There is one important decision to make when you start a venture — whether to build a “lifestyle” business or a venture that you want to scale and seek funding from outside. If you want to build a “lifestyle” business then do not worry about what anyone has to say on your style of building a business, the pace you grow, the team you create, the product or service you sell. In a lifestyle business, the stakeholders are you and your customers. Ensure you do not go to an angel or anyone for professional funding in this case.

Capital costs

If your venture needs money for buying equipment like machinery and your business model is around the effective usage of the machinery then it is a good idea to explore avenues for debt funding from banks and other sources.

In most cases, angels will not fund capital intensive businesses.

Intellectual property

Is your idea unique? Will you be able to apply for a patent? Is the barrier to entry too high? Answers to these questions will determine if you have a defensible IP. If you do, there is a good chance that more angels will be eager to get associated with you.

Track record

The background of the entrepreneur is the most important parameter when you seek angel funding. Your background gives confidence to an angel. The angel is also be sure that you will make course corrections and ensure that the venture is successful. If you have a good background and your venture is related to your domain, then you have a good shot at getting funding.

“Everyone will start with a financial projection when they seek funding but 90 per cent of them will not meet the first year targets that they themselves have come up with after doing a lot of homework. But if the entrepreneur is smart he or she will make the right course corrections to build a successful enterprise,” says Mr H.R. Srinivasan, Vision Holder, Take Solutions, and an investor in many ventures.

Have you borrowed money from your parents, other family members and close friends? Have you invested part of your earnings in the venture? Have you leveraged your savings account? Do all of the above even before thinking of going to an angel. By doing so, you show your belief in the idea.

Turn market share to revenues

Ensure that even a small percentage of market share in the business you are building will translate into revenues that are attractive. If your solution is good and the market size is large then even if you don't capture a large market share your business will still be viable and sustainable.

Unique proposition

If you plan to start a restaurant or a generic IT services company then don't even think of going to an angel. There are too many out there and you don't have a differentiator.

Get the customers

By showing that you have customers who are ready to pay for your service, you are establishing that there is a need for it. Angels will be happy to talk to you.

Value creation and exit plan

An angel investor takes a lot of risk like the entrepreneur. The angel does not know when there will be a return on investment or whether there is going to be a return at all. An indicator of “value creation” is if the venture is able to get the next round of investment at a higher valuation. An angel investor exits the venture or makes money if the company is sold to a bigger player or it raises the next round of funding or waits for a few years for the company to go public.

Like how entrepreneurs are on the look out for money, angels are on the look out for good investments.

If you are an early stage entrepreneur and follow the guidelines discussed above, you are sure to secure funding and be rest assured that the angels will work with you as mentors and help you to succeed.

(The author is the CEO of Energeate, an advisory firm for early stage ventures and cross-border companies. He is Charter Member of TiE Chennai.)

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