In normal parlance, when do we think of an angel? Mostly, when we need any help right? We just need someone out of the blue to give a handholding and do the needful.
The same happens with founders who look for funding for their startups, that are still at an early age.
Increasing Contribution of Angel Investors
Startups usually tend to stay away from the traditional ways of funding from banks as prima facie, bank loans are always to be backed by assets as collateral.
Most entrepreneurs may not have enough capital to pool into their startups. All that they have is a brilliant idea that will ease lives. So now, entrepreneurs want money to execute their idea but they don’t have adequate collateral.
On the other hand, there are wealthy people who want to make more money.
"Angel investors are basically high net-worth individuals who want to diversify their portfolio by investing in startups and also get better returns compared to traditional investments. Coming to ‘better’ returns- just like any rational individual, angel investors also need superior returns. On average, angels for at least 20-40 percent returns."
Angel investing connects both, creating a win-win. Yes, it is a win-win situation since the investors get huge returns and also the entrepreneurs get money to execute their idea into action. It is to be noticed that India is the third-largest startup hub in the world and clearly, the pace of growth is not showing any signs of slowing down. This makes angel investing more attractive in our country.
Why do Angel Investors support Startups?
Angel investors give financial backing and mentoring to budding startups in exchange for ownership equity in the company. Usually, angels are professionals and entrepreneurs hailing from the same industry as that of the startup. Hence, in addition to monetary support, they also provide mentoring for the growth of startups.
Having eminent experience in the field as that of the startup, the angel investors can understand the pain points of the industry better.
From the point of view of an entrepreneur, the big advantage is that financing from angel investing is less risky than debt financing. In a loan, the invested capital need not be paid back in the event of the startup’s failure. That is why angel investors look for a sound exit strategy before investing. The primary downside of angel investing is the loss of complete ownership control. In debt financing, the lending institution does not take any ownership stake or has control over operations.
Do Angel Investors get paid back?
We all know that high returns always come with higher risks. The angel funds are not paid in the same way the debts are paid; they are paid back in the form of a share of profits.
From the point of view of the angel investors, though they get an ownership stake in the business, there is always a risk of losing their entire investment in the event of a business failure. Hence, the angels are very much keen with respect to the exit strategy where they can pocket their profits, typically through a public offering or an acquisition.
"The angel investing community is a mix of active and passive investors. For active investors, earning better returns is not their sole intention, the bigger picture is that the angel investors want to be instrumental in the upbringing of the innovative idea. While passive investors invest primarily with a financial perspective."
The most crucial part for an entrepreneur lies in identifying the right angel investor in the same niche. It is advisable to first pitch with the investor for mentoring. Later, move towards funding on establishing a rapport.
How are Angel Investors different from Venture Capitalists (VCs)?
Both venture capitalists and angel investors invest money in startups but there are certain differences. A venture capitalist is a person or firm that pools money from investment companies, large corporations, and pension funds to invest in startups. Typically, Venture Capitalists do not use their own money to invest in companies.
Venture capitalists usually invest in businesses that are already established while angel investors are more likely to invest in businesses that are just starting out. So, if you are in the early stages (technically seed stage), then angel investment might be more suitable. If you are already established and looking for expansion, then venture capitalists might be preferred.
Both angel investors and venture capitalists want a share of the ownership equity, but several venture capitalists may not be interested in acting as mentors.
How can Compliance Calendar help?
The entire process of getting funding from angel investors is not a child’s play as it has so many steps to be covered in. From validating the idea to preparing the pitch decks, the term sheets, due diligence checks, negotiations, etc the process is filled with making the right moves.
Compliance Calendar provides an array of services that an entrepreneur would need in this regard. It all starts with the preparation of the pitch deck and financial model, which are like the heart of the funding. The pitch decks would always be supported by the Term sheets that are nothing but a summary of the key business terms of the proposed transaction. If the pitch deck sounds promising to the investor, then the investor makes negotiations with respect to the term sheet and starts to plan the due diligence. Due diligence is the process by which the investors investigate and analyze the potential investment. The primary objective of due diligence is to mitigate investment risk by gaining an understanding of a company and its business as well as determining the suitability of the investment for the portfolio.
Compliance Calendar helps right from the Pitch Deck, Financial Model Preparation to Term Sheet, SPA Drafting, Compliance of Private Placement, and Due Diligence of Company. Compliance Calendar also offers a CCL Partnership Program, wherein we partner with top Angel Investors of the Country.
In case of any queries or doubts in funding for startups, you can connect with us through our website – www.compliancecalendar.in or you can mail us your queries at info@ccoffice.in or WhatsApp/Call at 9988424211
