The most important thing when you are at starting up a business is to find a mentor who will advocate for you. The mentor means someone who can help you to grow and act as a business advocate and introduce you to business community. One more important thing is that this mentor can be your investor in future or he can refer you to the right investor. We can name these kind of people who invest in your business initially with reference from the mentor or the mentor itself an “Angel Investor”.
Potentially angel investor can be a family investor (parents or relatives), relationship investor (co-workers or friends who knows your potential of idea and you as a person), reference investor (those who don’t know you or your idea but they know the people who referred you they convert the trust in the person who refer into business) or idea investor (investor who may works in the same sector which your business targets).
Things to be keep in mind while approaching angel investor from my personal experience
1) Due diligence: The investor should be take care of the business from big harm that may affect the business. The potential harm can be financial loss, legal problems, business risks etc.
2) Experience: It is better to select “idea investor” as your angel because investor can help you to grow by giving strategic advice to the business situations and also able to provide industry insights.
3) Make Investor a active participator: This will give double effects for the business to grow.
4) Negotiate proper terms and regulation: This is very important to agree with pre-defined terms and regulation before agreeing to the investments. The terms should include the working policies, lock in periods, share transfer policies etc. Lock in periods are very important because of the uncertainty about the idea or business and effort the innovator should put through for a certain period of time.
5) Share transfer: Agree upon the investment and share transfer periods. It is not a good decision to get entire investment and transfer the entire stake agreed initially, because there is no sense in getting the money and depositing it in the bank. Make the investment and period wise (say for eg monthly or quarterly) according to your requirements and transfer shares accordingly upon the money invested in the business.This will also gives a good cash flow in the business. If the business doesn’t require capital to go ahead stop getting money from the investor, this will give you a better liquidity of share.
6) Second round investments: If the business want more money to grow, it is not a good idea to get money from the same investor because your % shares will severely be affected.
7) CA firms: Keep another CA firm rather than using the same chartered accountant firm of the angel investor.
And finally the best way to get an angel investor is to approach the best chartered accountancy firm at your place. The truth behind this is chartered accountants know who has the real money to invest and their background experience.
true story and real life advices! Good post.
IMHO and experience CAs in Kerala are useless.
Entrepreneurs need to understand the function of a CA is to do your audit. Some take on more and more files to keep their income levels. Most CAs do not understand Startups. Right from the Dharma & Dharma to others. So this is avoidable. Look for a retired Banker to help you in this stage.