No funds for your start-up? Here are 5 things you need to attract angel investors

India’s flourishing start-up culture implies people here are increasingly interested in starting their own venture. But most of them accept defeat even before starting one. “Where am I going to get the funds from?” – the thought plagues their minds and keeps them away from taking that giant leap. Leaving a stable, secure and smooth life in service to jump into a risky business affair is not an easy decision after all. Lack of funds, therefore, is the plight of every new kid on the block wanting to foray into the world of start-ups, more so in India.

With no social security like in the US, difficulty to get loans from banks until one has collateral and with venture capitalists not ready to invest less than Rs 7-8 million, where can Indian start-ups today raise money from?

The answer is: Angel investors or angels as they are better known as. A group of angels invest nearly 2-3 crore in a start-up if they see potential and future proposition in their business plan.

But it’s not that simple is what we realized after talking to one of India’s first angels and now a key player in the entrepreneurial eco system, Padmaja Ruparel.


She is the first to have set up an angel network in India, which is now called the Indian Angel Network. It comprises over 350 investors including the who's who of successful entrepreneurs and dynamic CEOs from India and overseas who bet their money on start-ups. She claims of having invested in 20 start-ups out of which merely 2 have failed so far. Business Insider spoke to Padmaja to bring you five things angel investors look for in start-ups before parking their money in them. Here's what they are:

MASS APPEAL OR NICHE?

An angel investor is more likely to invest in your company if you are a Big Bazaar than a Ritu Kumar sort of fashion label. That means companies catering to large and high growth market are what angel investors look at, because mass appeal equals to high returns.

“We look at need value over aspiration value. So start-ups catering to the needs of large section of people would be our choice over those who are targeting a niche segment and are more of aspiration value to masses,” says Ruparel.

INNOVATION

Innovation attracts angel investors for sure – be it a product design innovation, improvement in a current product’s performance, in its delivery system or a complete new innovation in what you have for your target audience. It should be a crucial innovation that either solves your customer’s pain point, makes things easier for them or gives them a new experience altogether.

“When mobile phones came, they corrected the reception quality of landline phones and also helped people in moving around easily while talking. It was not only improvement but also value addition for customers. Another example is companies today have outsourced several business processes to BPOs. These third party service providers have created that space for themselves. So, innovation either needs to be something different or a business done differently,” explains Ruparel.

FOCUS ON SETTING UP BUSINESS OR RAISING MONEY?

If you want to build and run a successful business, an angel investor is interested in you, however, it’s not if you simply aim to raise money from them.

“Raising money should be one of the milestones in your journey to establishing a full-fledged business. Only then will investors, who are themselves at high-risk in investing in start-ups, come to you,” says Ruparel.

IDENTITY, OBJECTIVE AND A CLEAR BUSINESS PLAN

Get your basics clear if you seek angel investment. So before pitching, ask yourself “am I a product or a service, what is my differentiator in the market, who is my competition, who is my target audience, am I addressing a pain point of the target customers or am I adding value, what’s is my business proposition.” If you have clear-cut answers to these questions, you are in!

TALENT

A talented and passionate team to drive your start up and make it a success – this is one of the most crucial things you need to impress angels. Ruparel says 75 per cent of her evaluation is usually on the talent of the team and their ability to pull off the plan.

“Start-ups don’t have a large team. The small pool of resource that they have needs to be a talented lot. It’s tricky because talent comes with money and start-ups don’t have the money. That’s a challenge but if you can work it out, you are good to go,” says Ruparel.

“I’d personally prefer an A grade team with a B grade business idea than a B grade team with an A grade idea, because great ideas are only great when they are implemented well and you need a fantastic team to do that,” she concludes.

(Image credits: BCCL)