Being an angel investor is energizing, in large part due to the optimism of the entrepreneurs about the “next big thing” that they’re creating. What I’ve learned as an investor, serial entrepreneur and fund manager is that while it’s one thing to have a great idea, the ability to start, grow and build value in a company is an entirely different challenge.
Having a company be fundable requires a combination of factors, and there’s much entrepreneurs should consider before they embark on a fundraising quest. For example, it’s important to consider whether outside funding actually makes sense and if the timing is right. It’s important to get sound guidance on this from trusted advisors. Too many founders give up too much, too early or miss windows of opportunity.
Here are a few high level questions to ask yourself before you begin asking for investment to build the next Google.
1. Are you willing to build a company as if it will last (while knowing you may exit)?
The year, I reviewed about 50 companies. The best options for investment came from founders who were building a business with strong fundamentals, and not simply trying to catch a wave and exit. There’s a lot of mythology around quick exits with big returns, but good angel investors know when a business being presented is real with strong fundamentals–or if it’s just all smoke and mirrors.
2. Do you have a strong management team?
The best companies have key people who have done this work before and who can grow the effort. This gives investors early confidence. If you’ve had a successful exit, it likely means that you’ve made every mistake in the book already and will improve the second time around. If this is your first company, then it’s good to consider building a strong bench of advisors and a plan for how to build that team. Remember: Investors invest in people.
3. Do you have a solid group of advisors?
Having several advisors with good endorsements and available resources who know their stuff is critical to building investor confidence. I’ve observed that angel investors respond well to early stage companies when they see a depth of experience in an advisory group.
4. Does the product or service solve a problem and will people buy it?
It’s important to get early information about your market through available research, pilot programs and other modes of testing to see if your idea not only solves a problem, but is also capable of attracting paying customers. You can have a great idea but without sales, it’s simply a great idea.
5. Do you have the will and openness to put it all on the line?
Business ownership is not for the faint of heart. Not only does it require a personal financial investment, but it also requires an emotional one as well from you, your family and your friends. The best entrepreneurs are willing to take some risks and take some hard input. Their business isn’t a hobby or a side gig, it’s integral to their life. As I am fond of saying, “When you are an entrepreneur you wake up every day with a smile on your face and a little terror in your heart.”
Fundraising for your startup is a serious endeavor, and not for the faint of heart. Successful entrepreneurs will tell you that for every investment they’ve received, they had dozens of rejections. While this list is not exhaustive, it’s good to take the time to contemplate the answers to these questions and others to start to build a path to success.
You can reach Kelly by email at [email protected].