If you intend to secure external funding for your startup, you may consider seeking investment from angel investors. Angel investors are affluent individuals who provide capital for business startups in exchange for a share of ownership equity.
Angel investment serves as a first round of financing following initial seed funding from family and friends. Additionally, angels are often successful entrepreneurs, business executives, or attorneys who can offer management, leadership, and guidance to your startup.
This series of posts aims to provide insights into the criteria angels consider when investing in a startup. These posts will assist you in understanding an investor’s perspective and assessing whether they would be willing to invest $100,000 in your business. Utilize these posts as a tool to evaluate your business’s strengths and weaknesses.
Regarding funding options and methods, please refer to my post “Funding Your Start-up The Jugaad Way” for alternative and potentially less costly ways of raising capital. Regardless of your chosen funding path, it is imperative to prepare a well-crafted investment pitch that can significantly impact the success of your startup launch.
#7 How will the Cash Investment be Used?
Money can be used for various purposes, especially in a new business. The crucial aspect is to allocate it in ways that enhance the value of your company. As discussed in my post “Valuation – Your Start-up’s Worth,” early valuation of your company heavily relies on its future value. Therefore, where you invest early funds should, in part, be guided by this principle: create value through investment proceeds.
Interestingly, the concept of value and return on investment is not solely based on the “value of money.” A new model called “value for many” emphasizes the connectivity and potential monetization of millions and billions of users, surpassing actual earnings. The key factor here lies in potentiality.
Consider Facebook. Initially, its revenue model was uncertain. However, its rapid user acquisition made its potential for profitability inevitable. Investors poured in funds, and the executive team maintained a fast pace. The company’s $104 billion IPO served as concrete evidence of this potential.
Now, let’s examine WhatsApp. With nearly half a billion global users, its valuation of $19 billion was achieved through Facebook’s acquisition. Moreover, the app offered free access for the first year. What justified this valuation? It was based on the potential to connect billions of users as a global communications app across multiple platforms. This upside potential, rather than an actual liquidity valuation, was enough for Facebook to acquire WhatsApp.
Here are some ways to allocate funds from investors:
– Developing an advanced prototype through product development
– Filing for patents
– Hiring top-tier executives
– Strengthening sales and marketing infrastructure
– Establishing market channels
– Conducting key research
– Launching products
– Engaging in business development activities, such as aggressively pursuing contracts and customers
Develop a well-defined plan outlining how you intend to use the investment funds to expedite your journey toward achieving key milestones. Clearly explain how these milestones will contribute to the increased value of your company. Remember, when communicating with investors, it’s essential to speak their language.
– Tyler, Founder and Principal Consultant
Thrive Venture Consulting—connecting people and ideas.