If you’ve ever watched a startup movie, you’ve probably seen an angel investor enter the scene and pour money into making the protagonist’s dream a reality. But who are these mysterious angel investors? In this essay, we’ll look at who angel investors are and how to better comprehend them. Continue reading to learn more!
Who are Angel Investors and What Do They Do?
Angel investors are high-net-worth individuals that provide financial support to enterprises that they believe have potential in their early stages. This financial support is given in exchange for a share in the newly formed company or a royalty.
They usually invest in a concept or an entrepreneur to assist them in putting their startup plan into reality. Angel investors, on the other hand, may make these investments even if the firm is already up and running.
At this stage, most aspiring entrepreneurs are unable to secure investment because they lack proof that their idea would work. Angel funders, seed investors, and business angels are some of the terms used to describe these investors. The phrase “angel investor” was coined by Broadway.
You’ve probably heard the term patrons used in relation to the arts. Similarly, wealthy individuals who would support theater performances were referred to as angels.
It’s hardly surprising that this term is increasingly being used outside of the arts, and that the same wealthy individuals are now funding up-and-coming entrepreneurs. The term was first used in 1978 by William Wetzel, a professor at the University of New Hampshire and the founder of the university’s Venture of Venture Research. He did this to define seed investors in research into how entrepreneurs in the United States raised seed capital.
Five Different Kinds of Angel Investors :-
Before delving into the various categories of Angel Investors, it’s important to understand their objectives. Angel investors are generally motivated by factors other than financial gain, in my experience.
Maybe they’re interested in the product you’re thinking of, or they’re a friend who wants to help, or they’re a successful person who wants to give back. All of these are absolutely good reasons to invest, but understanding an Angel Investor’s motivations is critical to establishing a fruitful working relationship that might last a decade or more.
Here are the five sorts of Angel Investors:
1. The Family Investor
The Family Investor is more of a supportive family member who “knows you” than a traditional Angel Investor. Their motivation stems from a desire to help a family member or a friend. Their fundamental investment premise is that they believe in you. Because the investment is so emotional and personal, this is my least favorite investor. This can work if everyone comes into the situation with their eyes wide open, depending on the financial status of the individuals involved and the connections.
2. The Relationship Investor
A former coworker or a business acquaintance who has known you for a long time is the Relationship Investor. This investor may or may not comprehend what your new business is doing, but he or she has worked with you before. On the one hand, they want to be helpful, but they also want something in return.
A Relationship Investor’s investment is unlikely to be small, but you won’t lose them as a friend if things go wrong. These are, in my opinion, good Angels to have. Once again, as long as everyone keeps their eyes open at the start. In terms of finding employees and other resources, the Relationship Investor may be extremely helpful.
3. The Idea Investor
The Idea Investor is most likely well-versed in the market you’re targeting. This is, in some ways, the best form of Angel Investor because he or she can validate your idea to some extent. Their investment is centered on the concept, and there isn’t much emotion present at the table (always a good thing).
If you can bring them on board, they can help you establish partner ties and provide sound advice. Because they don’t have a strong relationship with you or your team, you’ll spend the majority of your time convincing the Idea Investor that you and your team are the appropriate individuals to solve the problem. An early board member for a firm is sometimes a significant Idea Investor.
4. The Once Removed Investor
The Once Removed Investor is most likely connected to either the Tie Investor or the Idea Investor through a personal or professional relationship.
They probably don’t know who you are and have no notion whether your concept is good or poor. They put their faith in someone else to find them profitable investment options. This is a great way to attract more Angel Investors, but it’s unlikely to happen without a strong Relationship Investor or Idea Investor.
5. The “Archangel” Investor
An “Archangel” is a Relationship Investor or Idea Investor who has made money for other Angels (and possibly non-Angels) in the past. They’ve either built a successful business in the same field or have strong personal connections with other Angel Investors.
These individuals are valued because they have the ability to recruit high-quality Once Removed Investors. If you can locate this person and entice them to join your bargain, do so. However, be wary of the “Archangel” type. There are many persons who pose as “Archangels” and offer to connect you with wealthy people, sometimes for a fee. Take notice if your “Archangel” Investor is not genuinely investing his or her money but is only functioning as a proxy for others.
In actuality, a mix of the first three investor groups, as well as a few Once Removed Investors, will form the basis of your successful Angel financing.
What Is the Angel Investing Crowd Made Up Of?
Let’s take a look at who makes up the angel investing population now that we’ve covered what the phrase means.
1. These could include professionals such as lawyers and doctors, as well as CEOs who have earned enormous money over the course of their careers or while establishing another business.
2. Entrepreneurs who have previously been successful and have expertise running a business. Because of their experience, they may also advise startups.
3. Other affluent individuals who would rather locate businesses that are hidden gems in their pastime than invest the time and effort required to develop and maintain a business.
4. Individuals can pool their finances with others using crowdfunding services.
However, why do these people invest in these startups? Is it advantageous to invest in angels?
This is a popular question, as these individuals have access to a variety of other investment options, such as blue-chip stocks, so why should they invest in startups? Individuals seeking a greater rate of return make up the majority of the angel investing population.
They hunt for assets that would yield 20 to 30 times their initial investment over a five to seven-year timeframe. This would imply that the investors could expect a 20-30% annual return at the very least. Traditional methods of generating these returns are quite difficult to do.
These investments are, without a doubt, exceedingly dangerous! If the startups fail, the investors will very certainly lose their whole investment. These investors, on the other hand, limit their angel investments to 10% of their whole portfolios, providing some protection against such losses.
What Makes Angel Investors So Popular With Startups?
Angel investors offer a number of benefits, which is why businesses prefer them to other types of investors. It goes without saying that these firms will not be able to access the stock market in their early stages. The only other viable option available to them is to apply for loans.
However, these resources come with the responsibility of repaying the loans with interest. Angel investors might not anticipate such prompt payments. So, how do angel investors profit? They only expect to see a profit once the company has grown large enough to go public or be acquired by another company.
In addition, angel investors bring their knowledge to the table, allowing them to mentor aspiring entrepreneurs. This isn’t the end of their contribution. They bring their contacts, which are crucial for a startup because they are wealthy folks.
Angel investing, on the other hand, has a disadvantage. This may be a stumbling block for entrepreneurs who refuse to relinquish any ownership of their companies.
In conclusion :-
The function of angel investors in a startup has already been discussed. They do, however, play a larger role in the development of an economy. India had fewer than 50 angel investors in the year 2000. This has ramifications for the entire Indian startup ecosystem.
Fortunately for us, this number has skyrocketed in recent years. We saw $7.8 billion invested in the first four months of this year alone. This amounted to more than half of the previous year’s total investments. Angel investors play a critical role in bridging the funding gap for creative ideas. Angel Investors have made investments in a few companies.
This concludes the article “What are Angel Investors in India?” Leave your thoughts in the comments section below. Good luck with your reading!
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