Introduction
The startup ecosystem is composed of several parts such as IPR, Entrepreneurship education, startups at various stages, angel investors, startup advisors and so on. In this article, I will discuss more on angel investors.
Meaning
- An angel investor is a high net worth individual who provides finance to small startups or entrepreneurs.
- They are often called private investors, seed funders or angle funders
- They provide funds in exchange for ownership equity or debt instruments.
- They are generally retired individuals as well as managerial people finding new innovative projects for high return.
Purpose of angel investors
- To gain a return on high-risk projects.
- To invest a small portion of their wealth(eg. just 10% of their wealth) in innovative ideas to get a chance to earn huge returns.
Benefits to startups
- Getting funds without hassles such as no need to fulfil burdensome conditions of the bank.
- They are a good source of funds for entrepreneurs going through immediate money crises.
- They don't require immediate return and provide flexibility in payoffs.
- They provide expertise as well as technical know-how to businesses.
Risk involved
- They require a higher rate of return(generally 20 to 30%) in comparison to other market sources.
- As they become part-owners, sometimes ego clashes with management may ruin the business.
- They may withdraw funds anytime as soon as they see the risk of business decline.
Growth in India
- In 2000, there were around 50 angel investors at most.
- This figure is increased to almost 7000 in the past year.
- Such an increase in numbers is a result of globalization as well as youngsters showing interest in angel investing. As per recent data, the average age group of angel investors is between 25-30 years.
Conclusion
With the recent growth in startups, angel investors have also grown in numbers. This increase shows the interest of startups in angel investors as a source of finance. They have many benefits as well as some risks. With some consideration in mind, they will provide a good source of funds for startups.
Also Read: Angel Investment Tax on Start-ups
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