In mid-2015, Ratan Tata came across a promising young startup that he believed would disrupt the Indian ride-hailing industry.
Today, that company commands a 51% market share, rivalled only by Uber. Wondering which company we’re talking about?
If you guessed Ola, you guessed right.
Angel investors like Ratan Tata swoop in to help thousands of businesses grow exponentially. Let’s shine more light on angel investing: how it works and how you can get your own angel!
Table of Contents
What is Angel Investing?
Angel investing is a form of early-stage investment where High Net Worth Individuals provide funding to startups in exchange for a stake in the company.
Angel investors provide support to startups in very early stages. In addition to funding, they may also provide insights on strategy, lend their expertise and experience to ensure the success of the business.
But what do these angel investors get out of this investment? Here’s a breakdown of how angel investing works.
How Does Angel Investing Work?
An experienced businessman comes across a young, early-stage startup bursting with potential. A brilliant idea that could disrupt the industry – in desperate need of a nudge in the right direction, and funding to keep going.
This experienced businessman decides she wants in. So she approaches the founders of the startup for initial talks… and she likes what she sees. The startup founders are focused, innovative, and motivated!
She decides this would be a solid investment; a great addition to her portfolio, and even a worthwhile hobby. So she offers her financial support and mentorship to this young startup.
She expects an ownership stake in return, guaranteeing her good profits if the business takes off. If the startup founders agree to her terms, everyone wins!
Benefits of Angel Investing for Startups
-
Funding and Financial Assistance
The most obvious benefit to startup founders is, of course, the funding. Angel investing is a risk-free, collateral-free source of capital that usually comes when it is most desperately needed.
Unlike most other sources of finance like bank loans, money from angel investors doesn’t need to be paid back if the business goes belly up. Angel investors can also offer insights into how to better manage finances and increase profitability.
-
Business Expertise
Angel investors are highly experienced, successful entrepreneurs. Their investment in the startup is usually not limited to just finances – they usually also offer strategy guidance and business management tips to inexperienced founders.
This kind of mentorship can sometimes be more valuable than the capital itself – angel investors don’t just give startups money, they teach the founders how to use the money as best as possible.
-
Networking and Connections
As experienced entrepreneurs, angel investors bring a broader network of potential partners, customers, suppliers, and other key stakeholders. These connections can be invaluable in opening doors and creating opportunities for an early-age startup.
-
Credibility and Validation
Securing an investment from a reputable angel investor can lend credibility and validation to the startup’s business model and potential.
It signals to other investors, customers, and stakeholders that an experienced professional believes in the startup’s vision and has confidence in its ability to succeed.
How to Get Angel Investment For Your Startup?
If you’re a fresh-faced startup founder and you think an angel investor is exactly what your business needs, here’s a step-by-step guide to getting one of your own.
Step 1: May The Best Business Plan Win
As seasoned entrepreneurs, angel investors know what a great business plan looks like. So make sure yours is better than that.
If you don’t know where to start, we have a handy guide for you.
Read more: All-in-One Business Plan Guide
Step 2: Know What You Want
Before you approach an investor, you need to know exactly what you want from them. Here’s a checklist of questions that you need to be able to answer before you make your pitch to an investor.
The Pre-Angel Investor Pitch Checklist
Step 3: Networking is King
As the world’s startup hub, there are plenty of events, conferences and networking sessions for you to attend and meet potential investors. Social media like Linkedin or Twitter (or Threads now!) are also powerful networking tools.
Step 4: Incubators and Accelerators
Participate in startup incubators and accelerators that offer mentorship and access to angel investor networks. These programs can provide valuable guidance and exposure to potential investors.
Step 5: The Personal Approach
Most angel investors are open to being contacted personally by startup founders. To get you started, here’s a helpful list of the top startup founders in India. With research, you should be able to find your angel!
Drawbacks of Angel Investing
While angel investing can provide many benefits for startups, it’s important to be aware of the potential disadvantages as well. Here are some of the key drawbacks to consider:
- Loss of Control: By taking on angel investors, you may be giving up a portion of ownership and control over your startup. Angel investors may want a say in major business decisions, and their goals and priorities may not always align with yours.
- Pressure to Perform: Angel investors are looking for a return on their investment, which means there may be pressure to perform and deliver results quickly. This can be challenging for startups that need time to develop their products and build their customer base.
- Reduced Profit Share: Taking on angel investors often means giving up equity in your startup, which can dilute your ownership stake and reduce your share of future profits.
- Limited Resources: Angel investors typically invest smaller amounts of capital than venture capitalists or private equity firms, which means there may be limitations on the resources available to you.
- Legal and Regulatory Requirements: Taking on angel investors may also subject your startup to legal and regulatory requirements, such as the need to file securities disclosures or adhere to investor protection laws.
Financial Management for Startups
Managing a startup has never been easier. With the kind of support available on the market, from angel investors to automated finances, India’s entrepreneurial spirit burns brighter every day.
Fintechs like RazorpayX have full-stack banking solutions tailor-made for startups and startup founders.
- Easy credit: Guaranteed collateral free Credit Cards
- Powerful automation: Taxes, Vendor Payments, Payroll and more.
- Smart Dashboard: Manage inflows and outflows seamlessly
- Forex Services and more
- Integrated access: Access via desktop, mobile or your smartwatch.
Angel Investing & Shark Tank!
The concept of angel investing was popularized by Shark Tank – the TV show where startups present their business ideas to a panel of successful, billionaire entrepreneurs hoping for patronage and funding.
Here are a few of the most popular startups we’ve seen on Shark Tank!
- Birds of Paradyes – A DIY hair dye brand that has taken the country by storm
- Phool.Co – A social enterprise that makes products from flowers that would otherwise be wasted.
- Get-A-Whey – A healthy ice cream brand made with whey protein.
- Hammer Lifestyle – A smart gadget brand that makes monthly sales of Rs. 2 Cr
- Beyond Snack – A plant-based snack made with chickpeas.
FAQs
What is angel investing?
Angel investing is a form of investing where individuals provide funding and support to startups in exchange for equity.
Who are angel investors?
Angel investors are typically high-net-worth individuals who have amassed a significant amount of wealth through their own businesses, investments, or inheritance.
How much do angel investors typically invest?
Angel investments can range from a few thousand dollars up to several hundred thousand dollars, depending on the investor and the startup.
What stage of a startup's development do angel investors typically invest in?
Angel investors often provide funding in the earliest stages of a startup's development, before the startup has generated significant revenue or attracted venture capital.
What is the typical return on investment for angel investors?
The typical return on investment for angel investors can vary widely, depending on the success of the startup and the terms of the investment. Some angel investors may see a return of several times their initial investment, while others may lose their entire investment.
What are the risks of angel investing?
Angel investing carries a significant amount of risk, as startups are inherently risky and many fail. In addition, angel investors may face dilution of their equity stake, loss of control, and other challenges.
How can I find angel investors for my startup?
There are several ways to find angel investors for your startup, including networking, attending pitch events, working with an accelerator or incubator, and leveraging online platforms and networks.
