Types of Angel Investors

Asian startup founder preparing due diligence on investors.

Understand Investor Expectations: A Pre-Seed Due Diligence Checklist for Founders

Understand Investor Expectations: A Pre-Seed Due Diligence Checklist for Founders

The pre-seed funding stage occurs when startups seek initial outside capital to develop their business ideas, build prototypes, or scale their business. It’s a pivotal moment in a startup’s development and one that sets the stage for seed-stage funding. Companies that seek pre-seed funding need to give investors the means to provide an evaluation that doesn’t waste time and makes the company’s core value shine through.

In truth, the due diligence process goes both ways in pre seed funding. While investors will research the startups best suited to their interests, startups can tailor their pitch decks to better align with these investors’ expectations through research, and can determine more about alignment of the investors and their investment thesis. By doing so, startups gain a better chance of securing needed finances across every stage of the funding lifecycle.

The Pre-Seed Funding Due Diligence Checklist

Illustration of a checklist.

1. Know the Investment Criteria

Startups must speak to the overarching theme and the specific investment criteria (thesis) established by the angel group. Investors often have non-negotiable criteria, and startups that don’t meet these requirements will be cut, often without any feedback as to why. 

Founders must understand and align their venture with the expectations of the investor group before they proceed. Lack of alignment jeopardizes the chances of consideration, and it diminishes the opportunity for reconsideration.

  • Thoroughly research and understand the specific investment criteria.
  • Align the startup with the expectations of the angel group or investor.
  • Prioritize compatibility before proceeding with the application.

2. Highlight Venture Investability

While all investor groups have different pre-seed funding criteria, they tend to seek ventures that exhibit the potential for substantial returns, typically between 20-50 times the initial investment within 8-10 years. 

As such, it’s good to emphasize the potential for “big wins” in the pitch. As a general rule, startups should avoid niches that may not have sufficient market size or face saturation with trendy, short-lived ventures. They should promote the venture as a hot item with big potential for long-term gains.

  • Emphasize scalability and the potential for significant returns.
  • Be mindful of market dynamics and trends in specific niches.
  • Align the stated business model with the investor’s appetite for exponential growth.

3. Get Busy Networking

Proactive engagement with the investment group can impact a startup’s chances. Founders should reach out to publicly listed members of the selection committee to establish early contact and gain insights into what attributes should be pushed in pitch deck messaging. In-person contact is ideal to connect faces with names, but online communication and general company research can yield great results.

  • Actively engage with the chosen investment group.
  • Establish early contact with publicly listed members of the selection committee.
  • Gain insights into the preferences and focus areas of the investor group through strategic networking.

4. Include Business Mechanics

Investors value startups with a defensible position in the market—often referred to as a “moat” that shields the company from easy duplication. Founders should focus on strategies that position their company to dominate the market quickly or possess high switching costs and network effects that solidify their role as a market leader.

  • Develop strategies to establish a defensible position in the market.
  • Emphasize the importance of existing moats to protect against easy duplication.
  • Demonstrate a clear path to market dominance or the creation of high switching costs and network effects.

5. Get the Valuation Right

Getting the valuation right will have a significant impact on the chance to secure funding. Founders should work closely with advisors, utilize valuation methodologies, and avoid common pitfalls of over or undervaluation. A well-calibrated valuation instills confidence of investors and positions the startup for success in subsequent funding rounds.

  • Collaborate with advisors to determine an accurate valuation.
  • Utilize valuation methodologies and don’t shoot in the dark.
  • Strive for a well-calibrated and realistic valuation that inspires investor confidence. 
  • Check out StartUpNV’s Valuation Calculator.

Preparation Improves the Odds of Securing Pre Seed Funding

While this checklist provides a fairly comprehensive guide for startup founders who navigate pre-seed funding, note that each funding journey is unique. Founders may benefit from additional guidance tailored to their specific circumstances. 

They should  seek mentorship, engage with industry experts, and leverage networking opportunities to supplement the checklist and enhance the overall approach. After all, what is pre seed funding due diligence if not the perfect opportunity to hammer out problems before the company kicks off?

