ANGEL INVESTORS

By Jagrit Gupta | 6 min read

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Angel Investing

Angel Faund

Angel funds encourage entrepreneurship in the country by financing small startups at a stage where such start-ups find it difficult to obtain fund from traditional sources of finance such as banks, financial institutions, etc.

In this regard, Hon’ble Finance Minister announced in Budget for FY 2013-14 as under:

“Angel investors bring both experience and capital to new ventures. SEBI will prescribe requirements for angel investor pools by which they can be recognized as Category I AIF venture capital funds.”

 

About SPC Group India :

Operating for over 70 years, SPC Group is a technology-focused accounting and advisory firm. Consistently ranked amongst the top Accounting firms in India, SPC is an Indian member firm of PrimeGlobal- An award-winning association of independent accounting firms, comprised of approximately 300 highly successful independent public accounting firms in over 90 countries.

A. What is an Angel Fund?

What is an Angel Fund

Angel funds is a sub-category of venture capital funds under Category I AIFs (Alternative Investment Funds) which was subsequently introduced by SEBI(Securities and Exchange Board of India) in 2013 to boost entrepreneurship for financing small start-ups in India. Further, such funds provide mentoring to the entrepreneurs as well as access to their own business networks.

B. Who can become an Angel Investor in India

An angel investor or angel is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. Angels typically invest their own funds, unlike venture capitalists who manage the pooled money of others in a professionally-managed fund. 

The AIF (Alternative Investment Fund) Regulations sets out the conditions which have to be satisfied by an investor who proposes to invest in an angel funds i.e. an Angel Investor

  1.     If the angel investor is an individual, then one of the conditions prescribed is that the investor must have net tangible assets of at least Rs. 2 crore excluding the value of his principal residence, and who  
  • has early stage investment experience;
  • has to experience as a serial entrepreneur, or 21 Inserted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e..f 16-09-2013;
  • is a senior management professional with at least ten years of experience;
  1. If the angel investor is a corporate body, then it must have a net worth of at least Rs. 10 crores.

 

C. What angel investors want to know about business?

Performance of Business

An angel investor will always want to know the following in a business before investing.

  1. Rational belief and commitments of the founder
  2. Traction and scalability of your business
  3. Have a good management team and advisors
  4. Effectively determine the potential market size
  5. Measure the business plan implementation
  6. A viable Exit Strategy

 

D. How to convince Angel Investors?

Finding angel investors and convincing them to invest in your idea can be a challenging as well as competitive task. Here are a few tips to approach angel investors in India are:

  1. Approach an angel investor in closely established networks. Your best bet here is to make sure the angel investor is already involved in the industry your business falls under. It’s always better to present what is the actual motivation of the investors.
  2. A startup must have tractions and proof of conceptsto demonstrate it has a marketable product, begun operation and significant ability to sell the product/services.
  3. Investors look for growth potential. Businesses which have significant reach in market are able to catch eye of angels. The feedback form the market can directly influence the amount of funds flowing in the business
  4. Having a competitive advantage in market can bring you more investments.It differentiates your business among rivals, and makes you unique. A competitive advantage can be product, cost, positioning, distribution and execution etc.
  5. Investor may keen to know the operating policies and procedure.A founder should assure to have a sufficient key employee, experts and advisors.  Specially there should have enough delegated authority to oversee and control their area of operation.
  6. Be prepared to give up ownership and control in order to bring in the talent and investors to scale up.A market strategy includes a viable exit plan.
  7. Angel investors are experts in analyzing startups. You cannot just present a vague idea to them believing that it will work. Move beyond “fake it before you make it” phase and develop confidence of “a real business”

Angel investors, being experts in a specific industry, understand your concept or idea well. Their established networks with other investors can help your business expand and grow in the long run.

 

E. Is Angel Investing Risky?

Angel investing is a risky affair but the success sauce lays between the amount of money invested and the amount of time invested in studying the future prospects as well as actively taking part in the working of the startups. There is no single path to success in angel investing. Angel Investors not only invest in your business but they invest in “YOU”.

Raising funds from angel investors is less risky as compared to loans as investment amount does not have to be paid back in case the business fails. But sometimes it also leads to partial loss of ownership of the company.

 

F. Let Angels help your Startup

We can indeed say angels give financial wings to startups. They provide business acumen, networks and mentorship to young entrepreneurs. Through their investments in start-ups, angel investors lead to job creation.

To approach an angel investor, the startups should have a proposal that is fascinating and having a potential of high growth. It is very crucial for the investee to get prepare with a working plan and have insights about same with a team of expert and experienced advisors.

SPC Group has a vast experience in assisting startups in establishing presence in India along with several other start-up services. For any suggestions and queries get in contact with SPC  Group and let us be your startup buddy.

 

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