Who is an Angel Investor? Top Angel Investors in India
Angel Investors: An Overview
When you hear the word angel fund or angel investors, it looks like an idealistic term in the stock market. With a mix and match of opinions of what it represents, angel funds and such investors are a niche topic of discussion. An Angel fund generally refers to a pool of money that has been created by high-net-worth individuals or companies known as angel investors. As defined by the Securities and Exchange Board of India, angel funds are sub-categories of venture capital funds that are under the category-I of Alternative Investment Funds that raise funds from angel investors and invest in accordance with the rules.
Angel investments are typically the earliest equity investments that are made in start-up companies. These are commonly bound together in the investor bandwidth. These networks are often based on the region, the industry of the investor, or any such academic affiliation. Angel investors are often former entrepreneurs themselves and typically enjoy working with companies at the earliest stages of their formation. Let us understand who angel investors are and how one can become an angel investor in India with our further discussion.
Origins of Angel Investors
Angel investing began when affluent investors gave firms financing for stock. Charles Dickens used the phrase angels "Martin Chuzzlewit" in 1828.
During this time, such investments were undertaken by affluent people ready to risk failure for enormous potential rewards.
Who is an Angel Investor?
An angel investor is also known to be a business usually in exchange for convertible debt or ownership equity. Also, nowadays a small but increasing number of investors invest online through equity crowdfunding or organize themselves as angel groups or angel networks to share the research and pool the invested capital and also provide advice to their portfolio companies.
These effective angels help entrepreneurs to shape business models. Create business plans and connect to the resources without stepping into a controlling or operational role. Often these angels are entrepreneurs who have already successfully built their companies or have spent a part of their career in coaching young companies.
Angel investors often are a part of the business world and are commonly found in the following professions:
- Crowdfunding websites allow users to invest modest amounts of money in exchange for a small portion of any future profits, should the business be successful.
- Business professionals, as well as those in the legal, medical, accounting, and financial sectors.
- C-level business leaders who have worked their way up and are aware of what it takes to manage a successful firm.
- Successful entrepreneurs and small business owners who have already started profitable businesses are able to spot startups with promising futures.
- Investors who finance small enterprises or fund micro-finance institutions
Who Can Be an Angel Investor?
Angel investors invest in high-potential startups. Most won't have the funds or knowledge to invest alone. Angel investors may boost their portfolios and company success by working together.
Who are angels? Angel investors are anybody. All you need is a passion for how you spend your time and money. In the U.S., accredited investors must meet specific rules before holding assets on behalf of others (for example, if someone puts up $20 million in shares).
How Does Angel Investing Work?
Angel investors prefer to get engaged at the "seed" or "angel" fundraising stage of a business. This could imply that the angel invests when the business is still only an idea or that it happens after a firm has already started operating. After the initial round of investment, which typically comes from the founders themselves, their friends and family, or from bank financing, angel investors can occasionally enter the picture. Initial startup finance is frequently insufficient, and founders frequently use this money to launch their products or service.
After the initial finance has been secured, but often before a business needs a larger investment from a venture capital firm, angel investors enter the picture. At a crucial juncture in a company's growth, when initial funding is on the verge of drying up and before venture capital firms are interested in teaming up with a potential startup, their investment is necessary.
The actual investment procedure looks like this:
- Word-of-mouth, business, and industry seminars, conventions, referrals from professional investment organizations, internet business forums, or regional events like the chamber of commerce meetings are all ways that angel investors come in contact with new, expanding businesses.
- If both parties are interested, the angel investor will interview the founders of the startup company, look over business investment documents, and assess the sector it is aiming for.
- The terms of the investment, dividends or stock percentages, investor rights, and safeguards, governance and control criteria, and a potential exit route for the angel investor are all spelled out in a term sheet or contract after a verbal agreement between the parties is in place.
- The deal is formally closed and the investment funds are released for the company's use once the contract is finalized and a real legal agreement is prepared and signed.
- Although contributions differ in size, funding levels can range from $5,000 to $150,000. Some syndicates of angel investors might offer up to $1 million in capital for particular businesses.
- Typically, angel investors don't own more than 25% of a company. Veteran angel investors are aware that the creators of the firm should possess the largest part of it since they will then have the most incentive to make it succeed.
