[SINGAPORE] If you are a startup founder seeking seed money, please note – three experienced angel investors named the business builder as the key factor when deciding whether or not to put their money in a business.
“The founder is probably the single most important factor in early-stage startups, as we are betting on the people rather than some established business metrics,” Ashley Koh, chief operating officer and co-founder at Voyant Asset Management, told The Business Times. Noting the unpredictable journey of a startup, where the product could evolve, markets could shift and the business model could change significantly, she said, “the founders are the only constant. Great founders can pivot a mediocre idea into a success, while weak founders can squander even the most promising opportunity.”
Angel investors are usually high net-worth individuals or entrepreneurs, who put their money in early-stage companies in exchange for an equity stake, with the expectation of a reward only if and when the business takes off.
Lynette Lee, chief executive officer of Sirius Impact Venture, said that she looks out for founders with a growth mindset, as that will help them pivot their businesses quickly in a fast-changing environment.
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“They’re very passionate about what they’re doing..(but if) they cannot see above and beyond what they’re doing….which means in a crisis like Covid-19, they don’t know where to turn.”
Lee also tries to assess how entrepreneurs handle failures, looking out for those who see setbacks as lessons, which would teach them courage, resilience and resourcefulness.
Growth mindset, resilience and resourcefulness aside, founders need to inspire and manage the teams they lead, while ensuring teammates complement one another’s skillsets.
“Crazy ambition” and willingness to listen
Given that angel investors typically channel funds into concepts or companies where they have experience in successfully bringing their ideas into fruition, some may have strong ideas on the business’ growth direction.
This is where startup entrepreneurs should also demonstrate the willingness to listen and learn, said Huang Shao-Ning, founder of AngelCentral, a network for angel investors. “I want to see that crazy ambition, but at the same time, I want to see the humility that they are willing to listen.” She has invested in 48 startups since 2009.
Another important trait that investors assess is the communication skills of the business owner. This is because not only do founders need to engage their investors, they need to inspire their teams and be able to convince clients that their products or services are worth buying. They also need to be able to negotiate with suppliers for the best rates.
One key area the founders must always be mindful of is the path to profitability. This is an area where red flags could be raised if it seems that the startup chiefs are burning cash without focusing on bringing the product to the market successfully.
In fact, given the high failure rate of startups – the global figure is 90 per cent, and in the US, 20 per cent of new businesses fail in their first year of operations – Koh, Huang and Lee concur that they typically aim for any investment they make to yield a return that’s at least ten times their capital. This is to compensate for the risk that their investments in other startups will fail.
Question time
Business founders should note that women investors are more detail-oriented and ask more questions.
“Women are usually more patient and we will ask the questions,” said Lee. Relating a pitch where a startup’s idea was acupuncture for fish, she noticed that most of the male angel investors didn’t ask questions, and the more potential investors there are, the fewer the questions that come up. She felt that was due to the desire to avoid looking ignorant. “I think a lot of us females have less of an ego trip, so we are willing to ask.”
Gender aside, founders need to accept that investors will be asking questions before they part with their money. “I literally had founders saying, why are you asking so many questions? Are you trying to audit me?” related Huang. She added that those who had asked were men in their 30s and 40s.
Networking
Business owners need to realise that networking is important.
Koh suggests networking before the need to raise capital arises. For instance, attending relevant events to try to meet one angel investor a month would mean that a founder would have already met 12 in a year. And do keep them apprised of developments in your company, she adds.
“Sometimes, you invite them to demonstrations, but you’re not fundraising. Then when you’re fundraising, there’s already a relationship. By the time you need money, the way you pitch is different,” Koh said.
