Angel investorsare those who want to make investments in firms at early stages. These riskier investments often make up at most 10% of an angel investor’s overall portfolio. Mostangel investorshave extra money and seek investment opportunities that yield better returns than conventional investment alternatives.
Over a decade ago, there were only a few individual investors in India. Today, over 26,500 active members of this community are comprised of wealthy individuals and businesses.
Who Are Angel Investors?
High-net-worth individuals who support small companies or entrepreneurs financially are called “angel investors”(also known as “private investors,” “seed investors,” or “angel funders”). These individuals often do so in exchange for owning stock in the startup or entrepreneur’s business.
Angel investorsare frequently found among an entrepreneur’s friends and family. Angel investors may contribute one-time capital to assist a firm in getting off the ground or continue funding to help the business get through its challenging early phases.
What Is the Role of an Angel Investor?
In exchange for convertible debt or equity ownership, angel investors generally fund businesses in their early phases. Manyangel investorsinvest in businesses in similar industries to their areas of expertise. By offering strategic suggestions, they contribute to accelerating the growth of the firms. They participate actively as shareholders in the company’s annual general meetings since they frequently have significant stock ownership.
Requirements for Becoming an Angel Investor
Indian investors must fulfil one of the following criteria to be considered qualified angel investors:
1. An Individual Investor
An individual investor who has at least 2 crores in net tangible assets, excluding the value of the investor’s primary residence, and who also has at least one of the following qualifications:
- has early-stage investment experience
- experience as a serial entrepreneur
- experience as a senior management professional with at least ten years of experience
2. A Corporate Body
A corporate body with a minimum net worth of Rs 10 crore qualifies as an angel investor.
3. A Venture Capital Fund
A VCF registered under the SEBI (Venture Capital Funds) Regulations, 1996, or an AIF (Alternative Investment Fund) registered under the SEBI AIF Regulations, 2012.
What Is the Process of Angel Investing?
With angel investing, a subset of private equity investing, high-net-worth investors try to increase profits by taking on more risk than investments in the open markets.
Angel investorsgenerally provide extremely early funding for new businesses. These companies frequently merely have a strong business concept, have finished a beta test, or have developed a minimally viable product; they may not even have customers or make any money. Their money is usually used for research and development, to assist businesses in developing their product and service offerings, to create business strategies, or to determine their target markets.
Venture capitalists frequently come into the picture at this phase to provide the next investment round as the firm expands and scales its manufacturing, operations, and marketing.
There is no prescribed investment amount or size to qualify as an angel investor. The price could range between 25 lakhs and 40 crores. Simply put, it depends on the circ*mstances. In exchange for the cash investment, the company often provides the angel investor with a certain number of shares or the option to purchase additional shares in the future.
Depending on the startup’s funding requirements, an angel investor could help it with a one-time investment or continuing monetary contributions.
Steps to Becoming an Angel Investor
Here are the steps to becoming an angel investor:
Step 1: Ensure that You Adhere to Accredited Investor Requirements
A company or organisation must have a net worth of 25 crores in order to qualify as an accredited investor if it wants to participate in publicly traded startups.
Similarly, a person must maintain a yearly gross of 50 lakh and a liquid net worth of at least 5 crores to qualify as an accredited investor. Why is this crucial? Most equity fundraising efforts target accredited investors since they are exempt from certain securities filing requirements with the central and state securities authorities.
Step 2: Angel Investment Risks
As with every investment, angel investing has certain risks and challenges that must be examined and understood for a smooth investment process. Analyze your risk tolerance to determine whether it aligns with the risks associated with angel investing as a potential Indian investor.
Step 3: Educate Yourself
The leading Indian angel network incubators and angel groups provide investor masterclasses, workshops, and seminars. It helps prospectiveangel investorslearn how businesses are evaluated, the process for angel investing and exiting, how to find firms with growth potential, etc.
Step 4: Take Advice from Experienced Angels
To learn more about the industry, discuss it with current investors or experienced angels, and network with them to gain a clear idea of what angel investing entails. Additionally, this helps you expand your prospective angel investment network.
Step 5: Incubators and Angel Networks
To avoid typical hazards and guarantee a successful startup investing journey, you may benefit from the combined expertise of some of the top entrepreneurs, investment professionals, and currentangel investorsin India by joining Indian angel network incubators, angel funds, and clubs.
Step 6: Initial Investment Tactics
You must establish a few early investing plans, such as your interest in particular businesses, sectors, or projects. What are your ideal investment amount and time frame? Would you rather make investments in a big sum or over time?
Step 7: Opportunities for Investing
Go where the startups are! For example, you may get in touch with Indian angel network incubators who can assist with portfolio management and provide good exit prospects for larger returns. It will also help with selecting the best collection of sector-agnostic investments for early-stage firms.
Step 8: Initial Investment
You may make a move toward making your first investment if you have gathered sufficient knowledge and information about the fundamentals and are confident in your ability to choose the correct deals.
Angel Investors Come in a Variety of Shapes
The various types of angel investors are:
- Family and friends:This is the most typical source of startup funding, and it’s frequently the first place they look.
- Wealthy Individuals: Depending on the firm, wealthy people are frequently willing to contribute a large sum of money in return for stock in a company. Examples include physicians, engineers, and successful business professionals.
- Groups:a lot of angel investors are slowly beginning to work together as a unit, and this considerably raises the possibility of a larger investment.
- Crowdfunding: This method of financing is gaining popularity. It enables large groups of individuals to contribute modest quantities of money to assist the business in reaching a certain financing objective.
What Are the Advantages of Angel Investors?
The fact that financing through angel investments is far less risky than taking out loans is one of the main benefits of being an angel investor. Investment money, as opposed to loans, is not subject to repayment even if a firm fails.
A new company can gain the following advantages by hiring an angel investor:
- Connections with investment bankers, accountants, and other experts
- Credibility by being linked with the investor
- Understanding of the industry and tactics utilised by comparable businesses
- Mentoring, direction, and insightful information for the startup
- Contacts for potential employees or consumers
FAQs on Angel Investors
How can angel investors generate income?
The most common way an angel investor generates money is through an exit. An exit occurs when an investor decides to stop supporting a startup. Simply put, it indicates that the investor has chosen to transfer his ownership stake in the firm to another entity. It might be a private firm, a common investor, or another person.
Do angel investors invest their money?
Wealthy private investors are known as “angels.” They fund start-up companies in return for equity. Angels employ their net worth instead of venture capital firms, which use an investment fund.
How much of a percentage of profit do angel investors want?
Typically, 20% to 25% of your profit is what angel investors demand.
Can anybody invest as an angel?
High-net-worth individuals forming angel investor clubs support small businesses and entrepreneurs. Anybody fulfilling the criteria for an angel investor can make investments in companies.
Are angel investments risky?
While it is possible to make money as an angel investor, it is risky, and you run the risk of losing everything. Startup failure rates range from 75% to 90%.
Conclusion
Every year, angel investors spend millions of rupees on startups and entrepreneurial projects; they are frequently the first outsiders to give firms the crucial equity they need to get off the ground. Over the last four to five years, there has been a huge surge in angel investors. As a result, it is now one of many firms’ main sources of capital. We hope now you know everything aboutangel investorsand how they work.
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