Crash course for startups: the essential role of an Angel Investor

Crash course for startups: the essential role of an Angel Investor

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Recently my Crash Course was featured in the Romanian magazine “Capital”. Below I have prepared the English translation for the article.

 

As an investor I have been dealing with startups in Romania and abroad for a long time. From this point of view, I can say that the local market is more and more dynamic. That’s why I wrote this article, I’m sure entrepreneurs will find it useful. It is written from the perspective of an angel investor and based on my own experience.

What an angel investor is and what it is used for

You probably know that the term angel investor (or business angel) originates from Broadway, where theatrical productions were searching for investors that can help with staging and launching. The concept is operational today in tech startups or areas with a strong technological component. Basically, an angel investor will bring two types of contribution to a company:

funding: usually it’s about tens or hundreds of thousands of dollars (or euros). More massive than the resources initially available to the founder, but smaller than subsequent rounds of funding, through venture capital, investment funds, banks or stock exchanges

mentoring: this component is sometimes neglected, but from my point of view it is the most important. An angel investor that deserves his title will keep in touch with the founder, advising him in various fields, from technologies used to human resources and marketing.

The role of the angel investor is essential for a business growth, he is emerging in the ecosystem immediately after the financing provided by the founder or friends and before the stages in which venture capital or listing on the stock market leads the business to maturity.

 

How to find an angel investor

It is said that everything depends on networking and so it is. But in the high-tech world we live in creating business relations is much easier. I receive pitches mainly through two channels: LinkedIn and the specially designed page I’ve created on Octavianpatrascu.com – Pitch me your idea.

Even on such channels, the old saying that „first impression matters” apply, investors are generally very busy. In the online logic of the world we live in, the first impression is made through a presentation called pitch deck you can find details about it on my website. On the Internet you can find the pitch decks used in the beginning by giants like Facebook or Airbnb. They are a good source of inspiration.

 

What does it mean to begin a startup in Romania

It’s harder than in well-known places, like Silicon Valley or Tel Aviv. But startups like Vector Watch or GeCAD prove that Romania is also a market for such things. You need to consider the following:

– local funding is more difficult to find because people with strong financial resources come in Romania from markets like real estate which do not have a strong startup component

– no one prevents you from looking for sources of funding from outside of Romania, in the globalized world in which we live

– the legislation regarding companies is more complicated in Romania, in other words a company opened in the UK can be more easily configured in the sense of attracting shareholders or capital from investors than one in Romania

– our country has many valuable human resources, which are very important for startups. The corporations that have been operating in our country for many years have created a class of young people with hard skills that are sought after anywhere in the world. As I said, some of these people want to be more than a regular employee, they want to get involved and make a difference.

Remember the last aspect because it is very important. An investor will pay much more attention to a proposal that includes a team with references that started working, than to an idea, be it very good, captive in a PowerPoint.

 

The way things go

The following stages of the relationship between the entrepreneur (founder) and angel investors are valid in Romania and anywhere in the world.

1. First meeting: face to face, email, chat, other ways of digital interaction – like the form I made available on Octavianpatrascu.com.
2. Pitch deck: I’ve already talked about it, I’ll just reiterate that it’s essential.
3. Investor analysis: early business audit, financial projections. I will say more about this later.
4. The investment itself: if this happens, in this step the benefits of the investor are also negotiated (shares in startup, other ways of return of investment).
5. Mentoring: takes place over a long period of time, in a period determined by the moment when the angel investor and the founder agreed that the former will be able to reap its benefits.
6. Venture Capital Funding / Exit / IPO / Acquisition: the business advances to a later stage, where the founder can redeem the investor’s shares, the company can receive a substantial venture capital contribution, it can be listed on the stock exchange or sold to a global business company. Most often, the role of angel investor ceases at this stage.

 

How do angel investors judge you

Every investor has his own rules, you will find very few investors who do not have any rules. in other words, based only on „gut feeling” (intuition). The grid I apply includes four steps:
1. Assessment of opportunity: it depends on the value of the idea in relation to the market, compatibility with our goals and others.
2. SWOT analysis: probably the best known method of evaluation we use, which always brings benefits.
3. Financial projections: related to the nature of the business, from cashflow to market size.
4. Due Diligence: we look closely at that business, based on the data provided by the founder – in the manner of an audit.
I created this grid out of the need to streamline my business decisions. In the beginning, I relied much more on the so-called „gut feeling”, personal impressions. I don’t rule it out now, because I need a certain chemistry with the founder, I like to say that I invest in people, not in ideas. But all this counts only after we have used the most rigorous, solid and safe methods of evaluating a business and we have reached a positive conclusion.

