Top tips for securing angel investment for your business
Angel investment might help a start-up take its first steps, but getting funding is about more than just having a great idea.
Wesley Lynch
Just because it’s been difficult getting funding for your start-up doesn’t mean your business is never going to get off the ground. Approaching an angel investor who’s willing to take the risk with you could get you started.
How does angel investment work?
Angel investors are established individuals who provide business funding during the early stages of a company start-up. These individuals typically use their own money to provide one-time investments, and unlike a bank loan, angel investment funding doesn’t require you to repay the loan. Instead, the angel investor’s financial backing is usually exchanged for a stake of ownership or equity in the company.
Pros and cons of angel investment
Angel investment funding could get you set up for growth, but remember that there might be trade-offs. For example, angel investors don’t just provide the funding; they come with experience and expertise that could help your business improve its odds of success.
The amount of angel investors isn’t as prolific as the number of banks or loan providers, which means that while this type of early investment is easier, finding someone to do it might be more challenging. And since they’ll own a part of your company, they’ll want a say in major decisions and how you run it.
Increase your chances of securing funding
- Not only tech companies get funding, and not all tech companies do either: most entrepreneurs tend to focus on technology, but in truth, angels simply look for high-growth businesses in any industry.
- Get your elevator pitch right: your angel might not know much about the industry they’ll be investing in, so make it simple to understand and impactful.
- Be selective about your management team: if you're a technology company, you need technologists as founders. Having skills in-house is preferable to engaging external consultants at market-related rates.
- Be flexible and approachable: many investors want to be hands-on, which might mean having to change the way you do things or where you work from.
- It's not just about 'idea meets money': you need to form a genuine relationship and regard the investor as a team member. Although the idea and its feasibility are important, investors often place more faith in the individual than the idea.
- Don't expect unrealistic amounts: look within the range of R1 million to R10 million. Anything less than that and investors will consider the barrier to entry too low. Anything higher and you may need a venture capitalist.
- The business model must accommodate a viable revenue projection for the angel: angels target a return of roughly 10 times their investment within 5 years because of the high likelihood of failure (perhaps 1 in 10 succeeds). It's an aggressive investment path, and ideas must be able to get to prototype quickly and have high growth potential.
- Don't annoy investors with unnecessary non-disclosure agreements: investors might see many different start-ups in a day and forcing them to do too much leaves a bad impression. Don't leave out ideas that are crucial to the venture's success either, for fear of it being copied, as it will only prohibit your chances of getting funding.
Keep on keeping on
It can be difficult to get early-stage funding in South Africa, but there are many networks and resources available. Also, don’t be afraid to step outside our borders to search for angel investors. With the right preparation and outlook, your idea can get the support you need.