I often get the question from entrepreneurs looking to raise their first
round of investments – Where do I start? The standard boilerplate
response is to go to the 3F’s – Friends, Family and Fools.

The reason is that when you are an unproven commodity, the only people who
would be willing to risk their money with you would be people who know
you the best. They invest upon you because they trust your ability to
execute the vision that you are painting.

While friends and family know you and invest on the basis of that
knowledge; there are those who invest just because they are highly
enamoured by the concept being pursued. Such people are rereferred to as
fools because they are acting purely on gut instinct.

PURSUING YOUR FIRST-ROUND OF FUNDING

There is a fourth category of people that you can reach out to which is
often not mentioned – Ex-bosses. (That is assuming you had a good
relationship with them.) The people you worked for know you the best
(from a professional perspective). They understand your capabilities
more than any family member ever could. Therefore, it is highly advised
that you reach out to the VPs that you worked with and ask for their
support. It would further give future investors more confidence to come
on-board and be a part of your journey.

The other reason to not approach outside investors immediately is, if
the sum that you are looking for is less than 50 Lacs, investors do not
show immediate interest because it would take a while before you get to
a scale where subsequent rounds of funding can come in and provide them
exits.

Once you have a certain degree of proof of the business model and the
ability to sell, you can start approaching angel investors. Typically,
angel investors do not invest alone. They invest in a group, which is
led by one of the angels. The lead angel is usually someone who
understands the industry and has relevant connections that can be useful
for the company. They mentor and guide the company on behalf of the
others and represent their interests as well.

Raising an angel round comes down to being able to bring this group of
angels together. Further, if the lead is already convinced, convincing
the rest of the investors becomes slightly easier.

Begin by identifying those who can lead an angel round into your
company. Find those who are respected in your field and believe in the
product or the company enough to invest in the venture.

Always ask for references –  Anyone who has reached any level of
accomplishment and has the ability to make any investment would know
several others who can do the same for you. This is part of the process
of building out a group of angels who bring together the money that you
seek to raise.Have a great idea? Pitch it to grab your first round of funding. (Image Source: inc42.com)

Most angels make investments between 10 Lacs to 25 Lacs on a company; irrespective of whether they are a small angel or Ratan Tata. Hence an Rs. 2 Crore angel round usually includes 8 to 15 angels if not more.

One of the greatest talents that any entrepreneur needs to have at this
early stage is to bring together this group of angels. It requires
constant networking and pitching to a wide range of people.

An angel round should normally last you for a duration of 18 months.
Thereafter, you need to start approaching Venture Funds that have a
capacity to make larger investments into your company.

Venture Funds require more data and would need a whole different
approach to fundraising.