An entrepreneurial venture requires money for various reasons ranging from seed capital, to promote products and to acquire modern technological equipment and so on.
In today's world, apart from banks and financial institutions, there are many ways through which a new venture can raise funds for its requirements. One such method is to raise money from Angel Investors.
Who are Angel Investors?
An Angel investor is also known as angel funder or business angel or informal investor. An angel investor is an individual who provides capital for a business start-up, in exchange for convertible debt or ownership equity. The capital provided by Angel Investors may be a one-time investment, or it may fund money during initial stage to support and carry the company through its early stages.
Angel investors invest mainly in small businesses which have high growth prospects, primarily technology firms. They provide funding to other fields also like energy sector, healthcare sector and so on. What is vital for an angel investor is the growth prospects of the company.
Origin of the Term Angel Investors
The terms "Angel" came from the Broadway theater when wealthy people gave money to propel theatre productions.
Advantages of Angel Investors
Angel Investors can provide fuel to the business which has high potential but limited funding options. Some of the advantages of Angel Investors are as follows:
- Availability of Funding - Angel Investors bear high risks and provide funding to new avenues. They invest their funds, unlike others. One can get loans from angel investors when banks and other financial institutions are not ready to offer a loan.
- Flexibility - Banks and financial institutions are very strict about the criteria that the companies have to meet to obtain a loan. But Angel Investors are more flexible. There is no set final amount for an angel investor. The range can go anywhere from a few thousand to a few million dollars.
- Expertise and Contacts- Apart from providing funds, angel investors also provides business expertise and contacts for a startup firm.
- Better Success Rate- The firms which got funding from angel investors have higher survival rates, faster growth rates as compared with others.
Disadvantages of Angel Investors
Some of the disadvantages of angel investors are:
- Investor Expectations - Angels take more risk while investing money and they expect high returns on their investments. They expect profits around ten times of their initial investment. The reason being most of the companies angels invest in do not deliver any return, so they need to strike it big on the successful business ventures.
- Loss of Control - After the investment in a business, angel investors almost become part-owners of a business. They have some control over the business, and they have their influence on the strategic decisions. So the entrepreneur will feel that there is a loss of control over the business.
- Limited Funds - After the initial investment in the business, the angel investor will not fund again until the company shows strong profitability.
Angel Investors in India
There are many angel investors in the country at present. A few active angel investors are Ratan Tata, Sunil Kalra, Sharad Sharma, Rajan Anandan, Krishnan Ganesh, Meena Ganesh, Anupam Mittal and so on.
Where to find Angel Investors?
Previously, the angel investors used to be located primarily by word of mouth. But now its easy to find them in the electronic age. ACE- NET is an electronic network for angel investors. This portal helps angel investors and small businesses seeking capital to meet online. There is an annual fee to enroll in ACE-NET, it varies from one state to another.
The Angel Capital Association is another place where you can learn about angels and can seek out an angel network with a local group of angel investors in your area.
Funding Post is one more group formed by angels and other organizations, that help in arranging special angel and venture-capitalist showcases in various parts of the country.