How to Become an Angel Investor?

In the market, ups and downs are inevitable but not unpredictable. So, when a new product/service is launched by a small business or a startup, an Angel Investor is the one who supports it by investing in their team, ideas, vision and future plans. In the digital world, a surge of startups and new entrepreneurs has led to more and more Angel Investors ready to listen to the pitches of these revolutionary businesses and invest in them. Angel Investing also increases the market and improves the economy of the country. This blog brings you a detailed guide on what Angel Investing is and how you can become an Angel Investor.

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What is an Angel Investor?

An Angel Investor, also known as a seed investor is someone who provides capital for small early-stage start-ups or entrepreneurs, usually in exchange for ownership equity. Angel Investors were once assumed to be only wealthy capitalists. But with time, small businesses are gaining momentum over their inclusivity and open-mindedness thus helping people invest in their stocks. It is easier for an individual to invest in a start-up as the costs of investment have been lowered. Most commonly, when an Angel Investor funds a start-up, there is no debt, and no money has to be repaid because they generally take up ownership equity in the company itself.

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What does an Angel Investor do?

As explained above, Angel Investors possess a high net worth or strong financial background and a keen acumen for financial investments. In Angel Investment, there is no debt formed nor there is a need to repay. Instead, the investor gets equity shares in the company. The higher the capital invested, the higher the shares provided to the angel. The money funded by the Angel Investor is used to start the business and upgrade it further. 

Let’s take a look at how these individuals invest in an up-and-coming start-up through the following deciding factors:

1. Team: This includes how well a team is assigned, the experience of the team members, the teamwork, the creativity, problem-solving skills and how successful the results are.
2. Traction: A team with several clients and high steadily growing profits and sales results in high traction. Investment should be done to expect a better-increased yield. A team that is unable to keep sales steady is dangerous to invest in.
3. Production: Production of the product which has demand in the market is necessary. There is always competition so better and upgraded items should be produced. The more the products are sold in the market, the higher the sales.

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Types of Angel Investors

Although it is not required, angel investors frequently seek to obtain accredited investor status. According to the Securities and Exchange Board of India (SEBI), an accredited investor is someone who has a net worth of 7.5 crores, a liquid net worth of 3.75 crores, or an annual income of 2 crores and is accredited by any accreditation institution. It is vital to note that an accredited investor is not always an angel investor. To be an angel investor, you must be interested in providing funding for entrepreneurs.

Angel investor is a somewhat broad term that can refer to a variety of people, including:

• Friends and family: This is the most popular source of startup funding, and it is frequently the first place entrepreneurs search for money.
• Rich people: Depending on the firm, wealthy individuals, such as doctors, engineers, or successful business people, are often willing to spend a significant amount of money in exchange for equity in a company.
• Groups: Several angel investors are beginning to work as part of a group. This considerably enhances the possibility of a larger investment.
• Crowdfunding: This method of financing is getting more popular. It enables big groups of people to invest small sums of money in order to assist the company in meeting a certain financing target.

How to Become an Angel Investor?

There is no certain academic qualification you need to become an Angel Investor but only an insightful knowledge and sharp understanding of how start-up investments work, finding the right start-ups to work with, keeping up with the business markets as well as learning about financial risk management, investment analysis and so on.

Angel Investors come from different backgrounds, be it business, engineering or finance, and are generally highly experienced individuals who know about the business market, equity investments, start-ups and entrepreneurial world and financial and risk management. So, here is a career map on how you can become an Angel Investor:

1. Pursue Short-term Courses in Venture Capitalism and Angel Investing: There are a few institutes and schools which offer short-term courses and workshops on how angel investing works and how you can kick-start your career in it. Get familiar with how angel investors decide the right startups invest in as well as strategies for the best financial risk plans.
2. Meet Other Investors: Practice makes a man perfect. You need to observe, understand and work on your quick decision-making skills with the already experienced angel investors. Broaden your network by getting in touch with angel investors and venture capitalists and seek their guidance in how you can begin this career.
3. Research: Investing is a high-risk, high-reward situation. As you research, the chances of higher returns increase. Attend workshops, and seminars, and learn about the trade from entrepreneurs and other investors. 
4. Angel Investing Group: Join an Angel Investing Group if you are inexperienced and are not keen on taking risks.  The group will help you decide your various options, keeping in check risks and threats. Chennai Angels are one such prestigious angel network in India.
5. Strategies: Once you have researched and read about the potential risks, the next step is to strategize how much you will invest. 
6. Do Not Quit: Angel Investing is a skill that needs to be perfected by never pausing. Invest in various start-ups, learn from the mistakes of others, and join the seminars even if you are not keen on investing in them. It can be perfected with time, constant effort and experience.

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Angel Investing Courses

We have listed a few top angel investing courses from India and around the world-

• US Market Access Centre 
  USMAC teaches the whole overview of how to angel invest in a risk-averse mindset to a risk-embracing environment
  Course Duration: 3 Days
• Mumbai Angels
  A 3 session course with great experienced angel investors like Dr Aniruddha Malpalani and Gita Nayyar guiding you in a step-by-step process.
• Association of Wealth Management of India (AIWMI)
  A 16 days weekend course that teaches you everything about angel investment, venture capitalism, and startup exits in a 12 days theory session, 3 guest lectures and 1 Practical Pitch day. This course is entirely online.
• UNSW Angel Investors Programs
  A three-day course with Australia’s leading angel investing experts with their insights to guide you and understand the concept behind angel investments.

