How to Become an Angel Investor in a Startup?

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How to Become an Angel Investor in a Startup?

In the past few years, India has emerged as one of the largest startup ecosystems in the world. Startups can be found in every corner of our nation. For the funding of startups and their other early-stage businesses, angel investors are considered to be widely sought-after resources. 

In this article we will discuss who angel investors are, how these individuals operate, and how to become an angel investor in India.

Who are Angel Investors?

An angel investor refers to an individual who provides financial support to businesses or startups in their early stages of development and operations. They do this in exchange for equity ownership or convertible debt. Angel investors are also commonly known as business angels, angel funds, seed investors, private investors and informal investors. They invest in the startups having a high growth potential because they look forward to benefit from such startups in the long run.

Angel investors are generally high-net worth individuals, such as Rata Tata, Elon Musk, and Shark Tank India’s Anupam Mittal, since they have the financial means to invest in such startups. At present, India is home to a 26,500+ bustling angel investing community, according to Fortune India.

How do the Angel Investors operate?

Angel investors in India generally invest in startups that are in their early stages of development. These investors provide the necessary amount of capital to assist startups in developing their products, building their team, and scaling their business. As a compensation for their investment, they are given equity in the business. 

Compared to the venture capitalists in India, the angel investors tend to invest small amounts in startups ranging from Rs. 50 lakhs to Rs. 5 crores. However, the angel investors are at a higher risk for facing losses since the startups are at an early stage of development and are yet to prove their business model. Generally, angel investors invest in startups belonging to the industries they have expertise in. Due to this, these investors can provide the startups useful advice, industry insights, and introduce them to potential customers, partners, investors, etc. 

General Requirements to become an Angel Investor

The Securities and Exchange Board of India, which comes under the Ministry of Finance, is the regulatory body for the securities and commodity markets in the country. It notifies rules and guidelines for angel investors and other investors from time to time.

To become an angel investor in India, the individual investor/corporate body must meet one of the requirements mentioned below:

In case of an individual investor:

• The individual investor must have net tangible assets which are worth at least Rs. 2 crore. This excludes the investor’s principal residence’s value.
• He must be experienced in early-stage investment or have experience as a serial entrepreneur.
• He must be a management professional at a senior level, having at least 10 years of experience.

In case of a corporate body:

• A corporate body must have a minimum net worth of at least Rs. 10 crore.
• An Alternative Investment Fund (AIF) which is registered under SEBI AIF Regulations, 2012, or a Venture Capitalist Fund (VCF) which is registered under the SEBI (Venture Capital Funds) Regulations, 1996.

High-risk Appetite

To be an angel investor, you must have a high-risk appetite. Since the angel investors invest in startups that are at their early stage of development, there’s no certainty of what’s going to happen to such companies in future. Investing in startups is considered to be a high-risk and high-return gamble.

Knowledge & Expertise

To be considered an angel investor, you need to be a seasoned investor who has expertise in the art of investing. If you do not have the necessary knowledge about a field, and have not done enough research on it, putting your hard-earned money isn’t a good idea. Many people have lost most of their wealth just because of some wrong investment decisions they’ve made in their lives. You must do a comprehensive analysis on both the startup as well as the industry it’s a part of. You must take in account the startup’s growth potential, business plan, risks associated, and a fair valuation of such a company.

Having a Good Network 

Having a good network of people who have seasoned investors and have relevant experience and knowledge about the investment market is really important. They can help you to help you to connect with current investors and help you to make bets on winners rather than losers.

Angel groups 

You may have the minimum net worth and expertise required to be an angel investor. But how will you manage to get the latest updates about the startups with a high potential in one of the largest countries in the world, where startups are located in every other corner? Your best bet would be to join an angel group, since this will help you to communicate with like minded people who are extremely motivated to make money and avoid common risks. Joining an angel group can be really advantageous for you in your startup investing journey. The combined knowledge of other angel investors, financial professionals, etc. cannot be underestimated.

Conclusion

Angel investors are a blessing for startups who are in their early stages of development. These people are those individuals who fund ideas that the general public might not invest in. The Indian startup ecosystem has seen a massive growth in angel investments in the past few years. This has made India one of the largest angel ecosystems in the world.

As our economy continues to grow and evolve, the role of angel investors is a really crucial one. Due to their expertise, experience and financial support, many startups have been able to touch the sky. For startups to approach angel investors, having a solid business plan and showcasing the strengths of your founding team plays a major role. Need helping in opening a startup company of your own? Get in touch with Registrationwala.

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