Angel investors, broadly speaking, are high net worth aka wealthy individuals who invest in a business at an early stage commonly known as pre-seed or seed funding rounds. If you are looking to raise external investment for your startup, angel investors come pretty early on.
Angel investors usually invest their own money in a company in exchange for an equity aka percentage of the company. While the size of the angel investment varies, individual angels usually write relatively small checks. Angels are highly relevant in the early days of fundraising. Angel investors come in different sizes and shapes. Some prefer to invest individually while others invest as a group or syndicate.
They take significant risk in investing in a relatively unproven and early-stage business, often either because they believe in the founders or find the idea and founders solid enough to take the risk or the both with an expectation that the business will one day grow into something meaningful and in the process will give them a good return on their investment when the startup raises further investment or sell the company down the line.
Bangladesh's startup ecosystem is still in its infancy. Hence, we do not yet have local benchmarks in terms of average angel investment size or the amount of angel investments a startup typically raises, or how many angel investors a startup usually takes money from. According to several sources, a startup can bring in between one and 20 angel investors. Generally, the lower the number, the better. For the size of the investment, startups in Dhaka have raised angel investments as low as BDT 5 lac to BDT 10 lac and as high as several hundred thousand dollars.
While angels offer a much necessary cash infusion to startups in the early days, angels are more important for the knowledge, network, and validation they bring.
Capital is critical for any business. It is more so for early-stage enterprises when you probably don’t have much revenue or are yet to find a product-market fit.
To that end, angel investors can potentially change the trajectory of your business. But you need to find the right angel investors for your business who can and will add value to what you are building. Because while the right angel investor could change the fate of your business, a wrong match can equally jeopardize your future.
As one founder told us about his fundraising experience: “early cap tables are important. People you raise money from, your shareholding structure, potential valuation — all of it is important. Mistakes in the early days of fundraising will continue to dictate your future fundraising efforts.”
So while angels are great, it is useful to be critical and mindful of who you want to raise money from.
Angel investors play a critical role in the development of any startup ecosystem. Startups are long-tail games. Angels enable the long tail to happen by enabling a large number of founders to pursue their business with necessary cash and seriousness and help startups prepare for the later stage of fundraising.
While we don’t have a strong funding ecosystem in Dhaka as yet, the angel investment ecosystem has slightly improved in the last three years. Compared to two years ago, a significantly higher number of companies are now being able to raise angel investments.
It helps that a growing number of successful founders, local companies, and senior Bangladeshi tech executives — such as Tanveer Ali, Mohammad Maaz of SteelTech, Fahim Mashroor of Bdjobs and Ajkerdeal, Asif Rahman of WP Developer, Waseem Alim of Chaldal, Mehedi Hasan of Omicon Group, local companies such as Dekko ISHO Group, Bangladeshi people working in senior roles at multinational tech companies such as Zubair Siddky of Foodpanda, Quazi Zulquarnain of Uber to name a few — are taking an interest in angel investing in Bangladesh.
While the angel investment ecosystem has improved, it remains difficult and highly competitive to raise money in Bangladesh. We have a long way to go until we have a healthy angel investment ecosystem. To that end, founders need to be prepared and tenacious if they want to raise investment in an ecosystem like Bangladesh.
Raising investment is a skill. Having an excellent idea, even sometimes early traction does not guarantee that you will be able to raise investment. Sometimes you might be able to raise investment but from the wrong investors. So you must spend time in both finding the right angel investors as well as in convincing them to invest in your company.
Angel investors, since they come in the early days of a business, play a significant role in defining the trajectory of a business. They are likely to have a say over your decisions since you will be needing them. So it is important that you choose the right people who will be able to add value to your business which many call smart money.
Build a business that attracts investment. The best path to raising investment is not needing it. Build a business that attracts the attention of potential right angel investors. At least, build a reputation that will allow you to have a meeting with an angel and make a positive first impression.
The most difficult challenge for founders is building a business that users love and if that happens, the rest is usually easy.
Know your reasons. Raising external investment is a significant decision for any business. You will be supplied capital, for sure, but at the same time, you are to give away part of your business and your independence as a founder. Moreover, there are many ways of building businesses. You can perfectly bootstrap a company to success. There are widely successful companies that did not raise any angel investment.
In the context of Bangladesh, external equity fundraising is quite a young concept for early-stage companies.
To that end, understand your long-term plan and understand your reason for raising external investment. Once you are convinced that raising angel investment is the best way to go for your business, go for it. Always remember everything has its pros and cons. So we are not essentially talking about what is good or bad. Rather we are talking about what is the best path for you as a founder and for your business.
Understand the realities of external fundraising. The moment you raise an external investment into your business, your business is going to be a very different business. With investment comes responsibilities and accountability.
It is useful to learn about how external investment changes businesses. You can speak with founders who have already raised some external investment or read about it on the internet. But preparing your expectation is useful nonetheless.
Never raise money for the sake of money alone. Angel investors usually invest in early-stage companies because they expect your business to grow someday and provide them a good return in the process. To that end, for most startups, angel rounds are just the beginning. The real journey has not started yet.
To that end, you need more than money as an early-stage business. You need investors who will not only give you money but will also add value, insight, validation, connection, domain knowledge, and so on.
It is also critical that your values align with the values of your investor. If you and your investors are operating from opposite poles, it is likely to create challenges in the future.
