Dan Lok Shares 11 Ways Angel Investors Can Change Your Startup for the Better
When companies are just getting started, they are often in need of funding and advice. As companies emerge from the seed stage, they need cash infusions in order to develop their products and study the market. Angel investors can step in and help companies become stronger, helping to arrange how the new business works.
An angel investor is a person or group with well-established financial resources. With deep-pocketed resources, investors can help to fund new companies or expedite the growth of an established business. Angel investors are looking for a high return on their investment and a degree of control over the business.
Dan Lok, a business and technology expert, shares 11 ways in which an angel investor can change your startup for the better.
1. Obtaining Financing Without Taking on Debt
One of the biggest advantages of angel investing is that companies can receive financing without having to take out loans. It can be challenging for new businesses to make a case to a bank that they need the money and that they can pay it back. Unproven business concepts are likely to be looked at with prejudice. An angel investor is taking a greater risk than a bank, but they can afford to do so, and, in many cases, they receive high returns.
2. Providing Mentorship
Angel investors are generally highly experienced in the business. They can help a business by providing mentorship. They have a stake in the business’s success, so they are motivated to give help and guidance. Startups backed by angel investors are more likely to experience substantial growth and experience greater rates of return. They are also less likely to go out of business in the early years of their enterprise.
3. Achieving Credibility
When a business is involved with an angel investor, they receive credibility based on the strength of the investor. When customers and investors know that the company in question is backed by an angel investor, they will be more likely to trust that the company will be around for the long haul.
4. Greater Professional Networks
Angel investors are often able to offer access to their network of professional connections. They may know of potential employees or customers. They may also have connections with accountants, lawyers, investment bankers, and other professionals that can help a business become established.
5. Industry Knowledge
Angel investors typically specialize in a certain type of company. Since they have worked with similar companies in the past, they will have industry- and niche-specific advice. They can give marketplace-tested knowledge and strategy to the fledgling company.
6. Helping to Build a Management Team
Angel investors usually place a high value on the strength of a company’s core team. They can help companies find these crucial staff members and develop their connection with the market. They may be able to find C-suite staff in unexpected places, increasing the company’s reach.
7. Encouraging Growth
Angel investors want to see a large return on their investment. When they invest in a company, they can use their considerable resources to encourage growth. Understanding how to foster growth is one of the major advantages of working with an angel investor.
8. Quicker Approval
Once a company finds an angel investor, the process of making the arrangements for funding is easier than working with a bank. A bank will require much more documentation on the specifics of the business and will not want to deal with a company at the seed stage. Angel investors are better prepared to deal with emerging companies and will bring money into the business in a more efficient fashion.
9. A Personal Touch
An angel investor can help a company through difficult patches. With a personal touch, the angel investor may be able to steer the company through rough patches. They have “skin in the game,” and their own money is at risk if the company does not succeed.
10. Hands-Off Management
Unlike later-stage forms of venture capital, angel investors typically do not ask for very much control over the company itself. They are unlikely to ask for seats on the board, for example. They do want up to a 50 percent equity share in the company, but they will remain relatively hands-off. This gives the company a better opportunity to grow on its own terms without having to answer to an investor.
11. Angel Investors are Long-Term Investors
Though early-stage investments are illiquid in nature, angel investors feel motivated to help companies that are just getting started. An angel investor may be looking for money right away, but they are likely to keep their money in the business for an extended period of time.
Working with an Angel Investor
Dan Lok believes that most early-stage companies would benefit from working with an angel investor. Angel investors have many advantages over traditional bank funding, first and foremost being the ability to give a large investment without an established business track record. Startups in certain fields like technology are more likely to receive angel funding, and they are able to receive valuable help from investors.