An angel investor is an individual or a group investing their own money, after ascertaining the potential of the enterprise, often startups, at an early stage.
Angel investors usually have a high net-worth who have the wherewithal to assess the potential of a new enterprise or a startup and invest money when it is still unsuitable for debt-funding, early on in its life-cycle, in exchange for assets like convertible bonds or ownership equity.
They effectively provide seed funding.
Unlike venture capitalists, who seek out high growth rates in a company before investing in it, an angel investor may have motives other than earning returns on investment such as keeping abreast of the developments in the sector the company belongs to, understanding new sectors and mentoring new entrepreneurs. It also helps to generate a large no. of jobs.
Angel Investors in India
There is no regulatory authority governing angel investors in India. Given the need for informal equity funding and entrepreneurship culture in India, there needs to be an improvement in the approach towards angel investment in terms of due diligence and valuation
Some of the active angel investors in terms of the investments made are Indian Angel Network (IAN), Chandigarh Angels, Mumbai Angels, Hyderabad Angels, Native Angel Network, Chennai Angels, Calcutta Angels, (BITS) Spark Angels and CIO Angel Network
Some of the top individual angel investors are Sunil Kalra, Ratan Tata, Binny Bansal, Rajan Anandan, Sanjay Mehta and Kunal Bahl.
The no. of deals have increased by more than 100% from 2000 to 2016.
Sector-wise concentration of angel investing
The online sector seems to attract the highest amount of angel investing followed by Information Technology and mobile value-added services. In India, Bengaluru attracts the maximum no. of angel investment.
Is angel investing Profitable?
Angel investing is a risky affair but the secret to success lies between the amount of money invested and the amount of time invested in studying the future prospects as well as actively taking part in the working of the startups. As per The American Angle, Women investors support women entrepreneurs and there has been a rise in the no. of women investors becoming angels. There is no one path to success in angel investing.
Amount of Investment by angel investors
The amount varies in different rounds of investing. If the business is doing well, the amount of investment usually increases but if it is underperforming to a large extent that angle may exit as well.
Sources of funding
Unlike venture capitalists, who handle the pooled funds from many other investors and arrange them in a carefully managed fund, angel investors often utilize their own money.
Although angel investors frequently act as individuals, the actual source of the cash may, among many other types of entities, be a limited liability corporation (LLC), a firm, a trust, or an investment fund.
Is it risky?
Raising funds from angel investors is less risky as compared to loans as investment amount does not have to be paid back in case the business fails. But sometimes it also leads to partial loss of ownership in a company.