Startups have changed the way the world works. Every industry, ranging from hospitality to finance and healthcare, has been impacted by startups that have disrupted the standard business model.
Some startups have become multibillion-dollar companies, others have been acquired, and some did not succeed.
However, most of them try to raise capital from an angel investor early on in their journey.
So what exactly is an Angel Investor?
What is an Angel Investor?
An angel investor is an individual who provides financial backing to an early-stage startup. Very often, the business might not even have launched its product or might be operating with a handful of customers.
In return for their investment, angel investors receive equity in the startup or convertible debt. They often have experience in the same domain as the startup or as an entrepreneur to mentor the founders.
While they look for a good return on their investment, they are patient, recognising that it can take a few years to reap the rewards. Sometimes, they profit handsomely from startups that turn into unicorns and grow even further.
There is quite a significant element of risk since there isn’t any business data on which a decision can be made. Hence, angel investors are wealthy individuals who ensure that the money they invest in new startups doesn’t represent a significant portion of their portfolio.
Who Can be an Angel Investor?
As mentioned earlier, anyone who has the money and interest to invest in startups can be an angel investor. It has become common for well-to-do individuals from all walks of life to invest in startups.
Funding platforms like IPV enable them to find ideas they believe in from anywhere in the world and invest in them.
Commonly, angel investors are successful serial entrepreneurs, and in addition to money, they can guide early-stage startups and leverage their network for the business’ benefit.
The Pros and Cons of Angel Investors
An angel investor who invests in a startup that succeeds can walk away with astronomical returns.
In addition to the possibility of a great return on investment, angel investors enjoy working with a startup and supporting a business idea they believe in.
The biggest drawback of angel investing is that few startups actually become successful. Since angel investors can likely lose their money, it is essential to diversify and invest in multiple startups in various fields.
Even in the event that a startup makes it big, the process can take quite some time so patience is very important.
Different ways an Angel Investor Invests
- Angel investors come across new opportunities through their professional network, which includes other investors, founders and other players in the startup ecosystem.
- Sometimes they can also be close friends or family.
- They reach out to founders on social media after coming across their idea or the company.
- There are platforms on which angel investors and startups seeking capital are aggregated. These sites benefit founders and investors who don’t have the requisite social and professional circles to run into each other. In India, Inflection Point Ventures is one such platform that has worked with numerous startups and has a diverse set of experienced angel investors.
Being an angel investor is easier than ever before with the advent of social media and funding platforms. However, it is crucial to recognise the risks involved and make an intelligent investment decision.
Ensure that you stay updated with market trends and advancements in the domain to guide the founders. And as with any investment, diversify your portfolio to protect against losses and generate maximum returns.