven business ventures for which other sources of funds—such as bank loans and formal venture capital—are not available. Venture capital is a partnership (where you have limited and general partners) then, angel investors are sole proprietors. They are high NetWorth individuals who provide the early cheques for startups to begin or expand their operations. Angel investors are also called angel funders, business angels, informal investors, private investors, and seed investors.
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Most startups lack sufficient cash and are too risky for financial institutions. The source of capital available to access at that early stage are savings or funds gotten from family and friends. Angel investors can be the founder’s acquaintance or a friend’s friend. They invest because they have personal interest or belief in the team or founders. Angel investors are a better source of financing to founders compared to other predatory sources of financing. They are concerned with assisting startups to execute their ideas. Unlike venture capital that pools the investment of different investors together, angel investors use their personal funds. This means that their investments are smaller compared to venture capital.
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Major benefit of obtaining funds from angel investors is that most angel investors understand the risk of running a business. They are willing to assist the business succeed and are considerate if the business fails. They understand the risk of infusing capital into an unproven startup – if the business fails so does their investment. Funds obtained from angel investors are therefore less risky compared to debt. Founders can also leverage the network, experience and expertise of angel investors. Angel investors are most times former founders, senior business executives, and high NetWorth individuals. Because they want the startup to succeed, they’ll be willing to offer a helping hand whenever necessary.
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However, an angel investor looks out for certain conditions before they invest in a startup company. They aren’t lenders, they give you money with intention to make profits not just little so they would assess your business using the following.
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1. Business plan
A business plan is a well written document, business plan is a written document that describes in detail how a business—usually a startup—defines its objectives and how it is to go about achieving its goals. A business plan lays out a written roadmap for the firm from marketing, financial, and operational standpoints. Business plans are important documents used for the external audience as well as the internal audience of the company. For instance, a business plan is used to attract investment before a company has established a proven track record or to secure lending. They are also a good way for companies’ executive teams to be on the same page about strategic action items and to keep themselves on target towards the set goals. It gives the angel investor an overview of what your company is all about
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2. Business model
They would check if it were registered, what management have you in place, what things have you done in order to secure a legal agreement, is there a tax payment system etc. is this model something that can be sustainable even when the CEO dies or can it be reinstated in different locations.
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3. Passion
As a start-up founder or a startup business owner, you need passion because energy is transferable, if you really don’t enjoy doing what you’re doing, you might find it hard to put effort into it, especially when people aren’t interested. Most investors look out for the passion in what you’re doing, it’s very easy for a passionate seller to sell his goods that he or she is passionate about.
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4. Team
Do you have the right team, because a good product could be in the right place, with the right price and promotions but when you have the wrong team, when the customers do come because they will come, they won’t be satisfied because it is people that make systems and structures to work.
A business is thriving on the effort put into it by people, a team.
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5. Financial plan.
An angel investor would ask you how you intend to make your profit, and minimise your expenses, although this can be found in the business plan, but you have got to know your business numbers. Especially within 3-5 years, how do you intend to have your marketing, how much do you intend to spend and intend to make within the first five years because they wouldn’t want to throw in money into a business without a fantastic financial plan.
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6. Market size/Industry
They are also interested in how many people who would buy that product or purchase your services within the first year because it is the first-year purchases that sustains the business, they love to know the number of your target size and where can they be found. What is their segmentation.
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7. Unique selling proposition
Every product should have a unique selling proposition, why should people purchase what you’re selling.
In other words, what problems are your products solving that other products can’t solve or solve efficiently and effectively, if your unique selling proposition is powerful, then the angel investor would feel safe investing in your startup company. Lastly Copyright, this really doesn’t matter that much in certain countries or with certain products, but an angel investor wouldn’t want to invest in an idea that can easily be copied.
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They would rather invest in an exclusive idea that is owned by that owner so that no other person can easily replicate or duplicate that product because when there is no copyrights, or no patent right, your idea can be stolen and invested into by another angel investor who will have more sales than you would ever make before you even break even. Hope you found value?
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