Angel Investing

What is Angel Investing?

Angel investing refers to the practice of high-net-worth individuals investing in startups and entrepreneurs at their nascent stage in exchange for equity (or debt convertible into equity). These individuals, known as “angels or angel investors,” typically invest their own funds with the aim of earning a high return on their angel investment when the startup succeeds and grows. Typically, Angel investors carry out investing in startups when the entrepreneur is still working on developing the products or services.

Angel investors are the key pillars of entrepreneurship framework of any country. Angels investments provide the first level of external validation to a startup’s business idea. 

How do angel Investors make money?

The value of a startup goes up when its product or service is launched in the market, and the launch is successful. The value of the angel investments also go up correspondingly. But the angel investors can exit the investment only if somebody buys their shares. This can happen in several ways – the late stage investors such as venture capital firms can buy them out or a strategic buyer takes over the startup by buying all equity or the startup matures and gets listed on the stock exchanges.

Why should angel investments be a part of investment portfolio?

Angel investments are used to provide “alpha” to the investment portfolio. Alpha means providing excess returns above the market returns. Angel investments offer the opportunity to gain exposure to potentially high-growth startups and entrepreneurs before they become listed and widely known or accessible to the general public.

Why is this the right time to become an angel investments in India?

Everything has fallen into place to confidently create a portfolio of angel investments in India. Thanks to Shark Tank, angel investing in startups has become mainstream even in tier 2/3 cities.

There are deals available in all sectors, the Venture Capital ecosystem has evolved to provide exits, there are co-investors available to handhold you when you begin your journey of investing in startups; and even the regulations pertaining to investing in startups are supportive. Platforms like Angellist India and LetsVenture provide anyone interested in angel investments with access to good opportunities.

Accelerators such as GSF handhold the startups from day one by running specialist programs where entrepreneurs get specialist guidance and mentorship before they get any external funding.

Read my detailed blog about investing in startups:  https://vcify.online/the-case-for-angel-investing-in-india/

How does one evaluate deals for angel investing?

First of all, you need to define your own philosophy or guidelines regarding investing in startups –  what kind of companies you can evaluate and invest in, what is your risk appetite, which sectors are you comfortable with and how much can you invest in angel investments. Once you have defined your investment philosophy, you have to follow it with discipline.

You also need to understand the concepts, terms, and documents used in the startup eco-system such as product- market-fit, minimum viable products, the three contribution margins etc. Knowledge about understanding and evaluating termsheets also needs to be acquired.

All investors evolve their evaluation methodology over a period of time but to begin with you need to understand a general framework how to evaluate investing in startups and come to a conclusion whether it’s a good deal or not.

All these are covered in our course, Navigating Angel Investing in a very organized and easy to understand way.

Does one need finance and accounting knowledge to do this course or to become an angel investor?

Not at all, you don’t need any accounting or finance knowledge for investing in startups especially early stage. Remember angel investing is about investing in very early stage companies and backing the right entrepreneurs– there are no historical financial accounts or balance sheets available in any case.

The most important skill that you need is to how to make a call whether the product or service will be accepted in the market at the right price and whether the entrepreneur and her team is the right one.  How to breakdown these two critical factors in detailed evaluation is covered very well in the course.