Holiday Rush

Time Management Tips For Entrepreneurs In 2024

Time Management Tips for Entrepreneurs in 2024

Stepping into 2024, founders may feel the whirlwind of post-holiday demands. The new year is supposed to be a time of rejuvenation and fresh starts, but for entrepreneurs, every day is a new challenge. Below, we offer time management tips for entrepreneurs, insights on how to prioritize precious work hours, and how to juggle multiple tasks without sacrificing work-life balance.

Set Priorities: Best Practices for Time Optimization

Embrace the Eisenhower Matrix

3D Man sitting on hourglass looking at a laptop

The Eisenhower Matrix, also known as Eisenhower’s Urgency and Importance Matrix, provides a structured, four-quadrant framework that prioritizes tasks. Founders can make use of this framework at any stage of their startup. In the ‘Do First Quadrant’ individuals address critical and urgent tasks and use techniques like timers to stay focused and drive progress. Meanwhile, the ‘Schedule Quadrant’ focuses on significant yet non-urgent tasks to encourage proactive planning.

The ‘Delegate Quadrant’ helps leaders effectively manage task distribution. Leaders assign tasks based on expertise and alignment with organizational goals to foster collaboration and accountability through clear communication channels. Finally, the ‘Don’t Do Quadrant’ is a place to eliminate unproductive habits. This makes it easier to stay focused and juggle multiple tasks.

Implement Time Blocking

Time blocking is a helpful way to effectively manage multiple tasks with a busy schedule. Founders and staff managers can allocate specific time blocks for tasks, meetings, breaks, and focused work sessions.

For example, each Monday morning from 9:00-11:00 AM can be just for strategic planning. This time block allows staff members to review business objectives, assess market trends, and consider new goals. Tuesday and Thursday afternoons, from 1:00-4:00 PM can be set aside for product development, product market fit questions, and other tasks.

This structure helps staff know what to expect across the work week and mentally prepares them for the creative work to come.

Focus on the Right Tasks

Founders should test and apply a variety of prioritization strategies to find the ones that best fit their team’s business goals. Buy-in from teams is important, but it’s also important that founders don’t run with the first framework they find. Every hour spent on a task is an hour that can’t be spent elsewhere, so it pays to identify high value tasks and apply efforts there.

For example, the oft-cited Pareto Principle states that 20% of activities produce 80% of outcomes. The founder should identify and prioritize these high value tasks, then allocate resources accordingly.

Define Clear Objectives for Each Time Block

Establish clear objectives for each time block to ensure that each section becomes a productive time slot. Without a clear focus, time blocks can turn into unproductive jam sessions where ideas are shared but no actual progress is made.

Apply Productivity Techniques

Everyone has their own preferences for how work gets done, but founders can integrate effective time management techniques into their company culture to make best practices an institutional value. Consider the Pomodoro Technique, a time management method developed by Francesco Cirillo, or the Eat the Frog Principle, popularized by Brian Tracy. These methods help workers stay focused throughout the day and ensure that the most high value tasks are made priorities in the workday.

Incorporate Buffer Time and Flexibility

Time management tips for entrepreneurs follow a common theme: flexibility. Founders should incorporate buffer time within the schedule to accommodate unexpected challenges or interruptions. They should allocate additional time for unforeseen tasks and try to stay one step ahead of the schedule. This minimizes the risk of unexpected roadblocks that creates a schedule time crunch. In this way, the buffer time remains a top strategy to balance a busy schedule with a personal life.

Delegate Tasks: Empower the Team for Success

An oft-cited mantra for executives isnever be the smartest person in the room’. A founder should surround themselves with trusted partners who bring their own unique perspectives and skill sets to the table. When a founder can delegate with confidence, it becomes far easier to manage the startup’s to-do list.

The Last Word on Productivity

A final word on time management tips for entrepreneurs: Don’t neglect self-care! Personal management is part of being an entrepreneur, and founder burnout can spread like wildfire among lower level staff. Founders should do themselves, and their startups, a favor and set aside some time each week for rest and rejuvenation, and incorporate regular breaks to maintain a healthy work-life balance.

