Finance is a two-way selection process.
Alpha said: Angel round financing is very important for entrepreneurs, but entrepreneurs have relatively little financing experience during this period. The original author of this article, Parul Singh, is an early investor. She summarizes six things that entrepreneurs should do when they are carrying out angel rounds, including financing preparations, timing of financing, choice of investment institutions, etc. Welcome entrepreneurs to refer to them. .
How to finance? This is the soul problem that most entrepreneurs have to face. This is especially difficult for entrepreneurs who want to integrate the angel wheel.
Technology entrepreneurship is becoming more mature, the cost of entrepreneurship is gradually declining; institutions investing in technology companies, including angel investment institutions, are evolving. In such an environment, good entrepreneurs are more likely to be seen by investors, but investors will be more “harsh”, and entrepreneurs need to be more prepared to ensure that they succeed in getting the first money.
Either an entrepreneur who is a start-up entrepreneur or a continuous entrepreneur, you should find the answers to these six questions when you are melting the angels.
1. Is my company suitable for venture capital?
Some companies, even without financing, can build valuable businesses, and entrepreneurs who decide to finance need to make sure their company meets certain conditions.
Ten times return: If you can’t turn $1 into $10, how can investors believe that their $1 million will become $10 million in the future? To build a venture capital-backed company, you need to make sure your company really has the potential for high growth.
Growth rate: How fast can you grow, get $1 million in revenue in 6 months and get a substantial difference in 6 years. Emphasize speed, one is because investors (especially those who are behind the wheel) need to judge your future growth rate based on your historical performance; in addition, investors who are willing to pay for your equity are hoping to get a return. in the process you were growing up, they’ll take a lot of costs.
Business>Products: Having a good product or service is really important for startups, but investingWhat organizations value is whether you can build a business with long-term value, whether you can get a lot of income, and whether you can have enough market share in a large market.
Second, is the company competitive enough?
As an entrepreneur, it is certainly correct to focus time and energy on the business. But investment institutions want their companies to become market leaders, so entrepreneurs should focus on three key competitive factors:
Competitors: Whether you like it or not, when you start financing, you automatically enter the ranks of your competitors. Investors will choose the strongest startup team on a segment of the track. If you lag behind competitors in some respects (such as technical strength, product appeal), then it is likely to be lost by experienced investors. On the contrary, if you want to win in the competition, in addition to no obvious shortcomings, you need to have sufficient advantages in some key capabilities (team, prospects for income).
Competing for the lead: On a relatively new track, there is rarely a single big situation, and you usually encounter 2-4 competitors at the current stage.
In many areas, there will be winners. From the perspective of investors, they are likely to not invest in the third and fourth competitors in the industry. This is why entrepreneurs should figure out who is their competitor at the earliest stage of entrepreneurship, how competitive they are, and what market position they can achieve in the future.
PS: It is not a bad thing to have a competitor. If you enter the track without a competitor, either you choose the wrong direction or the timing of your entry is wrong. All you have to do is defeat them.
Selecting the target organization: Entrepreneur’s competitiveness in financing is relative. For some large organizations, they will choose the industry with the largest volume and the highest profit margin, and give up those industries where the exit opportunities are not clear. But now there are more and more vertical professional investment institutions, both in the industry and in the stage. Entrepreneurs can improve their relative competitiveness by fully understanding beforehand and finding institutions that match their industry and stage.
3. Does my financing scale match the investment institution?
Entrepreneurs are responsible for investing in their own investment institutions, and investment institutions are also responsible for their investors (LP). They need to invest their own funds within a limited time, and they need to ensure that these investments receive enough income. Therefore, the investment institution has requirements for the number of projects and the scale of each investment. For example, the ideal situation is to use the return of an investment to earn the entire fund back.
An investor who manages a $800 million scale fund will want the target project to meet clear expectations for a $300 million business in a limited timeframe.
And an angel investment institution with a fund management scale of less than $100 million can throw a project that reaches a business scale of 50 million dollars in a short period of time is enough to offset the risks it bears, and because it is in early investment, it More exit opportunities.
For entrepreneurs, the time window of entrepreneurship is very valuable, and the sooner the financing is completed, the better. So once you find that the investment institution does not match itself in terms of stage and capital size, let it go as soon as possible, even if it is a famous institution.
4. Is my business ready for financing?
Although the team that Angel Investment faces is very early, there is not much data, especially business data can be judged, but if the entrepreneurial team has a way to prove their ability, they will be more confident in the face of investors. .
For entrepreneurs, in the earliest days, finding a partner and establishing a founding team should be given high priority. At the same time, members of the founding team should think as clearly as possible about their entrepreneurial direction and reach an internal consensus. In this period, you need to establish your own first version of the product, it does not need to be perfect, is used to verify whether the entrepreneurial idea is true, it is better if you can do a certain degree of user (customer) verification at the same time.
At this stage, the founding team can bear the cost at its own expense and does not necessarily need to introduce angel investment.
If you pass the verification, your products and services can really meet the needs of users, and the products are attractive enough for the target users. Then, when meeting with the target investment institution, you can prove to them that your direction and model are more certain, enhance their confidence, have a higher chance of obtaining financing, and may obtain a higher valuation.
In addition, through this stage of verification, entrepreneurs have a concept of how much it costs to do what they do, and they will know more about how much they need to integrate.
V. Is it strong enough and enough?
Entrepreneurs must have enough courage, creativity and determination; those with these qualities are more likely to build high-growth companies. Excellent entrepreneurs are very similar to Olympic athletes. Amateurs can run 5 km and 10 km on weekends to exercise, but Olympic athletes must devote themselves wholeheartedly and need to surpass themselves and challenge the record of this project.
Ent entrepreneurs should have this mentality, whether it is financing or starting a business. When doing business, when you encounter various pits, you have to cross the past and find a solution. When you are financing, if you are rejected, you should move on immediately and learn in the process until you find an investor who is excited about your business until the financing funds reach your account.
Six, have I found a suitable target investor?
Many entrepreneurs do not make rigorous judgments about the suitability of investment institutions in order to get financing in a timely manner. Taking the money of an inappropriate investment institution is tantamount to drinking and quenching thirst.this. Because the people in the investment organization will enter your board of directors, he will have an impact on many important decisions of your company.
But in many cases, the interests and values of entrepreneurs and investors are not exactly the same. If you invest in a suitable investment institution, it may bring you a lot of value other than funds; if it is an inappropriate investment institution, it will have a negative impact on the company’s development, but it will delay the key decisions, but also the founding team. Members are out.
In order to prevent this, some important issues entrepreneurs should think for themselves and match the appropriate investment institutions based on these:
Strategy to enter the market
Product Principles and Priorities
How to deal with when the company’s business is not going well
To truly understand these issues, you can also interact with other entrepreneurs in your target institution’s portfolio to understand the truth about how this investment institution and entrepreneurs get along.
Finally, financing is a two-way process. You can also ask your instincts: “Is interested in working with whom?”
This article is compiled from Medium, the original author is the investor Parul Singh.