According to the data, in India, every month for the year 2015 approximately 100 start-up companies are being funded. Motivated by the stellar returns, a lot of wealth people are willing to invest in India’s start-up sector and take a slice of profit. Picking up the winning company from the whole lot of new start-ups is not an easy task and merely providing them the money does not do the deed. Reports suggest there are only 500- 600 angel investors in India. Under such a scenario becoming an angel investor is a tough row to hoe.
Who is an Angel Investor?
An angel Investor is an affluent person with a great deal of operational and technical experience and invest in new businesses at an early stage. These investors are either currently working or have in past worked in the entrepreneurial environment with great success. Hence, the guidance and suggestions provided by them are usually very fruitful for the start-ups.
What you need and how to become an Angel Investor?
One may think having huge amount of wealth and a streak of adventure alone are qualifications enough to be an Angel Investor. But this is not true and there is more in it than pouring money into the project. For starters, an individual should have a networth of at least Rs.10 Crores with around Rs.30 Lakhs to 50 lakhs of spare capital to invest in companies. For being successful investor, one should always diversify the portfolio.
An angel investor’s portfolio should consist of 8-10 companies, however he should expect 5-6 of them to be a failure. A few among the successful ones will earn average returns while couple of others would result in exceptionally high returns.
Angel investing is about passion and zeal of running a company and less about the financial returns
However an angel investor should, along with providing his money, mentor the firm and its employees in the area of his expertise. Overall Angel investing is more about passion and zeal of running a company and less about the financial returns. Investment is usually against the stake of 5-20% and increase in value and exit is possible only after 5 years.
Understand the Business Model
An investor should first select an industrial sector for investment. One should invest in areas that he or she understands deeply and can add value to. This reduces the uncertainty and risks to some extent. Also initially, the investors should invest only once an expert has put his money on the table and should never exits early.
The easiest way to invest is to find a friend who already is an angel investor, and get included in his network. An individual can than trust the judgment and experience of this network and invest accordingly
Angel investing is not for everyone. It is meant for those who believe in innovation being able to create monopolies for a time period long enough to earn returns and are willing to mentor entrepreneurs in their journey. An angel investor should realise it is easy way in and out. Investing in start-up is a long haul and angel investing is not just about money.
Recommended Read :
- Difference Between Angel Investor and Venture Capital and Private Equity
- How to Get a Bridge Loan?
- How to Source Fund for a Start Up Business?
- Top Fundraising Ideas for Entrepreneurs
- Bridge Loan Start Ventures
- What is Venture Capital?
- Pros and Cons of Venture Debt
- What is Vendor Financing?
- What is Peer to Peer Lending?
- What is Crowdfunding?
- Crowdfunding Vs Peer to Peer Lending
- How to Get Venture Capital Funds for Start Ups?
- Raising Fund From Family and Friends for Start Up Venture
- How to Secure a Micro Loan for Start Up Business?
- Angel Investor vs Venture Capital vs Private Equity
Becoming an angel investor requires some sort of effort. However, when you become an angel investor you should always have your business advisers, lawyers and certified public accountants who will closely work with you. They will help you in getting the proper contractual document in place. It is also recommended to keep your status as a private funding source.
Being an angel investor is not an easy task as it sounds. One needs to have expertise in mentoring firm, analyze the current market and must be financially sound. As said by the author, an angel investor must be ready to face a failure rate of 80% and must be ready to wait for a minimum of five years to enjoy the returns on his investment.
I think this is a great idea, but you have to have miles of experience and knowledge. And people to help you. Otherwise you end up investing in things that go bankrupt all the time. Heed the above advice! Don’t throw your money down the drain without educating yourself to make the right choices… instead of losing up to 80% you could lose everything. Instead of waiting 5 years for ROI, you could be waiting 20. Think before you become someone’s “Angel” 😛