You can find more details about all of this on Octavianpatrascu.com, in the article ”How I decide to invest in a startup”.

 

Who can become an entrepreneur?

Business manuals talk about a whole series of entrepreneurial qualities, from vision and energy, to the ability to take risks. I will offer a different perspective: anyone who wants to become an entrepreneur can do so, but they need experience. For starters, At the beginning I think any young person should work in a company. Employee status will give him a lot of know-how and will teach him how to build relationships. Silicon Valley success stories are full of billionaires under the age of 30 but most of them started their careers very early. Personally, it helped me a lot that I started working during college, in order to become an investor at 34 years old. I know many entrepreneurs who launched their startups at the age of 50. It’s not too late. A successful startup reaches maturity in a decade. You will have all the time in the world to reap the benefits.

 

How can I, Octavian Pătrașcu, or other angel investors help you?

The so-called „tickets” (start-up investments) start in my case from 25,000 dollars (euros). But, as I said, I consider my role as a mentor to be more important than funding. My experience comes from the fact that I have achieved several types of successful exits so far, either as a founder of a company or as a minority investor, to corporations or to individual investors. At TVP Family Office, we have created a team that can support new businesses from many different perspectives, from the financial aspect to marketing, human resources and technological consulting. The specialists I work with are very skilled, if I’ll get involved in your startup they will too.

However, neither for me nor and for other investors, the role of business angel is not a full time job. In the present I am CEO of Key Way Group, the fintech startup I’ve founded two years ago and which has reached 300 employees on several continents. As with other angel investors, my duty is, beyond the initial investment ticker, to participate in informal boards or consultations once every two weeks or monthly.

This degree of involvement is enough for any talented entrepreneur. Being an entrepreneur or founder involves a lot of independence of thought and action. From me – and from other investors in the same category – you will receive neither daily dispositions nor miraculous solutions to all problems. Instead, your talent and energy will make us feel inspired and happy when we can truly contribute to a successful startup.

 

ABOUT THE AUTHOR

At 34 years old, the businessman Octavian Pătrașcu has an experience as an investor of over a decade. After four successful exits, one of which as a minority shareholder in Vector Watch, Pătrașcu is currently involved in Key Way Group (fintech – CEO), TVP Family Office (investments – founder) and Skyline.ai (real estate – proptech investor), Sparking Capital (seed funding – investor). The businessman graduated from ASE (bachelor’s degree – international relations and master’s degree – international business), Law and has a specialization at the European Institute of Management and Finance.

 

10 Interesting Startups in 2020:

 

AirGarage

– aims to improve the parking situation in San Francisco with Internet-of-Things technology, facilitating the rental of vacancies owned by legal entities such as churches. The premises related to smart cities and the fact that parking spaces are a very pressing issue in all big cities are attractive.

Calm

– You can also download it from your iPhone and you can see that it is a very different application compared to others. It deals with sleep and relaxation, through methods and techniques that do not show witchcraft in any case. It reached 36 million downloads.

Robinhood

– one of my fintech models. The digital revolution means that you can invest in anything, anywhere in the world, from conservative markets like gold to cryptocurrencies, with very low minimum deposit limits, compared to pre-technological times.

Patreon

– it started to be used in Romania as well, especially by artists. It offers so-called recurrent crowdfunding, meaning that, unlike older Kickstarter platforms, it is focused on rhythmic financing, with small amounts.

Hackerone

– the increasingly needed cyber security audit platform in the world full of such threats. It connects security researchers (white-hat hackers, in familiar language) with businesses and creates the possibility of rewards in case of vulnerabilities being discovered.

SymphoPay

– short and to the point: it is involved in the integration and extension of banking and POS services under a single application. The data aggregated by SymphoPay is subsequently channeled to personalized marketing campaigns.

Bright Spaces

– Romanian PropTech with relations in the management and leasing of the real estate sector. They have developed a digital platform for the presentation and sale of office buildings. I’m also part of the British Pi Labs accelerator.

Keez

– Romanian start-up that wants to be a local Quick Books. It offers a complete management and accounting package created for SMEs, all happening online, with a minimum of resources from the end user, with an intelligent and adaptable system of notifications and advice from Keez their experts.

Questo

– play & explore. We all learn more easily through play, the people from Questo have developed an urban exploration application that involves the user in looking for clues, solving puzzles and going through a story.

TypingDNA

– behavioral biometric security startup in writing. They identified a special niche in the field of security and made a strong mark by adapting and integrating their technology to any operating system, any kind of keyboard, everything happening passively, in the back, without direct interactions with the end user.

You can follow me on Twitter and LinkedIn!


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