Angel Investing has become one of the buzzing terms of the financial world in recent days. When we talk about the term Angel, we usually visualize someone who has pure motives and has come to help us out. Angel Investors are something very similar to this. Angel Investors (or simple angels) are individual investors who invest in any company – usually a start-up in return for some personal reasons. Unlike venture capitalists who seed finding into companies for monetary gain.
One of the major characteristics of Angel Investing is the abstinence from core monetary gains. The primary motive of Angel Investors is not solely to gain money or make a profit. Instead, they invest the money because of various personal reasons for example – interest in a particular genre of business. Let us take, for example, someone who has had a very difficult time during his academic phase may be interested now as an Angel Investor to promote ed-tech companies.
History of Angel Investment
Though the term has been popularized quite recently, the incidence of occurrence of angel investments dates to the year 1900. During this time, many renowned capitalists offered investment for running famous Broadway shows. At that time, Broadway shows were markers of status symbols. So, even though these investments did not earn their monetary benefits, the investors got flooded with pride and prestige for organizing and funding the shows. At that time, they were attributed with the term Angels and the same has been continuing till date. Later in the year 1978, Professor Willian Wetzel of New Hampshire University raised the topic of angel investing again through one of his very famous research work papers where he described the various modalities of raising capital by new-age entrepreneurs. Since then, Angel Investing has been a very popular term, especially in the dictionary of start-up companies who need a solid pedestal of funding for conducting their work.
How Does Angel Investment Work?
Angel Investors as the term suggests are really angels for several start-up companies. Many start-up companies do not qualify to get bank funding or support from well-known venture capitalists. They do not have any experience or resources and often they do not even have a solid plan to convince capitalists of the profits they can make out of their business. So, people who are precisely seeding entrepreneurs to make money out of the investments would hardly be interested to even listen to the project proposals of such companies.
Under these circumstances, the companies have no other way than to approach the Angel Investors. An angel investor is a wealthy person who has enough assets and worth to invest some $25,000 to $50,000 to any start-up company to get that started. In return, they can an ownership stake of the company they are investing in.
The best part about Angel Investors is that they do not demand rapid revenue growth and turnover from the companies as venture capitalists. It is their passion and commitment that keeps them growing and helping various new cookies to make some impression in the market. Angel Investment is not all about deliberately losing your money. There are multiple instances of Angel Investors having achieved the highest appreciation and fame after the company they seeded performed very well.
How do Angel Investors Take Decisions?
Angel Investment may seem like some sort of charity business, but it is not so. You will not get random help from any Angel Investor. There are various parameters that Angel Investors take a note of before investing in any company. Just remember that it is not that Angel Investors are just giving away their money. Here are some of the things that Angel Investors assess:
- The previous track record and experience of the company
- The possibility of the business plan
- Innovation in product or service
- Assets and existing revenue
- Business scale
- Backup strategy
How Can You Find Angel Investment?
The question of the decade is – I want to connect with a good Angel Investor. Now, the rule of the game is to understand that there is a scarcity of Angel Investors across the globe. Also, it is not as easy to find an Angel Investor as it is to find a Venture Capitalist. So, yes you got to do some heavyweight research for that. You can search the internet.
Also, a very good way is through financial advisors. Financial advisors act as the connection point between potential clients and Angel Investors, so you can connect with them. There are various crowdfunding sites that can help you come across the best Angel Investors. Apart from that, lawyers and accountant can also help to find our Angel Investors. In fact, various venture capital firms also refer some of their clients to Angel investors especially when they think that they don’t want to fund the company.
Do Angel Investors Make Some Money?
Because we are sorely focusing on the domain of Finance, where numbers and profits are the driving force and not some charity or goodwill, it is hard to believe about any type of investment that comes with zero returns. So, very often people are plagued with the dilemma that do angel investors make some money in real? And if not, then why would someone waste their money by simply investing without any monetary motive? Also, is Angel Investing charity work for the finance world?
Well, the space for the dilemma is enormous when it comes to Angel Investing. Angel Investors can also make money and have great returns from their investments if they work with the right company that has sufficient drive and capacity to make money and earn profits. However, this is not the case often. Electing a company on the abscess of its past reeds and capacity to make money is a part of venture capitalism and not Angel Investments. So, to be honest, Angel Investors make very little money (if at all they make). Most likely they lose all their money. Now, if one is not considering numbers, then this may not actually seem to be a loss because some company is gaining a strong pedestal out of the money invested. This is the exact reason, why only very rich capitalists choose to or rather can afford to be Angel Investors.
Tips for Angel Investors
Here are some of the pro tips for people who soon or in the long run are planning to become Angel Investors:
- Read and Realize the Value of Angel Investments before you expect anything out of it. Remember that you are investing not for monetary gain. So, it is better to have the worst possible result already figured out. And that is – you could lose all your money. Also, if you are investing in a company that has no future, you are bound to lose bets.
- Have a note of your worth. Without having a worth of at least $1 million dollars per year, time should not even think of Angel Investment. Your worth and profit should be robust enough to have your back when you lose your money. Remember that you can afford to lose money only when you have assurance that it won’t cause harm to your personal or professional assets.
- Assessing the risk is very important. Most people think that, because it is Angel Investing, they will let the heart rule over the mind. That is true to some extent but not in its entirety. Be it a venture capital investment or an Angel Investment, the portfolio of the company you are investing in, matters a lot. You must have an idea about the work they are doing and the approaches they are taking. This immensely helps to have a good idea of how far they are likely to succeed.
- Deciding on the number of Angel Investments that you do every year is also ideally crucial. You do not want to drain all your money by Angel Investment. Also at the same time, you want to do some good work and boost new companies. This balance will only be at the optimum when you limit your angel investment size to 1 or at the maximum of 2 per year.
Do not assume angel investment as a tool to make money because you are surely going to lose the game. However, it is not true that you are bound to lose whenever you go for angel investment. Yes, many people do make money out of Angel Investments as well. The primary tick for that is to choose the right company to work with. You must assess their worth and their nature of work. Being an expert Angel Investor may take some time. But at the end of the day, if you are willing to be an Angel Investor – Rule out the mentality to make money out of it. Remember, True Investors are more interested in growth and development rather than only making money.