The first batch of my Entrepreneurship Masterclass came to a close with two of the most credible angel investors in the startup ecosystem of Pakistan – Abbas Yousafzai (Co-founder & Head of Data Engineering, Conrad Labs) & Yasser Bashir (Founder & CEO, Arbisoft) who spoke to the entrepreneurs in an exclusive session on raising investments.
The young entrepreneurs took away some great pieces of advice from the interactive discussion. Below are the key takeaways for all startup founders who are looking forward to raising investment:
What’s the criteria of investors before the put their money into a startup?
The founder and his why. More than the viability of the product & the business model, investors invest in the founder himself. The underlying factor that they look at is his/her “why”; what is the founder driven by? Does he himself believe in the product he has made? Does he have the conviction and resilience to bounce back up when failure hits or market dynamics change?
Second, does the entrepreneur really want to solve a problem? Does he have the ‘selflessness’ and ‘empathy’ to solve it? Is he just about raising money?
Another thing that investors look for in a founder is his domain knowledge. Does he know deeply about the industry he wants to operate in or is it just a thought-less decision? Has he validated, verified the problem he is trying to solve? Does he know the numbers?
What’s the difference between a VC (Venture Capitalist) & an Angel Investor?
An angel investor invests his own money into a startup as opposed to a venture capitalist who himself is a ‘Managing Partner’ and raises funds from people who have money and are willing to invest, called ‘Limited Partners’, at a commitment that he will return the money back after a certain promised period of time along with interest on profits. Once the ‘fund’ is collected it is mutually decided between a VC and the fund’s LPs about its usage such as how many startups will they be investing in and in which verticals.
Another difference is that a VC is very actively involved in startup’s decision making and asks for financial statements on a weekly and quarterly basis, unlike an angel investor who doesn’t have a lot of margin to absorb the losses but at the same time give more freedom to the founders to make decisions. The propensity of pulling out the finances back when the company is going through losses is very high in the case of a VC as opposed to an angel investor.
How does a VC make money?
Venture Capital is like any other investment opportunity. A venture capitalist makes money in the form of ‘management fee’ for managing the fund and by charging the startup interest on the profits it makes, called ‘carried interest’.
Do investors have any preference towards a particular vertical?
An investor preferably invests in a startup where he or she can add value, and also at the same time learn from it. If the startup vertical is the same as his, then for an investor every failure is a good learning & at the same time he will also be able to help effectively in the solution.
What does it take to be an investor?
To be an investor you should be in a high risk mindset. You should be ready that, for example, if you invest in 15 startups only one will grow and pay for the other 14 that will fail. If you don’t have the capacity to absorb this, then never become an investor. You should be ready for 6 to 8 out of 10 startups that you invest in, to fail.