Visit StartupNV for more tips for success in 2024!

Studio shot of young handsome businessman and young beautiful Asian businesswoman wearing eyeglasses against gray background

Angel Investing vs. Venture Capital: What’s Best for Your Nevada Startup

Angel Investing vs. Venture Capital: What’s Best for a Nevada Startup

man-gathering-funding-for-startup

For most startups, there’s a point where self-funding the business isn’t an option anymore, and founders are often left with the choice between angel investing vs. venture capital. Either they need to scale but lack the liquidity to do so, or they need to cover operational costs. Whatever the reason, funding is needed to keep the dream alive. 

New startups usually have to rely on personal networks like friends and family to get startup capital. They may apply for a bank loan. But there’s no guarantee that close friends, family, or a loan can supply enough money to stay afloat. Sometimes new entrepreneurs must approach private investors. 

Investment funding may come from two main sources: angel investors and venture capitalists. A startup needs to ask the right investor- startup fit questions to determine which is the right choice and learn about the potential risks and benefits of each option.

Angel Investing vs. Venture Capital

Angel investing and venture capital (VC) are private fundraising options for businesses that want to sidestep traditional banking institutions. While there are some similarities between them, they operate differently. Everything from the maximum investment offered, to expectations on returns, to the terms and amount of due diligence performed vary.

What is Venture Capital?

Raising venture capital funding operates outside of traditional banking. It’s a private equity solution through which startup businesses receive anywhere from several hundred thousand to millions of dollars in exchange for an ownership stake in the company. To offer these amounts, venture capitalist firms pool funds from several high-net-worth investors (including corporations and individuals) and create an investment portfolio.

What Is Angel Investing?

Angel investors are individuals who fund startups in exchange for an equity stake in the business that’s realized at an exit. In the US, an investor must have a net worth of at least $1 million excluding the equity in the primary residence or have earned at least $200,000 for the past two consecutive years for single investors or $300,000 for a couple. This is known as the SEC’s definition of an “accredited investor.” Usually, angels are the first outside backers after an entrepreneur exhausts friends and family, bank loans, and personal reserves. Angel investments still qualify as “pre-seed or seed investments” because the funding is usually lesser amounts with the average being $25,000 to $50,000.

There are also angel groups and syndicates. Angel groups can operate in a number of ways that include funds into which all angels invest, investments that are made with the approval of a minimum number of angels or each individual angel making his/her own investment decision.  Angel syndicates may pool a minimum investment from each participating member, which allows the group to invest larger lump sums in a single deal or “spread the wealth” across several deals. Syndicates can also be a simple network or angels or angel groups who share deal flow and have no rules attached. The difference is important because pooled investment funds, whether within an angel group or as a syndicate, allow these groups to operate like small-scale VC firms. Still, the total investment per deal is smaller than a VC would offer.

Similarities and Differences Between VCs and Angels

With both VCs and angels, you approach outside investors for funding. Both groups will have preset criteria to determine whether your deal is viable and coincide with their portfolio and investment goals.

The Similarities

Both VCs and angels require information to assess a potential deal. The information is most often offered in the form of a pitch deck. The pitch deck should cover the basics of the business, including what problem the startup is solving, the market potential, competitors, how they sell to customers and what they charge, any traction, the team, and what they’re asking in terms of investment or support. It should demonstrate how the investors will likely earn a return. Both groups are early investors and usually agree to invest before or after achieving major financial milestones. Funding is invested in exchange for a stake in the company with the expectation of a financial return once a liquidity event occurs. 

A liquidity event can be acquisition by another company or a future funding deal like series A or B funding rounds, or an initial public offering (IPO). Series A and B funding rounds (a common angel exit) refers to bigger investments that are still pre-IPO but occur after seed funding is exhausted. IPOs occur when businesses become publicly traded on the stock market (a common VC exit). The most common exit for startups is acquisition by another company, or failure.

