Angel investors are individuals who offer capital for business start-ups in exchange for ownership equity or convertible debt. Some people invest online via equity crowdfunding or form angel networks to gather their capital. Nowadays, angel investing is becoming a popular trend even in high-end startups. They can invest even $1,000 in startups. These tools allow angel investors to hedgerow their bet while diversifying their portfolio. If you are interested in making an investment decision in a startup, you must consider these tips before finalizing your decision.
Examine the Team
A team is an essential component to evaluate the success chances of a startup. Keep it in mind that execution plays a vital role in the success of a new business. Every cofounder or employee who has stock in the business must have an ability to contribute to the growth of a company in the long-run.
Moreover, the team of a business should have clear goals and clear vision while working on a project. An investor must keep an eye on the business plan that is essential to change consistently as per the needs of the market. A team must have the ability to serve the demands of the market.
Evaluate Revenue Streams
Every startup must pay attention to the ways to earn money. Each dollar has great importance in the business. Pay attention to the burning rate. Each startup raises investments for different business activities. You have to figure out if the investment is allowing this company to accomplish particular milestones. Find out their strategy to deal with a situation when they run out of cash.
Salary of founders is a hot subject because founders of startups often work without remuneration. If you are receiving a pay as a founder, you must think creatively about the success of the business. For instance, you can hire a talented people with this salary to work on milestones.
Competitive Advantage
A startup requires a clear competitive advantage over other businesses that are competing in the similar space. Without a competitive advantage, your success chances will be low. For instance, Google is working well as compared to its competitors to stay ahead in the competition. You have to pay attention to the central strategic partnerships.
Size of Market
A fantastic product and an incredible team can’t do anything without a good market share. Your market must be significant to offer your returns and potential exit. You have to pay attention to the promotion of your products and services to increase your market share.
Pay Attention to Financials
A new company finds it hard to get right financials. It is difficult to predict the direction of a startup in the next five years because startups may pivot overnight. Though, financials may assist you to apprehend the discipline and rigorousness that a founding team needs around its business. It is essential to focus on break-even points because startup supposes to sustain itself without urging extra capital for its survival. Moreover, the financials section allows you to estimate anticipated expenses.
Focus on Legal Structure
You can participate in new business as an investor through convertible notes or purchase the equity of this startup. The convertible notes are essential for debt that may be converted into equity at a particular stage. It is the fastest method to close a financing round for a business. An investor will pay attention to the interest that he/she will receive annually and the discounted rates on the subsequent rounds.
You can participate in the price round, but it may be tricky because it involves voting rights and different terms. In this round, a lead person is necessary to become an investor that will be an individual or entity responsible for valuation.
Regulate the Traction of a Business
Before Angel Investing, you have to determine the traction of a business. It is a great indicator to check the response of market toward a product. It is essential to monitor all possible KPI’s to evaluate the growth type of a startup. If the customers are excited about the products of a startup, then it is a positive point for the business. These enthusiastic customers can promote this startup and grow its business.
