8 common traits of angel investors when they begin their journey with startups

India is evidently witnessing a surge in entrepreneurship with new and innovative startups mushrooming in every sector possible, and some of them are even creating new categories.

Investors, today, are more open towards investing in an innovative idea than ever before. However, it is also crucial for entrepreneurs to understand the investors’ psyche in order to succeed in their pitch to raise capital.

Angel investors who are investing in businesses could have multiple objectives. While some are looking to make a difference by supporting unique business ventures, which have a potential to bring about a societal change, others are looking for a way to give back to the community by sharing their knowledge of running a business or just as a means of staying connected to their industry.

Then there are those who are looking purely for a good return on investment.

In all cases, the secret to their success is to put their money in businesses that will pay highest returns. Intelligent investors always plan to exit the businesses they invest in, typically, three to five years, which means they have an exit strategy even before they begin their journey with the startup. Although, an angel investor is open to taking risks but with high levels of expectations from the entrepreneurs’ abilities to run the business and make it profitable. There are some traits that are common amongst most angel investors.

Play as a team
Most professional angel investors invest as part of a team. This ensures that when they invest in a business, thorough evaluation and validation of the business model is done collectively. The investors, collectively, also bring along experience of having seen several businesses grow, hence entrepreneurs get access to the resources and advisory that they bring along. However, it is important to remember that they will only work behind the curtains.

Reliable mentor
Successful angel investors mostly have lot of knowledge and experience by having worked very closely with several businesses, however, remain highly enthusiastic about learning new things. This makes them a reliable knowledge pool and think-tank for the entrepreneurs which they can utilise by frequently consulting them on their business plans.

Strategists
Investing into businesses with an unpredictable future is a considerably big risk which is definitely not an easy decision. While the investors are ready to take that risk, they, in most cases, have a strategy in mind for the venture to be able to give healthy returns. It is important for any entrepreneur to understand and align business strategies with the assumptions and expectations of the investors to avoid difference of opinions at any stage. This can only happen through constant discussions and counseling.

It is clear that an angel investor will not invest into a business till he/she is totally convinced of its potential to be profitable. They will not necessarily ask, but it is important for the entrepreneur to answer the questions they might have in their minds. There are few key criteria that they evaluate the business models on.

The core
The core of any venture is the idea behind it and it is crucial that it has the potential to create space for itself in the market, all the more important in a competitive market like India. The business should either be addressing a prevalent need or be able to create a segment in itself. Scalability and a considerable prospective consumer base are also important for future expansion.

Ability of the entrepreneur
Businesses are run by people and investors understand this fact very well. Hence, it is almost certain that any investor will assess and evaluate the people involved with a venture before investing in it. Investors prefer associating with people who are not just passionate about the idea but also have the skill sets to carry out the business. This is one of the most crucial aspects that I judge start-ups on, before associating with them. Since most investors are seasoned entrepreneurs themselves, they prefer associating with teams who are open to learning from their experiences also.

A convincing presentation
Any successful investor goes through a large number of business plans on a daily basis and does not always have the luxury of time while evaluating one. Hence, it is crucial to present the business model in the most effective, realistic way highlighting the most important aspects of the business like the core idea, market scenario, go-to-market approach and details of the financials. This helps them get the complete picture in a snapshot, hence enabling them to take an informed decision.

Profitability
Return on investment is an investor’s aim from associating with the start-up venture; hence, this becomes the most crucial aspect for them. It is important to show them a realistic picture of the possible returns and profitability of the business model in order to help them take a decision. While most investors prefer investing in the industry of their experience, however, are usually open to exploring newer and promising industries.

The exit route
As I have mentioned above, angel investors plan their exit well before entering a venture, hence they are constantly planning ahead. Most of them have a well thought of time-period in mind for their exit which can be anything from three to five years.

(The article has been authored by HCL Founder Ajai Chowdhry)

(Image: Thinkstock)