When is the right time to raise angel investment?
You can raise money from an angel at any point in your journey, even at the concept stage, you'll just need to find the right investor.
Have a look at the startup stages presented below and try to pinpoint where you are on your startup journey. Whilst startups have raised angel investment at every single stage of the journey, the stage it makes the most sense to start pitching to angel investors is once you have some form of validation.
Startup stages
As the graphic above on startup stages shows, the earlier you’re asking someone to invest in your idea, the more they are betting on you as a person rather than your business.
It's less about how much you've built/done and more about how much you've proven/ validated - so list out how much you've validated and what proof you have, that should build up how much value you have in your idea.
Ultimately angel investors are trying to spot companies that have validated enough (so that it's not a complete gamble) but that aren't too far along for it to still be a good return potential for their investment, that's the sweet spot you want to reach when starting to speak to investors.
One thing to consider when raising your first round is that you don't want to give away too much equity, in order for you to give away the least amount possible you need to have a high enough valuation and if you don't have enough value in your business yet there is a limit to how much you can value your company at.
Who to raise your first round from
When people start on their raising journey they will usually go straight to VC funds, either because they do not understand the difference between VCs and angel investors or because they want to raise a large sum of money, however, it makes sense to try and raise angel investment money first and then go to VC, because the shareholders you bring on can ultimately shape the direction of your business. Angel investors usually come in on more founder-friendly terms.
KEY TAKEAWAY
Do as much as possible before raising: validating the problem you are solving with market research, building a minimal viable product, putting a strong team together, testing your solution in the market etc.
The more you have been able to achieve before raising investment, the easier you will find it is to raise because you have something to show your investors, something that proves yes, this is a great idea, and yes these founders are really capable
The more value you have created in the business the better deal terms you will get with your investor, meaning you will give less of your business and can raise more money.
