The latest buzzword in the field of finance is angel investments. Angels are investors, who usually provide financing to start-ups. They also help start-ups fill up other gaps in their businesses. They help them by introducing them to possible partners through their network. Apart from financial assistance, start-ups can receive mentoring and guidance from angels. Angels are generally retired executives or entrepreneurs, who have themselves, had a lot of experience in setting up and running various businesses. They then use their experience and expertise to invest in start-ups. Their belief is that by doing so, they will be able to help budding entrepreneurs to set up strong, robust businesses, and they will gain a strong position in the share of the business. The term angel was coined by a professor of the University of New Hampshire, USA, to describe investors who funded entrepreneurs setting up new businesses.
And here’s the catch. Angels don’t just give funding to anybody who approaches them. Apart from a business plan, the entrepreneur should have some basic elements to qualify. They must convince the angels through solid analysis and pilot studies that their business, through their well-crafted strategy will fetch them at least 10 times the initial investment within 5 years. They must have exhausted all their options of seed funding from the 3 famous sources – FFF (friends, family and fools). They must be currently operating their start-up at some basic level, and they must be able to show reasonable growth and profits. They must also have a well-defined exit strategy for their ventures, such as an IPO or acquisitions. This is necessary, because angels take huge risks and thus, they expect good returns. Angels mainly provide entrepreneurs the second round of funding to take their businesses to the next level.
Angels are easier to approach than venture capitalists, who expect the business to be at a higher scale. Also they provide fledgling entrepreneurs the much needed help through their contacts and expertise. There is no fixed limit to the amount of funding one can receive from an angel. It depends on the business model, and how promising it appears to the angel. In India, the IAN or the Indian Angel Network is the first angel investment organisation, which was set up in 2006, and provides funding to ventures in various fields, such as agriculture, clean energy, IT, biotech, etc. In addition to the requirements above, the IAN looks for businesses with high entry barriers, sharp differentiators, and a strong management team.
Angel investors can be approached through investor conferences, setting up face-to-face meetings and by using contacts. They can also be approached directly. Through the growth of many such Angel investors in India, the rate of innovation in the India is sure to grow manifold. Angel investors are yet another contributing factor to the change in the landscape of Indian Business.