How soon should business angels get involved with startup businesses?

All startup business ideas go through a six-stage life cycle, and it isn’t until the end of the second stage that the product or service gets launched into the market, which proves how much work happens before you can engage business angels.

 

To begin with, the idea needs fully forming. The entrepreneur should transfer it from the back of a beermat and into a proper plan, writing down what’s on sale and who’s going to buy it, what
needs doing and what the expected rewards are.

Why it’s too early to invest: First of all, everybody has had a ‘lightbulb moment’ at some point, but very few actually do anything about it. The very least a startup needs to do is to mark itself out from every other idea by drawing up an actual, thought-through plan. Secondly, before even the most basic of calculations, it’s not known how much money is needed or what an investor will get in return.

Ideas then move into the feasibility stage. Once the idea and its market have been decided, now you need to know if it’s going to work out. Market research will give a pretty good indicator as to whether people will actually hand over their money. Then there’s the research into costs, retail prices and so on

Why it’s too early to invest: With no proof that there’s an audience, and no number-crunching to show there’s money to be made at the end of the day, any investor is being asked to take a huge leap of faith handing over hard-earned cash. There are plenty of ideas competing for an investor’s attention at this point, many will have cash-flow forecasts and more, so without solid figures the best-case scenario is a polite ‘no thank you’ to the plucky entrepreneur.

Once everything looks good on paper, it’s time to start making things happen in the real world. This is when prototypes are commissioned, services are tested in sample markets. Everything is being given a dry-run, a chance to iron out the wrinkles before going full steam ahead.

This is the development phase, the point when startups and business angels should begin talking to one another.

Why now is the time to invest: Success in business relies on three key factors: hard work, smart planning and good fortune. By now, the startup has committed its own resources, which proves that they’re dedicated to the cause. The idea has been researched, which proves there’s a chance it could work. And the good fortune? Well, the idea’s made it this far.

In a dream world, business angels could safely pair up with new businesses from the get-go, offering the finances to plough into formulating an idea, testing it and bringing it to market. In the real world, there’s far too many risks and far too much competition for an investor’s money. Startups have to have to carry themselves through the initial stages, whether that’s digging into their own pockets, asking for help from friends and family or even tapping into government support.

Either way, there’s a point at which business angels should start taking notice of new idea, but trying to woo one before there are any credentials to be demonstrated is time wasted for an entrepreneur – time that could be spent developing their startup business instead.

 

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