When it comes to starting a new business, getting funding is one of the most important steps, but it is often one of the hardest steps. This is true especially during the early phases of launching a new business. At this critical moment, angel investors can step in and help. These investors usually have high net worth and offer mentorship, some financial help, and a valuable professional network to assist new startups progress and succeed. This article will look into the role of angel investors, the pros they offer, and some notable examples of successful investments.

Who Are Angel Investors?

They are known as smart money in the startup ecosystem and are made up of individual accredited investors who are known for investing in viable, early-stage companies together with business entrepreneurs. In exchange for their investment, they normally demand some equity in the business or a form of convertible debt. Unlike venture capitalists who tend to invest in more mature companies, angel investors typically support businesses in their infancy, often when traditional financing options, such as bank loans or venture capital, are not an ideal solution.

Apart from financing, the assistance provided by an angel investor goes even further in the form of advice and guidance, facilitating introductions to important customers or potential investors. many of them are not just businessmen: Some of these senior-level angel investors are highly professionally trained and well-versed in the specific domain that they work in.

A well-known case of an angel investor is Mr. Ratan Tata who invested in Urban Company. This was helpful for the company as it is well-known that a name this big can provide assistance in getting further funding as well as additional rounds of funding in the future because of the person’s name and industry reputation. Urban Company is backed by Tata Group and therefore will be able to get significant funding in future.

Urban company will tremendously benefit from this funding as many forms of traditional funding can easily be accessed.

Advantages of Angel Investment

All startup companies that are at the initial level and are facing struggle in getting more advanced forms of funding will benefit significantly from angel investors.

Main Objective of Investment: If there is no money collateral or cash flow, then banks wouldn’t lend, which is where angel investors can help out. Furthermore, before a product is developed and the market is full of potential, investors who provide venture capital wouldn’t assist which is where angel investors are crucial for early funding.

High Growth Firms: These are the types of businesses Urban Company is best known for as it operates in a large marketplace which has fully functional needs in Salon, spa, plumbing and electrician servicing. As this further helps The Urban Company achieve great heights, it also makes them easy access for angel investors who are looking to take the risk advising growing companies.

Financial Assistance for Small Entrepreneurs: An example of an entrepreneur is an individual who engages in establishing and nurturing a startup business. They receive considerable support from angel investors who assist them in acquiring funds that are difficult to source due to the presence of funding constraints. Ritesh Aggarwal the CEO OYO Rooms, also had an angel investor’s support while coming from a small village and that aided the company post it’s funding.

Examples of Successful Angel Investors

Some people assume all, angel investors are hawked construction speculations sharks in their industry but in fact, angel investors originate from different walks of life and finance some of the most successful startups in existence today. A few examples are as follows:

Sharad Sharma: Aside being a former CEO of Yahoo, Sharad Sharma started investing in Mobilewala and HashCube and helped those startups to scale by providing the much-needed fund and supervision in teh formative phase of their operations.

Nykaa: Widely recognised as the women-oriented brand in beauty and makeup items, Nykaa garnered case from Investors such as:

Sunil Munjal (Chairman, Hero Enterprises)

Harsh Mariwala (Chairman, Marico)

Max Ventures and TVS Capital Funds.

Ashish Gupta: An established bank of funding proposition who displayed that image back in 2008 by engaging with the founders of Flipkart. Their preparing for the first round of funding alongside him proved an essential back when he gave a cheque totaling Rs. 10 lakh which aided them in scaling now seen as one of India’s largest Ecommerce platforms.

Family Funds: A few family offices and foundations act as business angels as well. For example, DLF Foundation and Mr. Sunil Munjal’s (Chairman of Hero Enterprises) family fund have a penchant for funding new ventures. Typically, these family funds are derived from some combination of earned income, bonuses, or sale of stock options, and they can provide much-needed capital at the earliest stages of a firm’s development.

Purposes of Angel Investors

An angel investor’s scope is beyond merely looking for financial returns. They have multiple objectives to accomplish when investing in a business.

Profit Making: On overarching objective of angel investors is to earn high returns on their investment. They expect 10-20 times return on the amount invested. Take for example the case of Ashish Gupta, who invested Rs. 10 lakh in Flipkart, and exited with a whopping Rs. 100 crore. Since there is a high risk associated with investing in early-stage businesses, angel investors look forward to being greatly rewarded for their participation.

Control: To some degree, control over the business is one of the most basic requirements of any investor. More often than not, investors will want a board seat, shareholder rights, voting rights, or other forms of power that undermine the entrepreneur’s ability to make decisions independently. This way many angel investors will be able to influence the company’s direction and growth.

Social Impact: Numerous angel investors are driven by a burning desire to initiate social change. Mr. Ratan Tata put his money into Urban Company not just for profits, but to help in a social cause of offering respect and dignity to workers in industry like hair cutting, plumbing, and other household repairs which are economically regarded as blue-collar jobs. Normally, social impact investors prefer working with businesses whose profits are intended to address social problems.

Working with Action-Oriented Entrepreneurs: Angel Investors prefer to support entrepreneurs with strong action-oriented leadership capabilities and a bold line of vision. Investors would want to back a founder who not only has imagination, but is also able to put action to it properly. They prefer to work with those who are willing to do the difficult tasks that entail turning concepts into tangible outcomes.

Active Involvement: Many of the times, an angel investor does not only provide funds but also participates in the operations of the business. If he is skilled enough, some would assume active roles in the company, like Chief Executive Officer and Chief Technology Officer. This is the case when Rahul Jaimini, who was the CTO of Swiggy, invested in a startup and assumed the leadership of the company.

Exit Strategy: For an angel investor, an important consideration is the possibility of exiting the investment and making a return. This can be facilitated by an initial public offering (IPO), a buyout by a venture capital firm, or a sale of the company. Making sure the investor has a good exit is always a crucial part of the investment arrangement.

Conclusion

When it comes to the success of many startups, angel investors are imperative. They help fuel development during very sensitive stages where other funding options may be inaccessible. Other than financing, they provide mentorship, direction, and even networks that greatly assist entrepreneurs in the difficult task of building a business. If you are an entrepreneur with a business idea, seeking for angel investors will help propel your business and take it to greater heights.

With the understanding of the driving forces and goals of angel investors, you can modify your business strategies to effectively integrate with these prospects for a win-win proposition that will work to your advantage.