Understand legal aspects of fundraising. Most founders start with limited legal knowledge. There are exceptions but legal and similar procedural requirements bore founders easily. But it is imperative that you understand the legal intricacies of fundraising. It is appropriate to consult a lawyer when finally deciding to go for raising investment.
Disputes between investors and founders are common. More so in early-stage ecosystems like Dhaka where fundraising and company structuring are not common knowledge as yet.
Many first-time founders often operate from a relative naivety that they will figure things out later. Never make that mistake. Have a proper understanding and consult professionals. Never leave anything for later or undocumented.
Into the world of angel investing. You will meet different types of angel investors in your fundraising effort. It is useful to have an understanding of how angel investing works and the angel investing ecosystem of your region.
For example, some investors invest alone and prefer to remain anonymous. Others invest in syndicates and groups. Each has its benefits and disadvantages.
We have Bangladesh Angels Network in Dhaka that facilitates angel investment for both angels and founders. Going with these networks and syndicates allow you to connect with a large number of investors at once and also have their downsides in lengthy processes and so on. There are also different types of investment tools such as priced rounds where you agree on a valuation and terms. It usually takes longer to close these rounds. And then there are SAFE and similar tools which take a much shorter time to close.
Invest time in fundraising. There are now organizations that help startups in raising investment in Dhaka. It is good. Fundraising is difficult and expert help is useful. But the best approach is always doing it yourself. Don’t outsource your fundraising effort, particularly searching investors and figuring out who to raise money from, etc. There are aspects of fundraising such as legal and due diligence that you will need help with, searching investors and connecting with them is not one of them.
Understand your needs. As you plan to start your search for angel investors, understand what you need, the challenges you are looking to address through raising an external investment — whether you are looking for expertise, money, network, or all of it. Fundraising takes time — usually 6 months or longer. It is better to prepare.
Put your house in order. Have all the details of your business ready. Make sure you have answers for all potential questions from an investor. Create a data room or a dedicated online destination such as Google Drive or Dropbox for all your business-related documents such as pitch deck, data, forecast, team details, legal information, and any other relevant information and create a shareable link so that you can share it with a potential investor whenever they ask for it.
Ask yourself whether you would invest in your own business were you the investor, discuss with people who have experience of raising investment, and prepare.
It is better to have an understanding of what you are ready to offer, the potential valuation you want to seek, etc, so that you could better communicate with investors.
People you already know. Dhaka’s startup ecosystem is close-knit in nature. It is a small community. Most active investors and founders know each other. Try to explore your network, ask for introductions, and reach out through your network.
Use proxies. One of the common ways to find out who are the active investors in any ecosystem is following the funding news. If you skim through the first six months of funding news in Dhaka, you can find them all in FS, you will find the names of a significant percentage of the active angel and VC investors in Dhaka.
Some angels prefer not to be disclosed. In those instances, reach out to the founders who raised investment and request help. People are often more willing to help others than we assume. Platforms like Crunchbase, AngelList are also great sources of potential investors.
Communities. Bangladesh Angels Network has been doing excellent work in the space. The platform has facilitated a series of angel investments in the past and has built a growing network of angel investors who are interested in the Bangladesh market. Reach out to them. Attend their events and pitch sessions.
Apart from that, there are local events, incubators, and accelerator programs that could help to network with potential angel investors. Getting into incubator and accelerator programs such as BYLC Ventures, Accelerating Asia are also useful ways to learn about fundraising as well as connecting with investors.
Social media. Linkedin has become a great place to find potential angel investors and network with them. Many founders told us that they have deliberately invested in creating a presence on LinkedIn around their fundraising needs and connecting with investors and it has been very useful for them.
Make a comprehensive list and due diligence. Using all the options mentioned above, create a comprehensive list of potential angel investors. Once you have the list, go through it, research each name, learn about them, and then finally divide the list into a couple of segments such as Option 1, Option 2, etc. Then start reaching out to people in your first list. If you could manage introductions, go for it. If not, reach out directly. Don’t ask for money right away. State your purpose but also state you want to share about your business and learn about the person and his work. That regardless of how a meeting ends, you would be happy to meet and share about your company.
Raising investment is time-consuming. It will always take more than what you originally planned for. If you want to close your fundraising within a certain time frame, start early.
Rejections are inevitable when you are asking other people for their money. A majority of the founders we spoke with told us that rejections are common in the process of fundraising. Many go through 20-50 rejections before they find the right ones. While someone is rejecting you, it is usually not a rejection of you as a business or person, rather it is about timing, probably they are not ready to invest in a business like yours at the time you are seeking their investment. So don’t take rejections personally.
Make sure your business is investible.
Y Combinator has an excellent startup fundraising guide that covers the minutiae of fundraising. Find it here.
There are excellent books on startup investing and fundraising. Venture Deals by Brad Feld and Jason Mendelson is an excellent one to start. Secrets of Sand Hill Road: Venture Capital and How to Get It by Scott Kupor is also an excellent read.
Ostad founders share their process of finding angel investors and finally raising a pre-seed round in this interview with Future Startup. A good directional read.
Waseem Alim of Chaldal shares his take on fundraising here.
Ravid Chowdhury of RC Ventures shares his take on startup funding here.
We previously spoke with several other angel investors on how they invest and what they look for in a startup before investing. Find them here.