Warren buffet, George Soros, Carl Icahn, Ronald Perelman, and many others are not just the names of some people instead these names have become synonymous to success due to their smart and perceptive ‘investment skills’. Many people across the world got inspiration from these giants and enter into the fascinating and lucrative world of investment, and invest their money in various financial instruments like stocks, bonds, mutual funds, etc. Countless people have made million through these investment channels. But these days, there is one another type of investment that is attracting everyone’s attention towards it i.e. Angel Investing. It is a lucrative form of investment which promises very high returns (with equal risk too) and thus many want to become an angel investor. Therefore, here we have enlisted few of the vital things which every investor should know before coming to a conclusion of becoming an angel investor.
Understand the Reward and Risk Factor
Typically any angel investor looks for a return of over 30% on his/her investment in any start-up. Many angel investors even get equity of 20-50 percent as par the deal struck in the final rounds of negotiations. Many angel investors have even become millionaires and gained gigantic profits on their investments like of Ashish Gupta, an entrepreneur cum investor who was the first angel investor in Flipkart, an e-commerce giant. In 2009, he had invested 10 lakh Indian rupees in Flipkart (which was then only a start-up) and within a decade his investment made him earn a whopping $20 million. Many other angel investors also struck gold by investing in start-ups. But, wait there is another side too. As there is one saying that says: ‘Every big thing comes with some risk,’ angel investing also have some sorts of risks associated with it. Whenever an investor thinks to be an angel investor, he/she must have to understand that investing in start-ups can be rewarding as well risky too, as no one can exactly predicts which company is going to give how much return in the future. Whether, a start-up will survive or collapse, no one knows. One bitter truth is many of these start-ups collapses and investors many times lose some or most of the money they invest. Moreover, unlike other investment like stocks and other- liquidity factor is there and one can sell and get their remaining money back when feel unsecure about company’s future but here one has to remain committed for a longer time no matter how the start-up is performing. An angel investor thus should ask one question to himself/herself – how much can I afford to lose without hampering my lifestyle. Always invest that much amount only which do not make you feel bankrupt if the investment fails. Such things can help you prepare mentally for investing better in start-ups.
An Angel Investor Should Posses Right Expertise
An angel investor is not just only a lender instead he/she offers more than the ‘money’ to any start-up business. An angel investor is like a guardian of the start-up who is authorised to assist in driving business in the right direction. They can help in taking better decision, managing human resource operations and in improving productivity and efficiency through their expertise and knowledge about that particular domain or sector.
Most of the angel investors invest in areas that they have expertise in or very close to their heart. They provide advice, share key contacts, and expertise to run a business in a hassle free manner without any conflict. Their wisdom and passion to actively participate in flourishing the business give more confidence to the entrepreneurs to move ahead even in the challenging circumstances. It is thus very much important that you should invest in those areas where your expertise lies in. Then only you can contribute in business success and know exactly where the wheels are moving. Investing in those areas where you are almost novice is not something which can be advisable to an angel investor. Therefore, finding your key areas of investment as par your expertise is another check that every angel investor should take care of before taking any further call.
Should be Financially Strong and Stable
There are different types of start-ups ranging from an IT start-ups, Food start-ups, Travel and Tourism start-ups, etc. which needs different set of infrastructure, software, manpower and expertise. Further, how good the idea is; what kind of problems that particular start-up is going to encounter; how much return that start-up can really promise in the longer run, etc. actually decides the amount of funds one entrepreneur needs to launch his/her start-up. Many start-ups where entrepreneurs are very much confident about their good financial returns start investing heavily from the initial period itself. Such promising start-ups usually require funds up to many millions to thrive. Usually, angel investments range from $25,000-$50,000 per company (though it can be as little as $10,000 or as much as $100,000 as well).
It is thus imperative that the angle investor also sounds financially strong to invest. It is not like anyone can become an angel investor. There are certain regulatory guidelines that one needs to follow. And, one such guideline is that- every accredited investor should have an annual income of $200,000 or a net worth of at least $ 1million to fund a start-up. It is thus imperative for any investor to check at their account once before thinking about to become an angel investor.
On the other hand, entrepreneurs also get benefits of exempting from many securities filings from SEC and state securities regulators if they take money from accredited investors.
Join Any Angel Investors’ Group
An investor should also educate himself/herself with all the nitty-gritty concerning angel investing. Reading books, attending seminars, reading blogs/articles, watching videos are some of the ways of learning more about angel investing. But one method which is considered as best among all is to join any reputed angel group. By doing so, one can understand the minds of experienced angel investors. Entrepreneurs can ask for practical suggestions, know how they filter out the best, and take active participation in the Q&A rounds with the entrepreneurs to know their demands and minds as well. Such a platform gives an enormous opportunity to an investor to deep dive into the world of angel investing and help take the right decision to know whether it suits them or not.
It is thus imperative to go through all these checks before signing the first fat check towards your dream investment to earn a safer and better return.
– Ashwini Deshmukh