Six Things You Should Know Before Seeking Angel or Seed Investment
If you ask any new business owner/founder what they need most in their business, it’s likely the answer will be “funding.”
Women of color-owned businesses have even less access to capital than the average business owner. According to ProjectDiane, a database that tracks investment in about 650 Black and Latinx women-owned businesses, these groups combined received just 0.64% of total venture capital investment between 2018 and 2019, for a total of $3.1 billion; 0.27% went to Black women, and 0.37% went to Latinas.
Those numbers have increased exponentially in the last three years, but the demand has increased with it, and the path to receiving investment remains extremely competitive. Many founders don’t realize that a business and its leadership must be aptly prepared to receive investment.
Here are six things you should know before seeking angel or seed funding.
#1 The best source of investment for your company comes from paying customers.
Angel or seed funding is NOT a replacement for revenue generation. A business has to have a healthy and engaged customer base to demonstrate a demand for its product and/or services. This means focusing on how you are making money from your customers.
Ask yourself these questions to ensure that you are on a path to generating and growing your sales and revenue:
- How am I pricing my products?
- How am I keeping in touch with my consumer?
- What is my customer retention strategy?
- What internal systems have I put in place to track my customers’ happiness?
- What am I doing to attract new customers?
Resource: Shopify Blog Article: How Do I Optimize My Product Pages For High Conversions?
#2 Your team and policies are just as important as your numbers.
When seeking funding, many founders focus on their revenue and products. These are vital, but how you run your company is just as important. Investors have to be made aware of your business strategies, including marketing, pricing, products, staffing /hiring (human resources), board creation, etc. You should have a clearly articulated vision of not only what your company does, but how and with whom you do it.
#3 Investment from family and friends should be treated like any other investment.
Oftentimes, founders will accept funding from their personal network without any formality. This is a recipe for possibly souring a relationship. It is fine to get funding from family or friends, but make sure that deal is well documented and legally sound, be sure to discuss and document their expected return on investment. The clearer the expectation from both sides, the easier it is to cultivate a productive/healthy investor-investee relationship.
#4 Find investors who understand your industry or sector.
Always find the funders who understand your sector because it is not just about getting their money, but also getting their advice. The beauty of venture capital is that there are funders in almost every industry. Do your research and find an investor that will be able to help guide you. Don’t just pay attention to the investors around you. Seek out those who are particularly interested in your niche.
#5 Data is paramount to investment.
Collecting and organizing key data about your business is extremely important to garnering investment. You have to be able to demonstrate the value of your business or company, and nothing does that better than clear data points outlining your business’ potential, impact, and projected growth. Consider the following questions that identify relevant data points:
- Do you know your customer acquisition costs?
- Do you know the lifetime value of your customers?
- Do you know the marketing span and percentage of your total budget?
#6 Part-time founders must be able to demonstrate a commitment to their business.
Many founders start their businesses as side hustles. This is not always a dealbreaker for investors, but there will be questions. Everyone has a different perspective; investors often want a clear timeline as to when they plan on leaving their full-time job. You might find that angel investors are a bit more patient than venture capital firms which tend to be strict about the timeline and their return on investment. However, in both cases, a conversation about how you—the founder— will survive and meet your obligations is customary. They will also want to know how the money they invest will factor into the equation.
Before you embark on your journey to seek angel or seed funding, use these six points as a guide to gauge your readiness. Take your time and make sure you are prepared for the process.
“I believe luck is preparation meeting opportunity.”—Oprah Winfrey
Create your own luck.