Things you might want to know about Angel Investing - Kalkine Media

August 06, 2020 09:04 PM AEST | By Team Kalkine Media
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Summary

  • Angel investment is a good opportunity to make inroads in to the exciting world of startups.
  • Investing in startups is riddled with landmines and it calls for a deep assessment of the founders.
  • Angel investors not only bring in equity on the table but also years of experience running businesses.
  • Angel investing is not about strike rate, but about making big money when one finds the right investment.
  • Some people who find success in their professional career tend to look at Angel investing as a way to deploy their capital. Examples include Jeff Bezos of Amazon, to Hollywood celebrity Ashton Kutcher, to sports star Shaquille O’Neal to name a few.

Angel investment is an opportunity for investors to get associated with startups. Initially, the term ‘angel’ referred to a wealthy individual in the Broadway theatre community. The individual would step up to save a production house from closing its doors due to unforeseen circumstances. Even before that, the term was used for the patrons who supported artist and creative professionals struggling financially. So, the artist could focus on creating new artistic work without worrying for finances. Angels are the modern-day sympathetic financiers.

Who is an Angel Investor?

An angel investor is a wealthy individual who provides funding for a startup, often in exchange for an ownership stake in the company very early in its life cycle. These investors will invest somewhere between $25,000-500,000 to help a company get started. In many cases, angels are considered the last option for startup that don’t qualify for bank financing and too small for venture capital (VC) firms to invest.

Angel investors are also more concerned with the commitment and passion of the founders, unlike VC’s, who demand aggressive revenue growth quickly. It is believed that angels aren’t as typically focused only on quick money-making as VCs and are healthy options for startups. Angel investors tend to focus more on the team that is running the show and back the founders more than the idea per se.

While they may not be cutthroat like the VCs, they are, first and foremost, investors. They do make a difference between a startup’s growth or closure and are not interested in giving away their money. Smart angels often consider various options when evaluating businesses to improve their odds of getting back their investment. It’s always better to assess experience or track record of founders, the viability of the business plan. An innovative or disruptive product or service is still the interest of an investor. Angels come with a vision of long-term investment; hence they always consider scalable businesses but always contemplate on an exit strategy.

Align yourself with the speed of a startup with a strong strategy:

Startups are early-stage small companies which are on looking for expansion of their business’s ideas. Many investors plan on getting a big chunk in return of their investment in the startup, but mainly it is a vision and a great team they are initially investing in. To understand how startups work and which startup suits your investment capability, investors can get involved in the angel networks, where a syndicate of angels come together to share ideas and experiences. This can benefit an investor in two ways, and firstly, you get to meet experienced angel investors from who’s success and failure you can learn, secondly, you can also leverage their power of network. Industry experts say, be the first one to get involved in an idea but be patient with its growth.

Angel investment has risk associated with it, as you are investing very early in an idea, which may fail, at times, these ideas are just on papers. So, it’s always better to come with a strong investment strategy. Experts believe it’s still better to make sure what you invest in, so you know what you may lose. It’s a high-risk game, better understand the rules.

Unlike buying a share, the amount of investment you need in angel investing is a little higher. Smaller investors invest anywhere up to $100,000, but industry experts suggest to get associated with angel networks, with its syndication one can invest $5,000 to $10,000 per company and diversify your portfolio.

What to look in a startup:

Angel investment is an equity investment in companies in budding sectors such as technology, healthcare, fintech, etc. Angel investors look for startups at a very early stage in their life cycle. The investment can be considered risky, but angel investors usually exit when the company gets subsequent rounds of funding. A small but increasing number of angel investors these days invest online through equity crowdfunding. Few prominent ones include AngelList-by Naval Ravikant, a successful angel investor himself, Gust-one of the world’s largest startup network.

Angel Investors from varied background

Angel Investors come from a varied background, for instance Jeff Bezos of Amazon was an Angel investor in many startups such as Google, Airbnb and Uber to name a few. Hollywood celebrity Ashton Kutcher has invested in ride hailing app Uber, Robinhood etc. NBA star Shaquille O’Neal has invested in Google during the early phase of the search giants’ journey.

Angel investing is not for everyone, and there is no silver bullet to find success. As mentioned above, one must focus more on process over outcome and over time one has the possibility to taste success and it is quite rewarding for those who manage to cross the bridge.


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