The startup scenario in Bangladesh first came into existence in the early 2010s. This was a time when Bangladesh was seeing steady growth and increased accessibility all around. There are over 1000 startups in Bangladesh as of 2021 and the number is expected to grow as the country and the economy becomes more digitized. But are there enough funding opportunities for these startups? This is where angel investors come in. Though Bangladesh is yet to achieve a healthy investment ecosystem, angel investment has been playing a key role at the micro-level. Now, what is an angel investment and how do startups stand to benefit from it? Read along to find out.
What is angel investment?
Angel investment happens through an angel investor, that is someone with a considerable chunk of wealth who’s willing to invest in the early phase of a startup. While it’s mostly limited to the scope of a single-person investment, there are instances where an investment company acts as an angel investor in startups. The mechanism of angel investment is similar to other forms of investments. Here an angel investor invests a certain lump sum in the startup in exchange for ownership equity.
Angel investor faces a lot of risk in terms of the investment itself. A startup has several phases in its growth trajectory. It starts with an idea which then moves onto an MVP or market viable product. After that comes the growth, expansion, and maturity phase. While most venture investors, banks, and equity firms invest from the growth phase with IPO being exclusive to the maturity phase, the scope of an angel investor is limited up until MVP. The initial investment in the idea itself without any proof of product-market fit increases the investment risk exponentially. As a result, you might have to dish out larger equity for a lower investment.
The data regarding angel investment in Bangladesh might not be enough to give a glimpse into its implication in the startup sector. However, the lower limit of investment can be as low as 0.5 million BDT to upward of several million dollars.
What should you look for in an angel investor?
Now you might be thinking what’s there to look for in an angel investor? They are literally investing money in your startup when it’s nothing more than an idea. Compared with the rate of startup growth in Bangladesh, the chance of scoring an angel investor is slim as it is. However, there are still some aspects to be considered to make sure you make the most out of the deal and your investor. Because there are more to angel investing than giving up equity for cash. Here are our top 4 picks to consider.
Industry knowledge
An angel investor should have sufficient knowledge of the investing industry. Think of angel investors as mentors. Someone who has worked in the industry before knows the ins and outs and things to avoid which you won’t generally have access to in your starting phase. This will help any startup avoid potential pitfalls. A study conducted by Nesta showed that angel investor investing in a known industry sees a better return on their equity.
Seed investment experience
The growth of a startup happens in several phases. Having an angel investor with knowledge of startup growth and management can add insight to the process. Again, angel investors should be thought of like mentors to make the most out of the deal.
Their interest
An experienced angel investor will always be concerned about your product or service rather than the market size or product compatibility. The value proposition should revolve around your product and how it can be made better. As long as they have an interest in your product, you stand to gain from their expert input.
Network size
An angel investor is also the potential doorway to future investments. Even if their network doesn’t get you new investments, you still stand to get industry insights and mentorship from their network which can have a significant impact on the initial learning curve.
Checklist before raising investment
Investable business model
Design the startup model with lucrative investment opportunities. A potential angel investor needs to see the long-term return from the investment to make the first call. Highlight your model and potential returns for the investor to make an impeccable pitch.
Quirks of external investment
Understand the quirks that come with the external investment. Angel investment comes with its accountabilities and responsibilities. Raising external money means there’s an external stakeholder who will be overseeing your procedures. The added audit will change how you operate your business. So, it’s important to be prepared beforehand.
Understand the legal bindings
Speaking from the perspective of Bangladesh, the idea of raising money isn’t that common as of yet. As a result, many first-time founders don’t have the appropriate knowledge of the legal bindings that come with angel investment or any type of investment in general. It’s important to put equal emphasis on the deal as well as the legal bindings for the sake of long-term partnerships.
Is it worth it?
Beyond all the pros and cons of angel investment, the simple fact is that you will give up part ownership of what you founded. While this might seem like nothing, it can still have a long-run implication on how your business is run and its controls.
Before anything else, assess whether you actually need the inflow of money? Is the cost of the money worth what you are giving up? And finally, is it adding significant progress and benefit to your business? You should have a clear answer to these questions before you start looking for an angel investor.
Prepare yourself
Whether it’s an impeccable sales pitch, smart conduct, or a host of numerical analyses to project your success, whatever route you opt for, make sure that you are well prepared. Angel investor looks for founders who know what they are doing, rather than getting things done as they go. You need to show that you have what it takes and you have a vision with your startup to convince them.
How to get angel investment in Bangladesh
The network of angel investors isn’t quite developed in Bangladesh as the concept is still relatively new. However, various established entrepreneurs and tech CEOs of Bangladesh are taking an interest in angel investment. Now the question is, where can you find them?
Your network
Start by reaching out to people you know who might have a connection. The investing community in Bangladesh is quite tight-knit, especially when it comes to individual investors. Finding a personal connection can easily help to propel your idea to a potential investor.
Investor lookout
While using investment finding services isn’t recommended, you can still do your own digging. Keep on the lookout for a quarterly report on new startup investments in Bangladesh. You can easily compile a list of investors from them and start reaching out.
Find communities
The growing startup scene in Bangladesh has made way for many communities. While these communities work as a great place to get market and industry insight, you can also find potential investors from there. Programs like Accelerating Asia and BYLC ventures not only work with investment, they also train you to develop entrepreneurial skills.
Bottom Line
The startup scene in Bangladesh is now busier than ever. While it’s a positive sign in itself, the growth conversion still leaves much to be desired from the sector. Getting angel investment is no easy task but it’s also not something difficult if you know how to go about things. There will be countless rejections with hours after hours spent on failed leads. However, that’s how you write the story of a successful startup, that’s how you get to demonstrate your perseverance and leadership which is so crucial for a startup.
Source: United News of Bangladesh