New Era of Angel Investing

Table of Content:

1. What is Angel Investing?
2. What is the Market for Angel Investing In India?
3. 4 Pillars of Investing in An Awesome Start-up
4. Stages of Financing and Exits In A Start-Up.
5. How can you start Angel Investing?
6. Best Source From My Side
7. Conclusion

Disclaimer

 If you want to watch a video on this data for a better understanding, I have uploaded a Youtube video on – Angel Investing. Check it out, and do let me know your views in the comments section of youtube as well as in the comment section of this blog.

What is Angel Investing?

Angel investing is a type of venture capital funding where high-net-worth individuals (HNWIs) invest their own money in early-stage startups. 

Angel investors typically provide capital in exchange for equity in the startup, and they may also offer advice and mentorship to the founders.

“Angel investing is a High-risk, High-Reward Venture”. If a startup is successful, the angel investor can earn a significant return on their investment. However, the majority of startups fail, so angel investors need to be prepared to lose their money.

Angel investors typically invest in startups that are in the pre-seed or seed stage. These startups are typically too early for venture capital funding, but they have the potential to be very successful. 

Angel investors are attracted to these startups because they offer the opportunity to invest in early-stage companies that have the potential to disrupt their industries.

Here are some of the key differences between angel investors and venture capitalists:

1. Source of funds: Angel investors typically invest their own money, while venture capitalists manage funds that are pooled from other investors.
2. Investment size: Angel investors typically invest small amounts of money than venture capitalists.
3. Stage of investment: Angel investors typically invest in early-stage startups, while venture capitalists typically invest in later-stage startups.

What is the Market for Angel Investing In India?

The Angel Investing market in India is growing rapidly. In 2022, Indian angel investors invested a record $10.3 billion in startups, up from $4.7 billion in 2021.  The average ROI for Angel Investors is 27%;5 to 7 years. > Nifty50 TRI (Total Return Index) is 13.2 % in 10yr. 

This growth is being driven by several factors, including:

• The rise of the Indian startup ecosystem: There are now over 60,000 startups in India, and the number is growing rapidly. This has created a large pool of potential investment opportunities for angel investors.
• The increasing wealth of Indian HNWIs: The number of HNWIs in India is growing rapidly, and many of these individuals are looking for investment opportunities. Angel investing is a popular option for HNWIs who want to invest in early-stage startups.
• The government’s support for angel investing: The Indian government has been supportive of angel investing, and has introduced several policies to make it easier for angel investors to invest in startups.

4 Pillars of Investing in An Awesome Start-up

Investing in startups requires considering these 4 Key Factors:

• Relatable Industry: Choose to invest in an industry that you have knowledge and experience in, enabling you to make informed investment decisions.
• Genuine Problem Statement: Look for startups that address real and significant problems in the market, as they have a higher potential for success and customer adoption.
• High Founder Quality: Assess the skills, experience, and credibility of the startup’s founders or management team. Investing in startups led by capable founders increases the likelihood of building a successful business.
• Business Moat: Seek startups with a sustainable competitive advantage, such as proprietary technology, intellectual property, network effects, strong brand recognition, or exclusive partnerships, which protect their market position and deter competitors.

Stages of Financing and Exits In A Start-Up

The stages of financing and exits in a startup can be divided into 5 main categories:

• Pre-seed: This is the earliest stage of funding, and it is typically used to validate the business idea and develop a prototype. The amount of funding raised at this stage is typically small, and it may come from personal savings, friends and family, or crowdfunding.
• Seed: This stage of funding is used to launch the product or service and start generating sales. The amount of funding raised at this stage is typically larger than the pre-seed stage, and it may come from angel investors or venture capital firms.
• Series A: This stage of funding is used to scale the business and accelerate growth. The amount of funding raised at this stage is typically even larger than the seed stage, and it may come from venture capital firms or strategic investors.
• Series B: This stage of funding is used to further scale the business and prepare for an IPO or acquisition. The amount of funding raised at this stage is typically even larger than the Series A stage, and it may come from venture capital firms or strategic investors.
• Exit: This is the final stage of funding, and it occurs when the startup is acquired by another company or goes public through an IPO. The amount of money that the founders and investors receive at this stage will depend on the valuation of the startup.

