Angel Investing – An Overview

As business lovers we wish that startup lessons could be provided in any educational institution, but sadly, we aren’t lucky enough. Think of the most crucial, nerve-racking ordeal of startups in India. A major stumbling block for many entrepreneurial newcomers, before they attract the first bunch of customers and try their hands at a range of publicity stunts, is generally generating enough money to roll out preliminary operations such as market research and product development.

Many business enthusiasts are gifted with superb business ideas, but, the most common barriers that so often block them from realizing their dreams are more than often centred around finance.  A good dose of investment can inject life into a startup, and alter the entire business landscape of a community, with new talents coming to the surface and providing a boost to the economy.

Entrepreneurship in India was in need of rejuvenation, considering the sluggish economic growth, worn-out business ideas and drained resources. The business community stagnated, and needed to be revitalized.  Indian Prime Minister Narendra Modi won last year's general elections on a promise to reform and revive the economy and attract much-needed investment.  One of the solutions that has been adopted to boost entrepreneurship is Angel Investing.  The Indian startup ecosystem is currently buzzing and optimism is growing.

Today, angel investment is a popular source of funding for startups, and has leveraged the Indian business community. The budding startup sector, through angel investors in India, receives abundant support both financially and technically.

So far, it is pretty clear that angel investing has been encouraged by startups who have initiated the approach and support offered by angel Investment groups, Incubators and accelerators. Disillusioned by the financial institutions and other borrowing mechanisms, angel investors have come to the rescue of startup accelerators in India. But I hear you say, “what exactly is angel Investing?”  If investors are giving money for entrepreneurial development in India, what are they receiving in return?  Is Angel Investing a viable soluion to stimulate a large section of the Indian business sector? Let’s go through a few points and find out.

 

Who Are Angel Investors?

Angel Investors truly are the angels, as they help those who are in desperate need of investment and possess a mind full of vibrant business ideas. Business Angels take the highest risk of any other investor and fund their investment out of their own pocket. They are the ones, who shell out a lump sum but in exchange for excellent benefits and a higher share percentage.  All of this is done in the early stages before the venture capatalists step in.

These investors invest a big chunk of money and expertise at a blossoming stage of a startup company, expecting an equity ownership interest in return. The trend of angel Investing in India is already on the roll and has been widely received and welcomed by government and businesses. The potential of receiving exponential returns ion investment has further encouraged angels to invest in startups.  For those who are fortunate enough to receive investment, a long-drawn out saga, and unachievable dream can quickly turn into a spectacular reality.

 

The Quantum of Investment

There is no specified monetary limit for securing and agreeing a deal between angels and entrepreneurs. Investors can earmark any amount depending upon the nature of the business, scale of operations and the size of their revenue reserve.  The amount is  dependant on the business spending needs.

 

What Angel Investors Must Look For?

Throwing the rule book out of the window and adopting a blind approach is risky, and will surely end negatively.  Like any business venture, angel Investors have to be cautious, and carry out due diligence before they hand over their wallets.

Angel Investors often lay out their hard-earned money to inexperienced individuals with colourful dreams of exponentially scaling their business to an expectant global audience. The business world is full of uncertainties and thus, they do not rely on hearsay. Startups! Do not expect a simplistic victory here. Angel investors do invest in people and passion, but you must possess a broader and well researched vision about your business aspirations and goals.

Know what you are looking for in an investment opportunity:

Before providing capital to startups, angels should carry out due dillingence and carefully evaluate the offer on hand, and determine how serious the startups are about their idea.  Do they have the passion, determination, conviction and the ability to execute the plan and hustle during times of difficulty and uncertainty?

Here are a few questions you should ask yourself

  • Have they targeted the right market and audience? 
  • Do you have the knowledge, skills, experience and connections to support them in this market?
  • Is this business genuinely needed?  Is it a solution to a genuine problem?  Will people actually pay for it  and help you secure a return on your investment?
  • Is their sales evaluation realistic or delusional?  Can you clearly determine the probability of success.  The idea might be appealing, but how likely is it to succeed?
  • Have they meticulously planned their operations, finances and money matters?  What is the roadmap to success and failure?  Yes businesses do fail, so how have they planned for it.  A dearth of planning suggests lack of gravity and professionalism.  Do you have the time and capacity to be both an investor and a mentor?
  • Does the proposed business idea and process bear viability and is it within the bounds of realism.
  • Is the valuation of the business realistic?  Don’t get caught up in the sentiment.  Sentiment won’t pay your bills.  Nobody has time for sentiment, especially in business.
  • Have they been honest about their legal and financial issues that are in the past or current?  Are you about to inherit some unplanned baggage?  Be certain and hire a third party agency to carry out a health check on the business and the business owners..

 

The Time That Goes

Multiplying the funds was never easy.  Like any business or negotiation process, angel investing is a time-consuming process.  Depending on your niche, suitable investors can be difficult to find.  And if you are an investor the same can be said about the startups that are available to invest in. This is because a lot of startups don’t put themselves out there.  You must be visible and contactable.  Startups have to do the rounds to generate funds.  You may be subjected to lengthy meetings, then more meetings and then more and more meetings.  But how much do you want it, and what does your business idea mean to you?

 

This is Where You Can Find Your Investor

A referral to angel investors through a family relative or a close friend is the most suitable method of finding angel investors. However, fellow entrepreneurs, marketing friends, lawyers and accountants, forums, investment bankers and social sites like LinkedIn and now Ten Innovte can furnish you with all the essential information that you need to understand angel investment.

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