The financing journey of a startup commences during the Pre-Seed/Ideation phase and typically concludes with a strategic exit, such as a merger and acquisition (M&A) or an initial public offering (IPO). As the startup progresses, the risk of failure usually diminishes. In general, angel investors tend to invest in the early stages, specifically from the Pre-Seed round to Series A.
During the Seed and Series A rounds, startups typically seek out venture capitalists (VCs) as lead investors and seek angel investors to complete the funding round. To discern the disparities between an Angel Investor and an early-stage VC, you can find more information here. The approach to angel investing can vary widely depending on each investor's personal investment philosophy or approach. An effective Angel Investor should possess substantial business experience, ideally possess a deep understanding and a well-connected network in the startup industry. Additionally, the Angel Investor should be pragmatic with reasonable expectations and the financial capacity to invest.
Angel Investors assess startups seeking fundraising based on four primary criteria:
1. The Founding Team
2. Business Opportunity
3. Execution
4. Deal Terms
Startup founders should bear in mind that fundraising resembles a sales endeavor. Consequently, founders should proactively engage with as many VCs as possible to gain insights into their perspectives and market valuation trends. It's crucial to align with valuation benchmarks for similar-stage startups and remain open to negotiation regarding valuations. Lastly, just as investors conduct due diligence on startups, startup founders should also conduct their due diligence on investors and not hesitate to disengage if necessary!
*The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.