Speaking at Women in Tech Scotland, entrepreneur Urchana Moudgil imparted her insights about how a company can increase its chances of successfully securing angel investment.
Moudgil, who transitioned from being a finance director to disruptive tech entrepreneur, has been on that funding journey and knows exactly what it is like. To date, her business Upgrade Pack, an innovative app-based platform that gives its users exclusive discounts on flight and hotel upgrades as a loyalty benefit, has successfully raised more than £3 million in funding – with all of it coming from angel investors. The company is valued at £15m and has plans to open a new base in Scotland.
While there are many different routes to funding, such as venture capital, bootstrapping, crowdfunding, angel investment and even friends and family, Moudgil believes each business must take the path best suited to their needs.
Just because cash is offered companies should not feel obligated to accept. Upgrade Pack, she said, was offered some hefty sums in the early days but politely declined because they did not represent the right investment ‘fit’ for the business.
“Not all companies are alike, and you need to do what is right for your vision and proposition and not compromise these purely for investment”, she said.
Leadership – Identify a strong team
“One of the most important things an angel will look at when considering a business investment opportunity is the team,” she said. “First and foremost they will want to know you have a credible and solid team because ultimately they are the people who are going to deliver and execute your business plan.”
“This is going to sound a bit clichéd, but you can have a great idea but unless you have that experience and skillset in your business it’s never going to happen. The angel is investing in your people as a core component of your business and will want to see evidence that you are bringing in specific skills and experience. Ultimately you need to give your angels the assurance the team you have, or will put in place, can deliver the plan you put on paper.
“Angels also know that one person cannot do it all, so demonstrating that skilled team around you is vital. Of course, if funds are an issue in the short term, explain what your future team will look like and why. Then once the funds are in, hire immediately. You can detail your full team’s credentials and hiring strategy in your business plan.”
In addition to having an excellent team, Moudgil said that it was also crucial for a business to appoint board members with experience that complements the industries and individuals you are targeting. This adds weight and gravitas to a company and it also emphasises the power of the startup’s network. “The more strings you can add to your bow the better,” she added.
Business Plan – Back up your analysis with figures
The creation of a comprehensive business plan is key when pitching to angel investors, they need to see a map that shows the company’s overall vision. The plan, she said is a roadmap and should, therefore, have key journey markers and validation points that will help demonstrate to investors the company’s potential for growth.
“It should really delve into the details of how you will deliver that plan,” she said. “You need to fully crystallize your vision to investors and show them how you will get there. A good set of solid numbers will give comfort to an investor and you must include these in your plan. Make sure you have a business plan which is simple yet scalable.
“Put together a realistic revenue forecast, profit and loss account, and a cash flow statement showing your next three to five years runway. I can definitely say whether you’re a startup or experienced enterprise cash is always the same. Always make sure you have three months of cash runway and you’ll be fine. It’s so important to have your financial straight, if stack up, angels can see through it if they don’t because they’ve seen so many of these business plans,” she explains.
Equally important, is that you can show an angel how scalable the business is, “angels are really interested in how scalable a company is, it’s the size of the prize for them. You need to think of the leanest way to do it. The easier it is to scale the more attractive it is going to be to the angel.”
Angels are also really interested in your exit strategy, she added. When calculating your exit strategy do your research on what a typical exit looks like, “explore a few routes and explain why they are viable, but remember to include a realistic timeframe.”
Finally, once the angel is happy with the plan they will want to discuss your valuation. Again, Moudgil urges realism and believability so that the angel can take an accurate view of what they are buying into and what a return could look like.
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“There are many different ways to come up with a valuation so chose which one works best for you. If an angel doesn’t understand your valuation it can derail the conversation, just keep the conversation focused and take your time to explain it.
“If you can explain your methodology they will understand how you came up with your valuation. What I will say is prepare for all the open questions about your business plan. If you don’t understand the question just ask them to elaborate.
“See it as a discussion and not a one-sided conversation. Recognise what your addressable market is and show the capability for growth, and for them the opportunity for financial return.”
The Angel Landscape – Find the angel that is right for you
Before approaching an angel, Moudgil recommends undertaking thorough research of the angel landscape, “assess the landscape and approach the angels that are best in your space. You will have more success if you hone in on angels in your sector.”
As well as a greater likelihood of success, by being more focused a company can chase more “smart money” while demonstrating they have done their homework.
“At Upgrade Pack we are lucky to have a strong cap table of about 30 angels from complementary sectors who all really ‘get’ the what we are building, and who we can also call on for advice.
Proving your concept – Test the waters before you pitch
Positive proof of concept is an invaluable asset when pitching for investment. So before engaging angels the business should test its idea while getting some exposure. If you can successfully show your concept works, this will make them more likely to invest.
“You can use traditional methods such as market research and surveys, but there are also funding routes such as crowdfunding, which can help provide market validation. Exposure through crowdfunding is great because it lets you engage with those investors. It also helps generate awareness through media associated media coverage.
“Angels use crowdfunding platforms to identify and filter through those promising new startups, they are always looking for the next great idea. They also know the amount of due diligence required is immense, so if you’re on a platform they know you have a solid and strong foundation.”
Moudgil explains her own company crowdfunded a small amount from their seed round. Not only did it help them attract some smaller, but valuable, investors, it also brought the business to the attention of other angels who then approached them having seen them on the platform.
“Crowdfunding also opens you up to a great peer network – people who have been on the same journey and can offer you the benefits of their experience and insights.
When crowdfunding, she said, it is really important to drop the “jargon” because you are going to be speaking to people across the investment spectrum. “Make sure everything you put on the platform is easy to understand and take the time to know who your investment community is, so that you can engage them in the best way” she advised.
Negotiation – You only get one chance so make it count
If a pitch has gone successfully, the next step is to negotiate and Moudgil is adamant that a company should not compromise their overall vision when negotiating with angel investors.
“Of course you may want to finesse your idea as you go along, but angels will help you get there. Integrity is important, don’t lose that! You’re going to be asked lots of questions to test you understand your proposition and market and you only get one chance to negotiate.”
“Angels are also really motivated by the passion and vision you have, so that if the going gets tough they want to know you’ll roll your sleeves up while maintaining financial responsibility. Make them feel secure in your ability.”
Her final tip, and probably most important, is a reminder that angels want to see you succeed – they are humans too – just like us! She said, “It really isn’t as Dragon’s Den as you might think, it’s an opportunity to explain exactly what makes you different and getting them as excited as you about it and wanting to be part of your future success.”