The Differences

When pitting angel investing vs. venture capital, there are a few main areas in how the two deals differ:

  • The funding amount
  • The equity stake and return expectations
  • Startup position within the business life cycle 
  • Risk exposure and startup readiness

Because Angels typically offer smaller investments than VCs do, they are more open to funding earlier-stage startups, including at the proof-of-concept stage. Because of this, the risk is greater, and deals may be held for longer periods. Likewise, they may choose to be more hands-on with the startup to safeguard their investment.

By contrast, VCs look for faster growth and will often consider only those deals with larger funding requests—the series A and B rounds. Although the risk is inherently higher with bigger sums, VCs will require established track records like year-over-year financial growth, secured business partnerships, or top talent at the founder level, like serial startup founders, previous influential angel investors, and industry insiders as advisors. As a result, early-stage venture capital firms  usually fund startups after proof-of-concept stage.

Which Funding Source is Right for You?

Criteria such as business stage and market potential will automatically determine which funding option founders can pursue. VCs rarely consider early startups since they prefer more established businesses with a verified market share, revenue, and growth potential. Startups should focus on angels who are open to funding early stage businesses. Founders can take the guesswork out of sourcing investors by partnering with StartUp Nevada. With seven education programs for entrepreneurs, and an accelerator that invests in early stage companies, we help nurture business ideas. We also help educate founders about angel investing vs. venture capital opportunities and offer access to venture capital in Las Vegas through our in-depth investor network.

two women shaking their hands pre seed startup funding

The Different Types of Angel Investors: Understanding Their Investment Styles and Objectives

Are you an entrepreneur who is looking for capital to grow your business? If so, the chances are high that you have heard about angel investors. Angel investors are critical in helping new businesses get off the ground and expand existing ones. 

But what exactly is an angel investor? And what makes them different from other types of investors? In this article, we’ll explore these questions and provide insight into the different styles and objectives of angel investing.

Definition Of Angel Investors

What is an angel investor? It’s a question that has intrigued business owners, venture capitalists, and even private investors for years. An angel investor is typically wealthy and provides capital to startups with high growth potential in exchange for equity or convertible debt. They are often the first funding source for entrepreneurs looking to launch their businesses.

But beyond the definition of an angel investor lies the characteristics that make them unique from other investment forms. Angel investors don’t just provide money; they also bring valuable expertise and networks which can help propel start-ups into success. They have different objectives than traditional investors.

Instead of focusing on short-term gains, angels look for long-term returns through mentorship and guidance. Angel investing isn’t without risks – there’s no guarantee that every startup will succeed – but it can be tremendously rewarding. Understanding what makes these investors special can help budding entrepreneurs make better decisions when it comes time to raise capital.

Characteristics Of Angel Investors

Unlike venture capitalists, angel investors typically invest their own money and take on greater risk than traditional investments. They tend to have a higher tolerance for risk and more lenient requirements than venture capitalists regarding due diligence and financial return.

When evaluating potential investment opportunities, angel investors look at the company’s overall value, its potential profitability, industry trends, current market conditions, and other factors. They emphasize assessing the team behind a business, including the founders’ qualifications and experience in running similar ventures. Angel investors also consider a company’s competitive landscape—whether there is sufficient room for growth or if competitors already dominate the space.

Due diligence is key when selecting where to invest; angel investors will thoroughly examine every aspect of a business before investing any funds. This includes researching customer feedback, conducting interviews with management teams and advisors, analyzing financial data such as balance sheets and cash flow statements, examining legal documents related to the company’s intellectual property rights, and reviewing historical performance metrics and projections for future growth prospects. Ultimately, they want to ensure that their investment will yield substantial returns over time.

Evaluation Of Investment Opportunities

According to research, angel investors invest an average of $15,000 to $250,000 per deal. This means that evaluating investment opportunities is a critical part of their decision-making process when deciding whether or not to commit capital. Angel investors must consider various factors to determine which investments are most likely to generate returns.