How to Start as an Angel Investor?

Here’s how you can kickstart your career as an Angel Investor

1. Get involved in start-up seminars and events, at University Incubators. 
2. Explore start-ups and small businesses looking for investors.
3. Research
4. Assess the pros and cons of the product or idea. 
5. Keep a strong well-updated network.

There is no textbook that can teach you how to invest. You learn about investment by doing it and not studying it.  An Angel Investor should not be biased and invest in all types of companies. Once you start investing and helping a start-up, your name gets shared around and more investment opportunities come up. It is necessary to invest in a start-up that shows positive results but do not forget that most new companies often make a lot of mistakes. Soon they get adjusted and get back on track. So, patience is an important virtue for an investor. 

Which Start-up to Invest in?

Now that we understand how an angel investor works, it is time to understand how to differentiate the best start-up for you in the market.

1. Know the market: An Angel Investor should know and be updated about the demand of the market and what the consumer’s demand is. Invest in an industry about which you have knowledge. Increase your knowledge by reading market blogs, magazines, and market forecasting.

2. Find Start-ups: Search for Startups that you think are revolutionary or will increase profits. The best way to find start-ups is by socializing and meeting people and attending seminars, conferences, and trade fairs. Listen to their ideas and if you like some start-ups, share your contact.

3. Look for a Solid Return On Investment (ROI): The risk is real in Angel Investment. So higher returns are preferred when they invest capital in the start-up. Start-ups that have revolutionary ideas that show high marketability and profitability should be your best choice. An angel investor should be interested to study the annual accounts of a business.

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What Motivates an Angel Investor?

Aside from the monetary benefits of angel investment, many angel investors do so for personal and societal reasons. Some of the most prevalent motivations for angel investors to invest are:

• A challenge: Being a mentor and business counsellor allows you to assist startups in overcoming obstacles. Being a mentor can be a rewarding and challenging experience.
• The Excitement: The delight of witnessing a small business develop and thrive. Angel investors get to experience the thrill of watching a small firm grow and succeed.
• For charitable purposes: Many angel investors seek to help small business owners accomplish their dreams, affect the community, or change the world.

Risks of Angel Investing

Because investments or businesses are unproven, angel investing can be hazardous. According to FundersClub, an online startup financing forum, 75% to 90% of startups fail. While it is possible to profit, many angel investors lose their entire investment.

This is why experienced angel investors usually invest in numerous firms across multiple industries to distribute risk. Because the return on a successful investment is significant, a single win can more than cover the expense of the failed attempts.

Angel investing is not a quick method to get rich. It can take seven to ten years or more for a startup to expand to the point where investors can make a profitable exit. It is critical to invest just money that you will not need in the near future, but also money that you are not afraid to lose.

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Pros and Cons of Angel Investing

Here are some of the benefits and drawbacks of acquiring cash from angel investors:

Pros

The primary benefit of accepting cash from an angel investor is that it is less risky than obtaining a small company loan. Unlike loans, angel investors do not require repayment because they provide equity in exchange for capital.

• Additional advantages of hiring an angel investor for a young business include:
• Credibility as a result of association with the investor
• Contacts for prospective workers or customers
• Links to investment bankers, accountants, and other professionals
• Market knowledge and techniques employed by comparable businesses
• Mentorship, support, and important entrepreneurial insights

Cons

• Many entrepreneurs give away between 10% and 50% of their firms in exchange for investment.
• Angel investors may also expect a high rate of return on their investment, generally tenfold or more in the first five to seven years.
• Another disadvantage is a loss of business control. Most angel investors get actively involved in the firm after investing in a startup.
• They may persuade the promoters to sell the company before it is fully prepared. If founders give away a large portion of their firm’s stock, angel investors may choose to replace them in important roles with a more experienced CEO, thus removing the founder from the company they founded.

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Difference Between Angel Investor and Venture Capitalist

The primary distinction between an angel investor and a venture capitalist is that angel investors are frequently accomplished business professionals who invest their own money, whereas venture capitalists are private firms that invest funds pooled from a number of other people.

Angel investors invest in firms at an early stage, frequently at the ideation or pre-revenue stage, whereas venture capitalists invest later, usually after the company is profitable. The average venture capital investment is substantially more than the typical angel investment. Angel investors bridge the gap between seed money provided by friends and family and venture capital funding, which is frequently required for a startup’s growth.

Conclusion

Despite small hiccups, angel investors continue to play an important part in the development of new enterprises and can be a fantastic source of entrepreneurship skills for youth. Furthermore, angel investments give prospects for self-employment. As a result, it is necessary to advertise it in India.

The Hyderabad Angel Investment Network helps local entrepreneurs raise funds for business start-ups and expansions in Hyderabad, the state of Telangana, and the global marketplace. The HA Platform allows you to present your company concepts to a global audience of investors looking for investment opportunities, assuring the success of your start-up launch!

FAQs

Certainly, the field of Angel Investment is growing exponentially. We hope that this blog familiarized you with how you can pursue the challenging but rewarding career path of an Angel Investor! Looking for a course in Investment Banking? Let the experts at Leverage Edu help you find the right program and university as per your interests and aspirations! Sign up for a free session now!