As founders of early-stage startups, it's crucial to understand how small angel investments (typically <$5K in the US or Rs. 1 Lac in India) can be immensely impactful on your entrepreneurial journey.
Firstly, it's not the check size that matters; it's the ripple effect it creates. Taking small checks from angel investors often leads to introductions to other investors, resulting in a multiplicative effect, or the "money multiplier" - Colin Gardner.
“The people who write the $1-5 K checks are the most helpful at supporting the founder/s” - Brian Nichols, Hustle Fund’s Angel Squad.
How you can make the most of Angel Investments?
Leverage their Expertise: When you secure small angel checks, you're not just gaining funds but you also gain access to the investor's knowledge, experience, and network (both individual decision-makers and businesses). These angel investors can be a great source of guidance and mentorship, owing to their expertise.
Early Validation: These small investments can serve as a vote of confidence in your venture. They validate your idea/concept, thereby attracting more significant investments.
Network Building: Angel investors often have extensive networks. By nurturing a strong relationship with your small investors, you can tap into their connections which may lead to more substantial opportunities in terms of partnerships, customers, or future funding.
Diversification: Having multiple small angel investors spreads risk. It means that if one investor can't participate in a future round, others can step in. Diversified investor support can help ensure ongoing funding and support.
Valuable Feedback: Your small investors can offer valuable feedback. Listen to their perspectives and use their insights to refine your business strategy. They might see opportunities or risks you haven't considered.
Efficient Resource Allocation: Small investments can be instrumental in managing your startup's early expenses. Use these funds wisely to reach important milestones, which can attract larger investors with greater resources.
The angel investors often work in the tech industry and are keen to help startups grow. As a result, they are an excellent resource for solving problems and making introductions to other companies. Steven Fitzsimmons of Freshpaint perfectly visualizes this point.
The aggregation of investors benefits startups and provides opportunities for investors who would not typically have access. As a result, more people are invested in a startup's success, which can be a significant advantage - Colin Gardner.
Where can you find Angel Investors?
Angel Networks and Platforms: Seek out angel networks and platforms that connect you with potential investors. These platforms can help you discover and engage with a broader range of angel investors who are interested in early-stage startups.
Focus: Seek investors who are comfortable with very early-stage startups. These investors are more likely to understand the challenges and risks associated with nascent ventures and maybe more patient with their investments.
Favorite Investment Instruments of Angel Investors.
Convertible Notes or SAFEs: Angel Investors often use instruments like convertible notes or SAFEs. These are typically easier to set up for smaller investments and can simplify the investment process while offering a potential upside for your investors.
Angel Funds: An Angel fund is a money pool created by HNIs/Angel Investors for investing in startups. Angel funds can accept investments from a maximum of 200 investors. In India, Angel Funds are defined under SEBI (Alternative Investment Funds or AIF) Regulations, 2013 as a Category 1 of Venture Capital Fund, that raises funds from angel investors.
With the advent of SPVs, AngelList, and crowdfunding sites, there is more opportunity for investors to aggregate small checks into one more significant investment.
Most people don't know this, but we launched Vimcal with 1.5 months of runway left and came within days of dying. We prepped one final Hail Mary while also prepping legal docs to shut down. But then, a $5K check saved Vimcal - John Li.
But there's a flip side too.
The flip side of this is managing investors. Small checks + highly involved investors usually end up becoming the most annoying for founders as you scale. That’s why syndicates are there in the first place, collect a bunch of $1-5K checks and the founder doesn’t deal with the management overhead - JT Garwood.
The small angel investments are valuable not just for their capital but for the doors they can open, the knowledge they bring, and the validation they provide. Embrace the support and partnership of your angel investors to propel your early-stage startup toward success.