Angel Investment – Definition, Benefits, How to Become an Angel Investor

In the startup ecosystem, you might have heard “XYZ angel investor invested in XYZ startup” or "XYZ startup raised 1.5 crore angel investment from a host of angel investors” before, but what does it actually mean?

To give shape to any revolutionary idea, every startup needs financial backing from external parties. And this financial backing comes from a host of angel investors or investor groups.

But who are these angel investors, and what’s in it for them?

By definition, an angel investor is an individual who provides financial backing to early-stage startups. Angel investors take higher risks than other traditional investors, and they're usually the first to offer money to a startup before it has begun generating any revenue - which is indeed risky. But the possibility of making a 10x return or more on the investment balance everything out.

For retail investors interested in angel investing, it is essential to understand the risks and rewards associated with this type of investment. While angel investing can lead to high returns, there is also a higher risk of losing your entire investment.

Despite knowing the risk, if you’re interested in exploring angel investment and investing in early-stage startups, we have encapsulated every bit of detail you need to become an angel investor in India in this blog -

Table Of Contents –

• What is angel investment?
• Benefits of angel investment
• How an angel investor makes money from angel investment?
• Who can make an angel investment in Indian startups?

 

What is Angel Investment?

Angel investment is a type of equity financing that allows investors to provide capital for entrepreneurs in exchange for an ownership stake in the company. Angel investors typically invest smaller amounts of money than venture capitalists, and they often take a more hands-on approach to mentoring and guiding the companies they invest in.

 

Benefits of Angel Investment

For retail investors, angel investing can be a great way to get involved in early-stage companies and support entrepreneurs. Here are some of the benefits:

1. Potentially high returns: If the startup becomes successful, Angel investments can offer higher returns than traditional asset classes.

2. Helping others: By investing in an early-stage company, you can help the entrepreneur realize their dream and potentially create jobs.

3. Being part of something special: Angel investing can give you a front-row seat to watch a startup grow and achieve success. It's also a great way to network and meet other like-minded people, who can later connect you with other investing opportunities

4. Personal satisfaction: There's a lot of satisfaction from knowing you helped a startup get started and watching it succeed.

 

How An Angel Investor Makes Money From Angel Investment?

The three common ways through which an angel investor can make money from angel investment are as follows -

• When the startup raises another funding round, an angel investor can take the exit by selling ownership shares.
• When the startup is acquired by another big startup, an angel investor receives the cash or share of equity or both.
• When the startup goes public, an angel investor receives money as part of the IPO.

 

Who Can Make An Angel Investment In Indian Startups?

Becoming an angel investor requires much more than just capital. In theory, angel investors are qualified accredited investors with the capital, time, and inclination toward a startup.

Even though becoming an accredited angel investor is way beyond the reach of many, it is not the only way to go about investing in startups.

In India, anybody aged 18+ years and with enough disposable income to invest in startups can make an angel investment in Indian startups.

Also, with the introduction of angel investment platforms like POD, both - accredited and non-accredited investors like retail investors can invest in early-stage startups with as little as INR 20,000.

In conclusion, investing in a startup is as profitable as risky. Therefore, we advise our patrons to conduct proper research before investing in a startup.

If you want to know how seasoned angel investors vet the startups, we have laid down 6 expert tips on how you can make smart angel investment like a seasoned angel investor.