I need some basic guidelines what one needs to consider when choosing :
1) How to decide the angel investor who wants to invest in you is the right investor, because I might be deal with them everyday.
2) Once I do have the funding what are the usual things I need to consider. Trying to understand how the funding should be alloted. Does the angel investor tell me where I should invest to pivot my innovation (because its his cash) or do I need to make those decisions.
3) What do most entrepreneurs do when they receive funding from an angel investor?
FYI : I'm in the R&D industry and do have a working product.
Simple: The right investor is someone who wants to invest on standard terms at a good valuation relative to your current stage. Extra bonus points for someone who has relevant industry connections that could accelerate your business and is willing - at the right time - to make introductions for you.
But you should have really quite low expectations of most angel investors. Certainly they should have NO operational control of the business. Although I want to be as helpful as possible to companies I invest in, it's entirely for the entrepreneur to drive me, not the other way around. There are very few exceptions to this rule, for example when angels who actually do have very recent and relevant experience want to back someone who is inexperienced and need oversight in order to feel comfortable investing early. But this is a real rarity.
Finally, to answer your question about what entrepreneurs do when they receive funding, they should spend it in the best possible way to accelerate the success of the business.
I'd be happy to talk to you in a call to provide more clarity on the matter and also discuss when is the right time to accept investment. If you have people willing to back you, that's great. You want to make sure you have a clear plan and set expectations accordingly.
If you have to ask what you should do once you have funding you may want to stick to your corporate job. Real talk
1. Investors do NOT invest in ideas. It does not matter how cool or innovative it is. They don't give a shit. The only way you will get money from investor with an idea is if you have raised capital from them before or you are an industry veteran who has built a track record in the corporate world. The latter is still a tough sell.
2. You need an MVP, Proof of Concept, something tangible to show that you have thought through this and market validation. This will determine based on industry.
3. No one cares for business plans. Seeing is believing. Projections, estimates, it is all bullshit.
Let's take it one by one.
First of all, congratulations for drawing interest for your startup. Make sure the angels you have "up and waiting to invest" in your startup have actual interest in investing. Lots of times investors may say they are interested but back off when the critical time comes.
In any case:
1) In the ideal scenario, the angel investor you'll find is the one that best fits your team. Depending on your level of experience in startups but also in your industry but also depending on the skills of your team, the angel investor can be much more than just an investor.
He may be able to bring a missing quality from your team, (like marketing, legal, connections, press or even tech knowledge-mentoring).
Again, in an ideal scenario, the two of your (or more if you have a team) should have a good chemistry. Your angel will most probably accompany you for the next years, assuming your startup goes well.
In your case and if it sounds that it's not ideal, try to make it as close to it as possible.
Of course, if you have more than one options (!) try to make the one that's closest to your needs.
You are most probably building your startup to grow it (or grow it and sell it). Unless you are in Silicon Valley or you have very strong connections, this may be a process that takes years. So, consider your angel your partner and pay close attention to the one you'll choose (again, if you have more than one options. If you don't then just be happy someone is willing to invest in you and your startup).
PS: Receive investments ONLY if you really need to.
If you don't, DO NOT. If, for example you are building a SAAS product and you already have sales, growth or whatever, do you really need an investment?
2) That really depends on you, what you are building, how far you want to go and the needs your startup has.
For sure you can discuss with your angel where the funds will be spent but remember that the ultimate decisions is in your hands (unless you otherwise structure your company, shares etc after the fundraising). So, you are the one who decides where the money goes and you should be that guy.
You have the responsibility of building your enterprise, not the angel.
Some common areas where a seed or pre-seed round (i suppose that's what you are raising) go are:
- Hiring Developers/Designers or in any case building software
- Legal/Accounting expenses for the comapny incorporation (if not incorporated yet)
- Pattents (if any)
- Marketing (many startups need at least some to get off the ground)
The general spirit is to spend a portion of the money to hire people that can do what you can't/don't have the time to do.
Always keep some cash in the bank because it's usual for a startup to burn much of it in the first months/year.
An angel telling you how to pivot?
Sounds at least weird. You know your product/company better than the angel (or anybody). For sure take feedback (not just from the investor) but filter it and then decide to pivot or not.
3) In some cases, they loosen up and they start failing but that's not your case, right?
Well, at first, celebrate. It's a first team victory and you should feel excited about it. So celebrate with your team.
These first funds you'll receive will allow you to verify your initial assumptions (does the market need what you are building?
Will people pay for your product service?)
Hope that helps. For anything else, I'd be happy to help via a call.
First, make sure you have a good lawyer who has a lot of experience in early stage deals. Glad to recommend some for you if it's helpful. In terms of your questions:
1. If you don't know the investor well, check references, ideally with entrepreneurs they have funded. Meet the investor several times to ensure that you'd want to spend time with them in the future.
2. The angel investor can provide guidance, but as the CEO/founder, it is up to you to drive the company, figure out what needs to be done, and do it. The investor provides capital, and you runs the company.
3. Most entrepreneurs take the funding, work on their startup for a few years, and then go bankrupt. If you don't have a sense of how to make the company successful, surround yourself with experienced people and do everything in your power to figure out how to be successful, the byproduct being that you will have given your investor a nice return.
1. When you have the luxury of choice: You chose the right angel based on:
1.1. Culture and personality fit. Do they trust you? Do you trust them?
1.2. Do they have a network of funders, mentors and business relationships they can and will open to you?
1.3. Are they experienced investors? Better if they are as they will understand how a business is built and that it takes time. The course is NEVER straight nor smooth
2. To ask for capital, you start by laying out the goals. Generally you raise 18 months of funding. Figure out what you need to accomplish to take you to profitability/ the next raise. Reverse engineer toward those goals. Create a budget. Add 25% fat.
2.1. Once you have a budget you will know how much you actually need to ask for
2.2. Set a valuation/ valuation cap
2.3. You NEVER let an angel set your goals or execution plan. You set it, stand by it and execute. Investors invest in the team that executes on the team vision.
2.4. You pivot when the MVP hits tests and the market resists, not on an opinion unless that opinion is ENTIRELY convincing. Don't confuse capital with control nor insight.
3. Good ones execute to plan, inform the investors every month with a simple financial and business update + asks