Sources of Funding
Investing as an angel investor means investing in a company. They may be friends, family, or professional investors. Angel investors can provide funding for early-stage companies and may be a good source of funding for your business if they believe in your idea and want to help you succeed.
Angel investors may also provide advice and guidance as the company develops its strategy.
Sources of Angel Investing
Angel investing can be learned in several ways. These include:
- Angel investor networks, clubs, and conferences. These provide a place for angels to meet and connect, as well as with potential investments.
- Angel investor websites that host company profiles or allow you to search them by category or investment amount (such as FundersClub).
- Angel investor newsletters provide information on upcoming deals and opportunities in various industries. They often also offer tips on how to spot a good deal from a bad one, how much money an entrepreneur needs for their business idea, etc., making them good sources of knowledge for first-time new investors.
What Percentage Do Angel Investors Want?
Although most want a lot, Angel investors don't have a predetermined stake. They may take 20% of your company. A 25% angel investor is also fantastic.
These investors don't only invest money; they also affect operations and direction. If you want them on board, offer them influence over important decisions like funding or hiring new personnel or partners.
How to convince? Meet their standards (this includes terms like equity percentages). Once done, negotiate to get what matters most and build connections that may be useful later, especially when cash is limited.
Pros and Cons of An Angel Investor
Advantages of an Angel Investor:
- Expert Investors: Angel investors have a large sectoral knowledge. They might be business owners that have experience in your industry and can offer guidance and coaching to help you thrive.
- Large Set of Connections: Angel investors could be well-connected in the business. They might be able to connect you with new clients, funding options, business partners, and other pertinent people
- Extended Support: Since they own the business, angel investors often only profit if it is profitable. They should be encouraged by their position to contribute as much as they can. Also, adding their names to your business profile can act as leverage to raise the next round of funding, hence the extended support.
- Big bankroll: In the future, if your small firm requires more money, angel investors might make additional contributions. Even if a company is unable to secure finance from a bank or other financial institution, angel investors may nonetheless invest.
Disadvantages of Angel Investors:
- Possibly being rejected: Even if you believe your business has exceptional growth potential or a revolutionary product, angel investors may nonetheless turn down your pitch. After all, funding a business carries some risk.
- Shared Authority: You might end yourself selling more of the business than you had intended to since some angel investors might demand a significant ownership stake. This shall dilute your ownership and may cause hindrance in further fund-raising for your business.
- Possibly Ineffective: Make sure an angel investor is a good fit by conducting due diligence on them. Request references from the investor, and if you can, speak with previous startups that have gotten funding from him. Instead of choosing an angel investor who is only interested in getting their money back, you can select one who would work with you to expand your firm and contribute to its success.
- Effort and Time: Be prepared for a possibly drawn-out, time-consuming procedure since you'll likely need to produce a tonne of paperwork, including income statements and estimates, balance sheets, cash flow statements, and bank statements.
How to Find an Angel Investor
Finding an angel investor is not that easy. You will have to look for someone who matches your background and experience, understands your industry, and is interested in investing in your company. Let's see some of the steps you can follow:
- Find a list of investors from online or offline resources.
- Look for investors that match your background and experience level. If you are new in the startup world, seek help from experienced angels like Tim Draper or Yuri Milner, who had earlier backed successful startups like Hotmail, Facebook, and Spotify.
- Find out if any investor has already shown interest in similar ventures as yours so as not to waste time with them while they may never be interested!
