Angel Investment
Introduction
Angel investors (also known as a business angel, informal investor, angel funder, private investor, or seed investor) are individuals who provide capital for a business or businesses startups, usually in exchange for ownership equity or convertible debt (i.e., a business borrows money from a lender where both parties enter the agreement with the intent to repay all of the loan by converting it into a certain number of its common shares at some point in the future).
- These types of investments are risky and usually do not represent more than 10% of the angel investor’s portfolio.
- Most angel investors have excess funds available and are looking for a higher rate of return than those provided by traditional investment opportunities.
- They provide more favourable terms compared to other lenders, since they usually invest in the entrepreneur starting the business rather than the viability of the business.
How Angel Investing Works
- Angel investors prefer to get involved in the early stage of a company, at the “seed” or “angel” funding phase. That could mean the angel invests when the company exists only as an idea, or it could come when a business is already up and running.
- Angel investors come in after the original funding is in place but typically before a company requires a more sizable investment. Their investment is needed to grow a company at a critical (and usually early) stage of development, after the initial funding threatens to run out.
- Angel investors typically use their own money, unlike venture capitalists who take care of pooled money from many other investors and place them in a strategically managed fund.
- Though angel investors usually represent individuals, the entity that actually provides the funds may be a limited liability company (LLC), a business, a trust or an investment fund, among many other kinds of vehicles.
Sources of Funding:
They often come from the business world—but that’s not their only point of origin. They are commonly found in the following professions:
- Business professionals, like lawyers, doctors, accountants and financial advisors, among other professions.
- company executives, who have risen through the ranks and know what it takes to run a successful business.
- Successful small business owners and entrepreneurs who have already launched successful companies and know how to recognize startups that have a bright and profitable future.
- Investors who make financing small businesses a professional pastime.
Here’s how the actual investment process rolls out:
- Angel investors connect with young, developing companies through word of mouth, through business and industry seminars or conventions, through referrals from professional investment organizations, from online business forums or via local events like chamber of commerce meetings.
- If there’s mutual interest, the angel investor will conduct due diligence on the young company by talking to the founders, reviewing business investment documents and gauging the industry the company is targeting.
- Once a verbal agreement between an angel is in place, a term sheet or contract is drawn up, with agreements on the investment terms, pay-outs or equity percentages, investor rights and protections, governance and control parameters and an eventual exit strategy for the angel investor.
- Once the contract is finalized an actual legal agreement is created and signed, the deal is officially closed and the investment funds are released for the company’s use.
Who can be an Angel investor:
According to the SECURITIES AND EXCHANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012:
(1) Angel fund means a sub-category of Venture Capital Fund under Category I- Alternative Investment Fund that raises funds from angel investors and invests in accordance with the provisions of the SEBI regulations.
(2) Angel investor means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,
- an individual investor who has net tangible assets of at least two crore rupees excluding the value of his principal residence, and who:
- has early-stage investment experience*, or
- is a senior management professional with at least ten years of experience;
- has to experience as a serial entrepreneur*, or 21 Inserted by the SEBI (Alternative Investment Fund) (Amendment) Regulations, 2013, w.e.f 16-09-2013
*Explanation: For the purpose of this clause, ‘early-stage investment experience’ shall mean prior experience in investing in startup or emerging or early-stage ventures and ‘serial entrepreneur’ shall mean a person who has promoted or co-promoted more than one startup venture.
- b) a body corporate with a net worth of at least ten crore rupees; or
- c) an Alternative Investment Fund registered under these regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.
(3) “company with family connection” means:
- a) if the angel investor is an individual,
- any company which is promoted by such an individual or his relative*; or
*Explanation: For the purpose of this clause, “relative” means a person as defined under section 6 of the Companies Act, 1956 (1 of 1956).
- any company where the individual or his relative is a director; or
- any company where the person or his relative has control*, or shares or voting rights which entitle them to fifteen percent or more of the shares or voting rights in the company.
*Explanation: For the purpose of this clause, “control” shall have the same meaning as assigned to it under sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
(b) if the angel investor is a body corporate,
- any company which is a subsidiary or a holding company of the investor; or
- any company which is part of the same group* or under the same management* of the investor; or
*Explanation: For the purpose of this clause, “part of the same group” and “under the same management” shall have the same meaning as assigned to it under regulation 23 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.
- any company where the body corporate or its directors/partners have control*, or shares or voting rights which entitle them to fifteen per cent or more of the shares or voting rights in the company.
*Explanation: For the purpose of this clause, “control” shall have the same meaning as assigned to it under sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
How FINLENDER helps you?
We’ve been there
Having worked with many Angel Investors, we provide resources and solutions to support initiatives across the entire finance function. We provide objective and unbiased advice and funding to fulfil our clients’ utmost needs.
We’re flexible
We have a well-rounded perception of what’s at stake for investors and their operating partners. Finlender brainstorm with management, manage multiple investors and coordinate with service providers for Due Diligence process. We provide objective and unbiased advice on growth capital, capital restructuring, buyouts and the other situation-specific requirements to our clients. We are focused on helping our clients realize value from each transaction, and tailor our approach to their individual needs.
We’re a trusted partner
We value long-term client relationships and think of ourselves as a trusted advisor. We bring a client-first approach to each engagement and supply services that add value throughout the transaction and investment life cycle.
Investment solutions offered
Finlender has the know-how to make and implement customized solutions for your corporate financing needs.
Do speak with our Financial Advisor to know more about Angel Investor in India or Angel Investment in India or Angel Investment companies in India or Angel Investment Platform in India.
Let us help you with Finance.