There are many different exit strategies that startups can pursue, including:

• Acquisition: A startup is bought by another company, and the acquiring company pays a premium to the founders and investors for their shares.
• IPO: The startup goes public, selling shares on a stock exchange and generating significant cash for the founders and investors.
• Merger: Multiple startups merge to create a larger company, and the founders and investors of the acquired startups receive a premium for their shares.
• Liquidation: The startup shuts down, and its assets are sold, with founders and investors receiving a portion of the proceeds from asset sales.

Here are some of the key considerations for startups when choosing an exit strategy:

• Valuation: The startup’s value affects the amount received by founders and investors during the exit, emphasizing its importance in determining their financial outcome.
• Timing: Optimal timing for the exit is crucial. Exiting too early may result in lower returns, while waiting too long may mean missing out on higher offers.
• Preferences: The preferences of founders and investors influence the choice of exit strategy. Some may prefer going public, while others may favor selling to another company.
• Critical decision: The exit strategy chosen by a startup has a significant impact on its future. Therefore, founders and investors should thoroughly assess all options before reaching a decision.

How can you start Angel Investing?

The criteria for being an accredited investor in India are as follows:

Individuals:

• Have an annual income of at least ₹2 crore (~$250,000) for the past two years, or have a reasonable expectation of reaching that income level in the current year.
• Have a net worth of at least ₹7.5 crore (~$937,500), with at least half of it in financial assets.

Entities:

• Have total assets of at least ₹25 crore (~$3.125 million).
• Be a registered investment advisor with at least ₹10 crore (~$1.25 million) in assets under management.
• Be a bank, insurance company, or other financial institution.

Irrespective of this you can start into Angel Investing. There are some general requirements that all investors must meet:

• You must be a resident of India.
• You must have a valid PAN (Permanent Account Number) and Aadhar number.
• You must have a bank account in India.
• You must have a clear criminal record.

Thumb Rules to keep in mind for how much to invest, many companies or a few companies, minimum investments required:

• Invest under 10% of your savings in startups: It is generally advisable to limit your investment in startups to a maximum of 10% of your total savings. This helps mitigate the risks associated with investing in early-stage companies and ensures that your overall investment portfolio remains diversified.
• Start with as little as ₹2-₹5 Lacs for minimum investments: You can start investing in startups with a relatively small amount, typically ranging from ₹2 to ₹5 lakhs. 
• Diversify your portfolio by investing in multiple startups: Investing in multiple startups spreads your risk and increases the chances of benefiting from a successful investment. By diversifying your portfolio, you can offset losses from underperforming startups with gains from those that perform well.

These thumb rules serve as guidelines for individuals interested in investing in startups, promoting a balanced and informed approach to managing risks and maximizing potential rewards. 

It is important to conduct thorough research, seek professional advice, and carefully evaluate investment opportunities before making any financial decisions.

How can you approach the founders of startups? 

Easy, directly contact them through LinkedIn or mail them. You can find their details either on their business website or LinkedIn profile.

Now where do you find companies? Well for this I would recommend the platform: AngelList.

You may find many options there for investing purposes:

• Venture funds
• Syndicates 
• Rolling funds

Best Sources From My Side

1. Youtube Video – Link
2. Excel Sheet For Free – Link 

Conclusion

Angel investing in India has gained significant momentum and offers several compelling reasons to consider this investment strategy. Firstly, the Indian startup ecosystem is experiencing remarkable growth, with a large number of startups emerging across various industries. This provides angel investors with a wide range of investment opportunities and the chance to be part of disruptive and high-potential ventures.

Moreover, the Indian government has introduced favorable policies and initiatives to support angel investing. These include tax incentives, relaxed regulations, and the establishment of angel investor networks, which make it easier for investors to navigate the startup landscape and provide funding to promising ventures.

While angel investing presents lucrative opportunities, it’s important to note that it comes with inherent risks. The majority of startups fail, and investors must be prepared for potential losses. Diversification across multiple startups and thorough due diligence are crucial to mitigate these risks and increase the chances of successful investments.