List of Top 10 Angel Investors in India
|Name||Major Domains of Investment||Past Investments|
|Rajan Anandan: Managing Director, Sequoia Capital||Big data, Analytics, Online health care, Mobile commerce, Consumer internet, Digital media||Instamojo, Travelkhana, Explara, Social Cops, Letsventure, LBB, PopXo|
|Girish Mathrubootham: CEO, FreshWorks||SAAS, customer support, Enterprise Software, Consumer Internet, Education, Content & Listing Platforms||Whatfix, The Ken, Innov8, GoBumpr and iService, Unacademy, Factor Daily, Inkmonk, Zarget|
Sanjay Mehta: Founder, MAIA Intelligence
|Clean technology, Enterprise Software, Consumer Internet and Healthcare||Loginext, Lawrato, OYO, Box8, Orange Scape, Fab Alley|
|Gokul Rajaram: Ex-Product Director, Facebook||Saas, Internet Services, Analytics & AI, Media & Entertainment||LivSpace, Edu Fire, Daily.co, Buffer, Loop, Flipora, Whatfix|
Ratan Tata: Ex-Chairman, Tata Industries
|Technology Sector, E-commerce, Affiliate Sectors, etc.||Xiaomi, Urban Ladder NestAway, One97 Communication, Snapdeal, UrbanClap, YourStory, Tracxn, Abra, niki.ai, Moglix, Teabox, ClimaCell Inc., GOQii, Lybrate, Crayon Data, MadRat Games, Cashkaro|
Amit Somani: Managing Partner, Prime Venture Partners
|Travel Industry, Consumer Internet|
Qikwell Technologies India, Advises Phone Warrior Inc, Ixigo.com,
HotelTravel.com, and MindTickle.
Anupam Mittal: Founder & CEO, People Group
|Technology, Consumer Internet, Mobile, Healthcare and SaaS|
HackerEarth, Drivezy, Kae Capital, Letsventure, Ola Cabs, Truebil, myHQ
Anand Chandrasekaran: Director, Facebook
|Consumer internet, B2c and p2p Marketplaces, Fintech and SaaS||LetsVenture, Fynd, InnerChef, Instalively, NoBroker, Wooplr|
Sandeep Tandon: Co-founder, FreeCharge
|Internet Services, FinTech, Healthcare, Education||Razorpay, Inc42, Tablehero, Unacademy, Fabelio, Remitware Payments, Pocket Aces, Ziploan|
|Naveen Tewari: Founder, InMobi||Coworking Spaces, Online Games, Technology|
Wooplr, Springboard, Razorpay, LetsVenture, Indus OS, Mettl, Zimmber,
ZAPR, Mango Games.
The most appealing angel investments are typically startups and early-stage companies that can be scaled for growth. This implies that your company should be able to rapidly increase sales over the coming years without seeing a significant increase in fixed expenditures and expenses. Angel investors might be a wise choice if you're willing to give up ownership and possibly management of your business and believe you'd benefit from having an experienced investor on board.
Angel Investors vs. Venture Capitalists
Venture capitalists and angel investors differ in the way they invest. While both may be high net worth individuals, a venture capitalist is a professional investor, while an angel investor is typically not. In general, angel investors invest in early-stage companies, while venture capitalists invest in later-stage companies.
Angel investors are typically less risk averse than VCs and hence more willing to take risks on new concepts or ideas which have not been tested yet but have the potential for success. We've seen some examples of this where angels have invested early on into startups that became big names like Flipkart (Sachin Bansal) & Snapdeal (Kunal Bahl).
How can an angel investor generate income?
A convertible debt instrument is a loan that can be converted into equity at a later time, or equity (stock in the firm), which is what is typically exchanged for funds from angel investors. For instance, a company with a $1 million market value might sell an angel investor or an angel group 20% of its equity, worth $200,000.
Can anyone be an angel investor?
In conclusion, anyone with the means and flexibility to do so can become an angel investor. Being an angel investor normally needs a minimum commitment of $10,000, but it is not uncommon to invest hundreds of thousands of dollars, particularly when numerous rounds of fundraising are required.
Are angel investors a good idea?
Despite the risk involved and the gratification that comes from supporting a startup, angel investing may be rewarding. The majority, if not all, of the products, offered come from partners who pay for such business. This could affect the benefits that a company writes about itself, as well as where and how they appear on a page.
How many angel investors are there in India?
There are more than 1,000 angel investors in India. These individuals provide early-stage capital to startups and high-growth companies in exchange for equity. The number of angel investors had increased by over 50 percent since 2017, when just 765 were counted.
How do angel investors get funding?
Angel investors are individuals who provide funding for startups in exchange for equity. Angel investors typically invest their money in startups but can also solicit investments from family members and friends.
How are angel investors paid back?
In a typical angel investment, the investor will be paid back a portion of the company's profits over time, or they may be given a percentage of equity in the company. The terms of their investment will be determined by what kind of investor they are and how much money they're willing to put into the company.