Angel Investors

The funding part is the first milestone that comes to light when planning any start-up idea. An idea can be generated with your resources, like your skills, problem searching or innovative mindset. However, simpler and easier ways allow you to give wings to your business by raising the first funding for your business idea. The motive behind this is generally to get aid in the initial stage in the market or setting up the business output. This investment is known as Angel Investment, and the investor is known as a business angel. 

Who are Angel Investors?

Angel Investors are also known as business angels, private investors, angel funders or seed investors. All these names give a slight impression of the term. Angel Investors or seed investors are individuals or organisations that help you with capital in your start-ups’ initial moments. This is the prime time for the investments as there are high chances for the start-ups to fail, and investing in a business idea at this stage is risky. Generally, the fund seekers are in their pre-production or pre-revenue state, so it is dependent on the idea. The term ‘angel’ originated when Broadway theatre gave its money for proper theatrical expansions. 

How do Angel Investors invest?

Angel Investors commonly use their funds as compared to venture capitalists. However, angel investors don’t need to be individual every time. It can be a business, trust, investment fund, limited liability company, or other entity. Angel funds are the midway between raising funds from friends and family and venture capitalists. Angel Investments are simple as they can be referred to as an exchange for some equity in the company. Angel Investments are not an easy source as they have high ROI or High Returns on Investment. This happens as they are generally the only source of start-up funding at the initial stages, and thus the risk is always high. They look for business ideas that can generate up to 7-10 times of the investments in the first few years. However, some business angels can provide a successful investment portfolio that produces a minimum return of 20-30 per cent. 

Angel Investors in a summary

Now that you have an idea of angel Investors. Few characteristics and facts about angel Investor are:

It is often a high-net-worth organisation or individual who fuels your start-ups at the early stages.

It is still a primary source of funding for several start-ups

Business Angels offer you innovative resources and a work environment  

These investors are particular about their portfolios. They generally invest only a tiny share of their whole as the risk in investing in such companies is at a higher level.

Advantages and Disadvantages of Angel Investors

Advantages

If you have an angel investor on board, it means that you are free from the debt mindset as you don’t have to worry about repaying the business funds raised by several business angels. Angel investors know very well about your ongoing stage of development, and they can be of great help whenever needed as they are also invested in your business. Here are enlisted few advantages business angels can offer:

• Credibility in the association with the investor

• Initial contacts and other resources

• Better Marketplace research

• Improved and effective strategies 

• Better Mentorship

Disadvantages

Business angels provide the initial push and resources for any business to thrive, but some disadvantages are associated with angel investors. Business angels generally demand more considerable equity, and this range can go as high as 40-50%. This results in equity loss, and it becomes a problem while performing further fundraising. 

Furthermore, angel investors often seek a higher return on investment, putting extra pressure on you. Apart from these, there are a few more disadvantages that you may face with angel investors are:

• Loss of control

• Often try to remove you from the driving force of the company

A guide to the angel investors of India

Funds are one of the fundamental needs in everything. A well planned financial investment can make your entrepreneurship journey better with expertise and mentorship these investments often bring with themselves. Angel Investors are different from the venture capitalists who invest pooled money collected from various investors and strategically place them in companies. Specific demographics have shown that India now houses a large share of angel investments in 2020 with a valuation of approximately 70 percent of overall investments.

Conclusion

Every business from small to large scale requires some funding in the initial phase. However, not everyone is willing to take the risk of investing in any company in its initial stage. Angel investors are the people or organisations who initially put their money into your business and help you set up the business with a high return on investments in exchange for the equity. This technique of getting investments is common nowadays, and the demographics of start-ups are proof of that.