Angel investors are those who invest seed money into a business to kick start its operation. This investment usually comes in exchange for convertible debt or equity in the ownership of the company.
From a start-up perspective, angel investments are a great way to secure funds as well as mentorship from the investors working in the relevant industry.
Here is how a business can raise angel investment, especially if they are from Bangladesh.
Angel investment landscape
Bangladesh is still in the early stages of angel investment. There were not many investors a few years back in the start-up ecosystem. However, the pace is picking up.
Bangladesh Startup Investment Report of 2022 shows that Bangladeshi start-ups were able to raise $112 million in 2022. A total of 47 start-ups were able to secure funds, among whom 39 brought unique service propositions.
The largest funding was received by ShopUp who were able to raise $65 million from Valar Ventures and Flourish Ventures.
About 8 per cent of the total funding came from local investors. On average, the angel investment size for early-stage start-ups was around $5,88,000. Bangladesh is in the lower tier when it comes to securing venture funds.
How to get angel investment
Getting an angel investor to invest is neither straightforward nor easy. A start-up will need to put in the work, especially in Bangladesh where the investment ratio is low.
There are several key things to consider when it comes to securing angel investment. Here are some of them.
Clear business idea and plan
A start-up should have a clear business idea backed up by a strong and detailed plan to secure angel investment. The plan should outline the start-up’s mission, market opportunity, revenue model, target audience, competition analysis, marketing strategy, and financial projections. A solid business plan is crucial for gaining investor confidence.
Market validation
Investors look for product or service confidence while investing. As a result, it is important to create a market validation of the start-up product or service before making the initial approach for funds.
Market validation can be done by developing a market-viable product. This product or service can be channelled to early adopters and customers. Based on their experience, a positive narrative for the product can be developed. This will play a crucial role in securing early-stage angel investment.
Assess pros and cons of early-stage investment
Many start-ups make the mistake of raising money just for the sake of it. This is where many start-ups get embroiled in the process. Before attracting investment in the early stage, assess whether the funds are actually needed or not.
The stakes for early-stage investments are quite high. Investors might demand higher equity or convertible debt just because of the risk involved in investing. Try and understand whether foregoing equity at an early stage aligns with the long-term plan of the start-up or not.
Understand the legal intricacies
The concept of angel investment is still relatively new in Bangladesh. The nature of the operation of angel investment makes it important for founders to understand the legal bindings of investment contracts.
Angel investment comes in at a very early stage of a start-up. Most founders fail to properly grasp the legal bindings or get carried away with the investment itself.
The rule is simple in this regard, be intelligent and understand all the legal formalities before entering into a contract no matter how lucrative the investment might be.
Invest time
Unlike a few years ago, there are now organisations in Bangladesh that actively help start-ups to raise investments. Bangladesh Angels is a network specifically for angel investment that connects the angels and founders.
Depending on the process of valuation, securing an investment and closing the deal might take time. The key here is to persevere and invest time and effort into securing the funds.
Research potential angel investors
Identify the angel investors who have previously invested in a similar industry and niche. Attend start-up events, join entrepreneurship communities, and leverage the existing network to make connections.
Bangladesh Angels network can be a great starting point as they have a diverse portfolio of investors under a single platform.
Creating and practicing a pitch deck
A pitch deck is essentially like a presentation slide. It should showcase important information like value proposition, market opportunity, competitive advantage, team, financials, and funding requirements.
A pitch should be concise and visually appealing. Also, practice the delivery of the pitch deck. The idea here is to convince the investors in a limited time. Being clear and eloquent will help to visualise the value more easily to the potential investors.
Legal and financial due diligence
Before approaching potential investors, it is important to conduct proper financial and legal due diligence. It is like cleaning the home before inviting someone over.
The first thing that the investors would look into right before or right after the investment is the start-up’s legal, financial, and operational aspects.
If these aspects are not sorted properly, it might create a negative impression and the investor might pull out altogether.
Networking and connection
It is important to utilise the platform created by different investment and venture capital firms in Bangladesh. Attend events, workshops, and networking sessions to establish connections with potential investors.
Even if it is not possible to secure funds in the early stage, building the network and connection would definitely help out in the long run.
Final words
From the perspective of Bangladesh, raising angel investment is not an easy task, and more often than not, there would be failure instead of success. Rather than giving up, it is important to persevere and identify the lacking that might deter a potential investor.
Another pro tip is not to attract too many angel investors. Keeping the number low can help to maintain the control and direction of the start-up as well as get valuable industry insights. The angel investment platform in Bangladesh is growing and it will continue to add value to the start-up ecosystem.