When evaluating potential investments, angel investors often look for:

  • A fool-proof plan for profitability and exit strategy
  • The quality and experience of management team members
  • Leverage over existing competitors in the market
  • Potential return on investment (ROI) within three to five years

Angel investors also evaluate investments using objective analysis techniques such as financial modeling and due diligence processes. These techniques help them assess the risk versus reward associated with each opportunity they encounter. Furthermore, they consider industry trends and macroeconomic conditions when evaluating potential deals. 

By combining qualitative and quantitative metrics, angel investors can comprehensively understand each opportunity before investing funds. As investors seek to maximize returns while minimizing risk through sound judgment and careful research, it’s essential for entrepreneurs seeking angel funding to present their business plans clearly and concisely.

Benefits And Risks Of Investing With Angels

man and woman shaking their hands pre seed funding investors 1

When evaluating potential investments, angel investors are considered an attractive option for many businesses. They provide capital and often mentorship to bring companies up to the next level of success. While numerous advantages are associated with angel investing, understanding the rewards and risks involved is essential before deciding.

  • The benefits of receiving angel investor funding include access to large amounts of capital that would be difficult or impossible to obtain through traditional financing sources. Angels typically invest in early-stage companies that may not yet have established credit histories or assets to secure other forms of funding. This allows entrepreneurs more flexibility when launching new projects or expanding existing ones. 
  • Furthermore, angels tend to take a hands-on role in providing advice on management strategies and operations which can help build business savvy among founders or key personnel. Finally, when successful exits occur, angel investors will receive returns that significantly exceed those seen from venture capitalists due to earlier involvement in the company’s growth trajectory.
  • On the other hand, angel investing also carries certain risks that should be recognized during the evaluation process. Angels may not always have prior knowledge about specific industry practices, which could lead them towards wrong decisions regarding investment opportunities. 
  • Also, since most angels invest personal funds rather than those managed by institutions, they are limited in the amount they can commit at one time, thus creating fewer diversification options for their portfolios compared to larger organizations like venture capitalists. Moreover, suppose exit plans do not meet expectations. 
  • In that case, losses are solely attributed to individual investors, leaving no room for collective recovery efforts among partners like what happens with institutionalized entities such as VCs. 
  • Lastly, given that most startups fail within 5 years after inception (according to The Harvard Business Review), these riskier investments require extra diligence when assessing value propositions and market dynamics surrounding each opportunity presented by entrepreneurs seeking angel capital.

Strategies For Working With Angel Investors

When seeking to form a successful working relationship with angel investors, entrepreneurs, and business owners need to understand the various investment strategies an angel investor may employ. Angel investing typically involves providing capital in return for equity or convertible debt, but each investor will have preferences regarding financial goals and objectives. Understanding these elements can help entrepreneurs develop effective partnerships that meet both parties needs.

  1. The first step in forming relationships with angel investors is understanding their background and experience. 
  2. Researching potential partners’ past investments can provide insight into how they approach decision-making processes and what type of companies they prefer to work with. It is also beneficial to identify any industries, technologies, or markets that are specifically attractive to them so that you can better tailor your pitch. 
  3. Learning about the other resources or contacts they may bring can be invaluable once an agreement has been reached.
  4. Before engaging angel investors, it is advisable for entrepreneurs and business owners to create detailed plans outlining the company’s growth trajectory and desired outcomes from future investments. 

Having this information on hand allows discussions regarding timelines, milestones, exit strategies, etc., to occur more efficiently during negotiations. 

Developing realistic expectations around returns and rewards allows all parties to maximize mutually beneficial results while maintaining healthy working relationships.

Conclusion

Working with angel investors can be a great opportunity for entrepreneurs and small businesses. Their investment style provides flexibility and access to capital that may not be available. As long as you understand the different types of angels, evaluate your opportunities carefully, and develop strategies for working with them, investing in an early-stage company can be a rewarding experience.

Understanding the different types of angel investors can be valuable for startups seeking funding. By identifying the type of angel investor that aligns with their business goals and needs, entrepreneurs can increase their chances of securing investment. At StartupNV, we provide resources and support to help startups navigate the fundraising process and connect with investors. Contact us today, and we can help you get started toward your startup success.