Angel investment has become a more serious form of finance and the most lucrative asset class among all stable and government-recognized options over the last few decades.
However, people who would not usually hear about angel investing are reading and seeing more conversation, leading them to wonder what all the fuss is about.
What is angel investing?
An angel investor is a person who invests in other people’s businesses. An angel investor is a high-net-worth person who invests in small businesses or entrepreneurs in return for stock in the company. They can provide a one-time investment or continuing financial support to assist the new business in its early stages.
Angel investors also seek a higher return on their investment than they would get by investing in the stock market. However, their interest in startups is typically more than purely financial. They may want to work in a specific industry, mentor a new generation of entrepreneurs, or use their expertise and knowledge in a different way.
What types of people are angel investors?
Angel investors are typically people who have earned the status of “accredited investor,” but this is not necessary. Someone with a net worth of one million dollars or more in assets, or someone who has gained at least Rs. 14000000 in the previous two years, is considered an accredited investor. It’s important to keep in mind, though, that an accredited investor isn’t always an angel investor. Angel investors must have a willingness to fund startups in order to qualify.
How does the investing process work?
Angel investors do not have a fixed sum of capital to invest in a startup company: A few thousand to a few million can be invested. Angel funding has been linked to a higher startup survival rate, according to research. Here’s how angel investments operate in more detail:
- Investors identify investment opportunities. Angel investors and angel groups are most interested in startups in the healthcare, telecommunications, consumer products and services, electronics, and utility sectors. Angel investors frequently need to develop their access and entry points to exciting companies before they can get started, as well as their prestige among entrepreneurs. Deals start to happen after you’ve identified yourself as a good angel, either by more experience or joining an established angel community.
- Screening process. Angel investors go through a screening (or scouting) process to sort out which businesses they want to partner with and which ones they don’t. Angel investors seek higher rates of return (between 25 and 60 per cent) than they would get from conventional investments.
- Startups pitch potential investors. Before making any investment decisions, most angels need to get to know a team and their story thoroughly. A business pitch is a presentation in which entrepreneurs sell their concept to a group of investors by giving a brief description of their business, financial needs, and ultimate goals. Pitches can range from a casual lunch meeting to a PowerPoint presentation in the workplace.
- Investors review the pitch. Angel investors will reassemble after a pitch to go over the presentation materials and other related details. Asking a lot of follow-up questions, predicting any problems, updating the business plan, and modelling are all part of this phase. A structured due diligence report with a checklist of issues to be addressed is often prepared by networked organisations.
- Both parties connect to establish terms. If an offer is looking promising, the angel or angel group manager will contact the entrepreneurs to discuss the terms of the deal. They talk about things like valuation, deal flow, and deal structure at this stage. The ultimate aim is to reach an agreement on a set of terms that all parties can live with, as documented by a term sheet, a non-binding document that specifies the deal’s main components, and a diligence study.
- Filling the round. When the conditions are being worked out, it’s critical to determine how much an investor wants to contribute and whether the company requires any additional funds. The entrepreneur and lead investor join forces in this move, known as deal syndication, to bring in investors as quickly as possible. Since renegotiating the deal at each stage of the investment process is too expensive and time-consuming, there must be agreement among investors and the management team.
- Closing the deal. Before any money can be exchanged, attorneys would need to prepare definitive legal papers in preparation for the closing. Legal counsel will normally put together deal documents in one to two weeks, depending on the size of the transaction. Angel investors will begin providing mentorship, introductions, board counsel, and occasionally board service after everyone has signed off on the agreement in its closing package.