One of the first challenges, when someone begins a startup, is undoubtedly seeking investment. That is an important stage in development that can have both a positive and negative impact on the final result.
I personally consider that this stage has not much relation to the amount of the investment or the value of our startup but rather to the ability of the founders to communicate, explain, and sell the idea now to potential investors and tomorrow to future customers.
Although there is not a unique path, with defined steps to follow (since each context changes significantly) from Silicon Valley to Europe or Latin America, there exist some general guidelines applicable to the vast majority of cases. We shall analyze the next:
Avoid empty hands
The first aspect, that today is more necessary than ever, is to understand that an experienced angel investor is waiting for minimally a minimum viable product to use (interact).
Nowadays a server, a program development, and its design are really economical, so the investor requires a minimum demonstration. Not only to assess if the product is good and has a good prospect but also and more importantly to analyze if we, as a startup team, have the ability to execute, implement and carry out the project.
A minimum viable product is simply an application that has as its ultimate development the goal for which we are setting out. If we are talking about, for example, an application for Android development that allows real-time video editing, the application should have that without extras, just that.
I am going to take a second to clarify that this point is not only good for an angel investor but also for entrepreneurs because of two facts. The first one is when we are advanced in the development if we did things right we could achieve a better value and investment.
The second factor is that we are going to know more about our service, its requirements, characteristics, and difficulties, among others, and this will lead us to a better estimation of what we are going to need and also how we are going to bring it to a destination on time and form with the completed project.
Finally, I would like to add that if we do have a minimum viable product and furthermore if we can get at least one client who pays for our services, then we are at the right and indicated time to go for investment in the best possible scenario for us.
I recommend reading “The Lean Startup” by Eric Ries, an excellent book that perfectly explains how to take the first step towards a minimum viable product.
Do not go directly to the final objective
One of the first mistakes we made, in our startup QuotesCalculator – from which we learned after we wasted time and effort—was to understand that the best option is not necessarily to go directly to an investor. Even when the previous point was correctly implemented.
As great as it may seem from the outside, the world of angel investors with trajectory and experience is extremely small, not only do they know each other but also, they invest together very often, which makes them almost strategic partners.
Based on this context, the best solution that we found was to introduce ourselves first to other successful entrepreneurs who have received investment from those investors that we wanted to reach. They are the ones to give some references regarding us, a simple email is enough.
And how can we reach these entrepreneurs? We must begin by interacting in our local entrepreneurial community, even though it may seem a waste of time to go to events, meetings, and conferences, there is where the first contacts are made. In the end, the deal is going to be one-to-one and will remain that way. An angel investor does not invest primarily in the idea, but it does in the entrepreneurial team.
Generally, to be received by an angel investor in a meeting, minimally an entrepreneur must have references. In this way, investors make sure that the entrepreneur took the time and dedication needed to convince and “sell” to the middleman the value proposition and furthermore the last one considered it adequate to make the reference, offering its credibility in the middle.
Money Investment is not everything
There is an aspect that very few entrepreneurs understand; generally, due to their lack of experience, they relegate their criteria when searching and finally choosing an angel investor; in the end, that will be decisive for the success or failure of the startup.
In this early stage of any project, the value of it one or two million does not have much impact on the final result.
The difference lies in two factors that an investor can offer us. The first one is their knowledge; it means their experience of having personally gotten through successfully in the past. In other words, the investor has passed each stage that we are dealing with today. They have also dealt with hundreds of entrepreneurs that like in our case are living and walking the same path.
The second fact and no less important comes from understanding that the network of contacts of our future investor is also an additional asset to our startup. If our angel investors know risk investors (VC), without a doubt it is definitely a good bet for tomorrow to look for more and better capital through them. When an angel investor invests in our work, probably he will have the same incentive to succeed as us; it is then a true ally.
To sum up, please do not forget the sight of our project while looking for investment capital. It’s a long task that requires effort and dedication, but also our enterprise needs it. This is one more step in our work, but not more important than our product/service. If it is possible to designate a co-founder who specifically develops this task, it would be a great idea; in that way, the rest of the team can devote fully to making the startup grow.
Editor’s Note: The article was exclusively written by Engineer Rennella Cristian, a professor at Catholic University Argentina and also CEO of EmprestimoOnline throughout Brazil.