or early-stage startups, there aren’t a lot of fundraising options. Most founders either turn towards their friends and family (which we have covered in a previous article) or look for the so-called ‘angel investors’. VC funds rarely back up startups without proven traction and getting their attention can be quite cumbersome. We will go through this matter in more detail in another article.
So, what are the benefits and downsides to going for angel investments?
Angel investors tend to be more easily approachable than venture capitalists. You can usually meet them in person through common acquaintances, at startup events, during public talks of theirs, or you can even try connecting with them through LinkedIn. These are people who are naturally curious and want to know as much as they can about everything. So if you can intrigue them with what you are aiming to create, you may have a shot of getting to the next stage.
The size of the ticket you can expect from them is considerably smaller than the one that investment funds can offer. Usually, it is between 10 thousand and 40 thousand Euros - which can be just enough to build your MVP, but not market it and scale it. Keep that in mind when preparing your PnL and try to make your budget as tight as possible. This might even mean no salaries for the executive team, which is far from perfect.
Angel investors are, without a doubt, a lot more sophisticated than your friends and family (unless your uncle’s name is Andreessen or Horowitz). So they will ask for favorable terms than your mom and pop. However, they will most likely not twist your arms as much as a VC fund would. After all, their main motivation is not getting the best return possible but to back up aspiring entrepreneurs, great projects, or be part of building the future. So they know that keeping you motivated is part of the game instead of simply squeezing the most equity for the lowest price from you.
The expertise angel investors can provide you with may be a bit dubious. They are, after all, a one-man show and cannot provide you with the deep industry knowledge of an entire team that manages dozens of investments simultaneously. Sometimes the angel’s understanding of the subject might even be outdated so their tips could even be detrimental to your success. So, do take their advice but with a grain of salt.
Angel investors can be a great prelude for inexperienced entrepreneurs who are aiming for getting backed by bigger funds. VCs put a lot of weight on previous investments as they prove that someone else before them has already seen some value in the project (and has most likely done their due diligence). Having dealt with the legal matters surrounding their first investment, founders should be more aware of the term sheet’s specifics that they need to be cautious of - and even if they aren’t already, their angel investor will highlight everything they need to keep in mind during the process. After all, the angel’s interests are on the line just as much as theirs.
Angel investors might stick their noses into your business more than you like. The relationship you have with these people is more personal than professional so you’d sometimes find yourself in difficult situations where it’s hard to say ‘No’ - although you have to. Dissimilar to VCs, some angel investors like to impose their views on the direction in which the project should go. This could also be simply due to their need to fill in their time or need for acknowledgment. Needless to say, this can lead to some serious conflicts between them and the founding team.
If you require an investor and you aren’t certain where or who to look for, feel welcomed to drop us a line. Without the risk of sounding too modest, we are quite well-connected throughout Southeast Europe and we may be able to help you find just the right kind of funding for your particular needs.