Finance is the boost any start-up needs to become successful. Yet finding the right investors is not a walk in the park. Conventionally there is a lot of back and forth before any deal is finalized.
However, with the emerging trends in start-ups especially in India, being the 3rd largest startup ecosystem in the world (source), there are new types of investment taking shape. Angel investing is one such investment, differing from venture capital and public funds. Angel investor for startups are not just providing finance but also guidance and mentorship. This blog will discuss angel investing in all the necessary aspects. We discuss their roles, responsibilities, and how they can ace investment opportunities.
What is Angel Investing in Startup Funding?
Angel Investment is a type of finance received by the startup in its early stages. It
is a type of startup funding that offers a percentage of its equity to the angel
investor in return for their financial investment and guidance. Angel investing
forms most of the seed funding for the startup to begin its journey.
What is An Angel Investor Network?
High-network individuals (HNIs) come together by pooling their resources and expertise to form a group to provide startups with funding and guidance to kickstart a startup. The angel investors’ networks bridge the gap between investment opportunities for angel investors and fundraising opportunities for startup founders. For a start-up getting funding from such a group can boost their credibility all the while gaining insights, opportunities, and much more.
How Does One Become an Angel Investor?
First and foremost, capital. If you have a large sum of finances on which you want good returns, angel investing is for you. However, that’s not all. Following are a few things that you need to become an angel investor.
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Role of Angel Investors in Startups
Before you go down the path of becoming an angel investor, you must know the role of angel investors in startups. While most of us think it’s all about seed funding or just another investing opportunity, angel investors actively guide entrepreneurs on business-related matters. Therefore an angel investor is someone who has knowledge as well as has some experience regarding running a business. Understand the nuances of angel investing, its perks, and the risks, if you invest consciously and make better decisions.
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Find Relevant Angel Investor Networks
Once you have a grasp on the basics of angel investing, it’s time to find your tribe. For any angel investor, being a part of an angel investor network or syndicate is crucial. You have to search for a network that invests in similar sectors you are looking to invest in. Being a part of a network is not just about investing, it allows you to be a part of a community where you can share knowledge, get useful advice, access emerging startups, and more. 125+ angel investment networks and syndicates are expected to rise to 200+ by 2030 (source). So, you can find a network that fits you and your style. One of the best-known angel investment groups is 21BY72, a team of angel investors organizing startup events and startup expos for investment and networking.
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Providing Resources, Finance, and Guidance
Angel investment is not limited to financial help but includes providing guidance and mentorship. Angel investors who have expertise in different fields can invest in
startups from the same industry. It helps them spread their knowledge while earning money if the startup succeeds. An angel investor also provides access to their resources for sales, improvement, and more, thus increasing the probability of the startup succeeding. -
Make Your Checkbox for Angel Investing
After you have the perfect angel network to be a part of, listing down your expectations, basic investment criteria, and other related questions will ease your search for startups. It can also contain your maximum investment amount, the risky investment you might want to make, and your investment red flags. A written list always helps make better decisions.
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Research and Evaluate Your Investment Opportunities
Once you have your list of startup funding, you need to research the potential business you want to invest in—research about the startup’s potential, founders’ ability, their worth, and more. You must have all relevant information from the source, third-party reviews, and more, on hand before you make the important decision of investing in any startup. Evaluate and analyze the data you have, compare it with the list you have made, and assess them using tools, graphs, and future trends.
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Negotiate a Contract with the Startup for Investment.
After finalizing a startup, it is time for negotiations to get the best returns on your investment. Compare your investment and guidance with the values equity or partnership they are offering to make your decision. Think over this decision carefully, before signing any contract. Be sure!
How to Evaluate Investment Opportunities as an Angel Investor?
As an angel investor for startups, evaluating them is vital to getting the best returns on your investment. It even applies to venture capital, public fundraising, and more assets. Following are a few points to keep in mind while evaluating.
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Understand the startup idea and business model
The foremost step of seed funding evaluation is understanding the startup model. What that means is to understand the startup founders‘ knowledge, their startup
ideas, and how they have built their business model. Get all the information including their product and target audience, how it helps society, and how they plan on promoting and selling their product or service. It enables you to gauge how promising a startup is and how much they know and need help. -
Evaluate the potential of the startup
Once you have the necessary details, analyze the data, and evaluate the startup’s potential including the societal impact of the startup. You must also consider what assistance and guidance they need to meet their goal and reach their full potential.
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Perform a risk and reward analysis for your investment
Now that you are aware of what the startup is and the data relating to it, consider the risk factors. As an angel investor, you must take some risks but try to make sure they are rewarding enough. Therefore, take your time and evaluate all the factors to determine the intensity of risk and the worth of your investment.
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Consider all the financial aspects of investment thoroughly
While guidance and trust are important features for angel investments in startups, so is the safety of your investments. So, before you proceed with the deal,
check what you’re getting yourself into. Re-evaluate your offer and investment agreement and make your final decision.
Conclusion
There are many investment alternatives for startup financing. It ranges from venture capital to IPO. Angel investors for startups are one of the most important parts of raising seed funding. Angel investing is done by HNIs or a group of HNIs in the form of an angel investor network or syndicate. The network bridges the gap between investors and investment seekers. Before starting your angel investing, familiarize yourself with its requirements and responsibilities. It is more than just financial investment opportunities; it’s a way to use your industry knowledge to help a startup grow. As an angel investor for a startup, you must evaluate them based on their business model, potential, and the founders’ knowledge.
If you want to invest and help a startup grow by becoming an angel investor for a startup, you are in the right place. 21BY72 is an angel investor network based in Surat, helping startups grow globally. We organize regular startup events and business expos to benefit startups and investors.
FAQs
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What is the difference between angel investing and venture capital funding?
Angel investing is when an HNI (High Net worth Individual) or group of HNI invest in an early-stage startup. They offer startup financing, guidance, resources, and more in return for a percentage of equity. On the other hand, venture capital firms invest in startups for returns in highly promising or established startups.
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What is the role of angel investing in startup financing?
Angel investing is for early-stage startups to raise seed funding. With seed funding, they can start developing their product and promote it. Angel investing also has other perks, such as access to resources, expert guidance, and useful insights from angel investors.
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Can angel investors benefit from startup events?
Absolutely! A startup event like the Global Startup Summit allows investors to connect with fellow investors, the angel investor network, and startup founders. It helps them find startups to invest in, create a strong network, and build resources to support the startups they invest in.
