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.
Now, let’s delve into the second criterion: Market Opportunity. Investors primarily seek financial gain, and that’s perfectly acceptable. While your passion project may have an altruistic aspect, financial sustainability is essential for its long-term success. Angels invest in solutions that address substantial problems for substantial and addressable target markets. The larger the market, the greater the potential financial upside.
To determine if your startup meets the criteria for angel investment, consider answering the following questions:
- Does your product or service solution address a major problem for a significantly large and addressable target market?
- Do you have a clearly defined market segment?
- Is there a demonstrable and substantial demand for your solution?
Then determine the current phase of your product market. Is it developing (e.g., infant or introductory phase) or an existing market (e.g., growth, maturity, or decline)? Refer to our post on the Market Stages of Products for more insights. And assess whether the projected spending in your product category is substantial and growing.
While investors often focus on technology fields, there are angel investors who champion creative non-technology and design-oriented start-ups. The key is to address the questions outlined above. For instance, we’ve assisted a start-up woman’s beach line centered around glamorous bikinis. Although they don’t directly address a major problem, they cater to a substantial market segment conditioned to spending a significant amount on high-quality bikinis.
Additionally, the company has embraced a growing trend of manufacturing in the US on an as-needed basis through technology-based M2M small-batch manufacturing processes. This approach offers shorter scheduling runs, increased flexibility, and significantly higher-quality production.
– Tyler, Founder and Principal Consultant
Thrive Venture Consulting—connecting people and ideas.