If you have seen any startup movie you would have definitely watched an angel investors enter the scene and dump money to make the protagonist’s dream come to a reality. But who really are these angel investors. In this article, we take a look at who angel investors are and understand them better. Keep Reading to find out!
What are Angel Investors?
Angel investors are individuals often of high net worth who provide financial backup to startups which they find promising at their early stages. This financial backing is given in exchange for a stake or royalty in the newly found company.
They generally invest in the idea or the entrepreneur in order to help them out their startup plan into action. Angel investors however may also make these investments even when the startup is already functioning at its early stages. At this stage budding entrepreneurs generally do not find any sources of funding as they do not agave any proof that their idea will work.
These investors are also known as angel funders, seed investors or business angels, etc. The term angel investors originally came from Broadway. You must have already heard the word patrons used in fields of arts. Similarly, the term angel was used to describe wealthy individuals who would fund theatrical performances.
It doesn’t come as a surprise if this word is now being used outside the arts field as well as the same wealthy individuals also fund up and coming startups.
The official usage of the term however was first seen in 1978 when William Wetzel a professor at the University of New Hampshire and founder of its Ventre of Venture Research used the term. He did this to describe seed investors in a study describing how entrepreneurs raised seed capital in the US.
Who Makes Up the Angel Investing Crowd?
We have already gone through what the term means but now let us have a look at who makes up the angel investing crowd.
- These could include professionals like lawyers and doctors or executives who have amassed significant wealth over their career or while building up another company.
- Entrepreneurs who are already successful and have the experience of running a company. They can also provide guidance to startups thanks to their experience
- Other wealthy individuals, who do not want to spend the time and effort of opening and running a company but would rather find startups that are hidden gems in their pastime.
- Crowdfunding platforms also provide an opportunity for individuals to pool their funds with others.
But Why Do These Individuals Invest in These Startups? Is Angel Investing profitable?
This is a common question asked as these individuals have access to various other investment opportunities like blue-chip stocks, then why go for these startups. The angel investing crowd generally includes individuals that are looking to earn a higher rate of return.
They look for opportunities where their investments would provide 20 to 30 times returns over a five to seven-year period. This would mean that the investors would at least expect to receive a 20-30% return every year. These returns are extremely difficult to generate through traditional means.
It goes without saying that these investments are extremely risky! In a situation where the startups fail these investors are bound to lose all their investment. These investors however invest a maximum of 10% of their total portfolios in angel investments giving them some protection against such losses.
|Sr No.||Angel Investor Name||Startups Invested|
|1||Rajan Anandan||Instamojo, Travelkhana, Explara, Social Cops, Letsventure|
|2||Anupam Mittal||Ola Cabs, BigBasket, Druva, Pretty Secrets, LetsVenture|
|3||T.V. Mohandas Pai||Zoomcar, YourStory, FairCent, Kaaryah, Verloop|
|4||Girish Mathrubootham||Unacademy, Innov8, Whatfix, The Ken, GoBumpr|
|5||Anand Chandrasekaran||Fynd, Yulu Bikes, MoEngage, NoBroker, Khatabook|
|6||Sunil Kalra||TargetingMantra, Instamojo, CultureAlley, AdPushup, Mobilewalla|
|7||Sandeep Tandon||Unacademy, Razorpay, Inc42, Ziploan, Pocket Aces|
|8||Anand Ladsariya||Oyo Rooms, Myntra, Asiatic, Clensta, Glam Studios, Confirmtkt|
|9||Sanjay Mehta||Oyo, InstaSafe, Blubirch, Box8, Repup|
|10||Ganesh Krishnan||BigBakset, Portea Medical, Bluestone, HomeLane, HouseJoy|
Why Do Startups Prefer to Take in Angel Investors?
Angel investors provide multiple advantages which are why startups prefer angel investors over other investors. It goes without saying that these startups at their initial stages cannot access stock markets. The only other accessible option left for them would be to apply for loans.
But these sources also bring with the obligation to pay back the loans with interest. Angel investors do not expect such immediate timely payments. Then how do angel investors make money? They expect returns only when the startup is big enough to go public or get acquired by another company.
In addition to this angel investors also bring with them, their experience allowing them to guide the budding entrepreneurs. Their contribution does not stop here. Being wealthy individuals they also bring in their contacts which are very important for a startup.
There is however also a downside to angel investing. Entrepreneurs who do not want to let go of any ownership within the company may find this as a snag.
We have covered the role angel investors play within a startup. But they also have a greater role to play in the development of an economy. In the year 2000, India had less than 50 angel investors. This further affects the Indian startup ecosystem as a whole.
Luckily for us today this number has increased massively. In the first 4 months of this year alone we saw $7.8 billion being invested. Which was more than 50% of the total investments for the previous year. Angel Investors play a very important role in bridging the gap between innovative ideas and funds. A few companies in which Angel Investors have invested are
That’s all for this post “What are Angel Investors And How Does It Work”! Let us know what you think in the comments below. Happy Reading!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.