Any startup that has just taken off will require funding sooner or later. Startups are high-risk businesses. Research shows that 90% of startups fail.
How do you get somebody to put their money into something 90% likely to fail?
This article will explain what angel investors are, how much money you can expect, and where you can find one.
Angel Investors: Who are They?
An angel investor is a high net worth individual who puts a part of his portfolio into a startup that is only a few years old, primarily to gain high returns as the startup grows over time.
An angel investor can be anyone in our day-to-day lives, like a well-known doctor interested in a medical startup that’s emerging or a wealthy lawyer who’s into an IT business.
They can also be entrepreneurs with a lot of business knowledge who are into angel investing. These people can bring a lot of value to the table with their years of experience.
Angel investors look for startups that haven’t yet grown to their full potential. This is because the returns are entirely based on how a startup grows over time.
However, not all angel investors are into this business only for money; some are genuinely interested in the problem that a particular startup aims to solve and actively participate in the startup’s day-to-day decision-making.
Typically How Much Do Angel Investors Invest?
The amount of capital an angel investor invests in a startup depends on multiple variables. They include things like how much heat the startup is generating in the market, how sound is the business plan, the problem statement, growth potential, etc.
It is only after extensive rounds of meetings, presentations, and detailed discussions with the founders that any investor will pool their money.
The amount can vary from anywhere between $5,000 to $150,000. Multiple angel investors can also pool money together, leading to amounts ranging anywhere from $100,000 to $200,000 or even more.
Some rare rounds of angel investments can also go as high as $1 million if the startup has generated huge attention in a particular industry.
Where Can I Find Angel Investors For My Startup?
Hundreds and hundreds of startups are created each year, and with that, it is getting increasingly difficult to find the right investor for your startup. Therefore it is crucial to have a solid insight into how you can find your angel investor.
It is important that you first start with “what” rather than “how” when it comes to finding the right investor. Here are some of the general characteristics of an angel investor:-
- The investor has a high overall net worth
- In general, angel investors fall in the 30 to a 60-year-old age bracket
- Most angel investors have a solid experience in handling businesses
- The investor has a keen interest in a particular industry he/she wants to invest in and entrepreneurship as a whole
- Most of the dealing and networking happens through referrals from well-known people in his/her circle.
Now that you know what an angel investor is, we can move to where you can find them.
You can check if anyone in your contacts knows someone who might be an angel investor. You never know what the result might be. There might be someone important in your contact list that you didn’t know of until now.
Check out Angel Investing Syndicates
There are a lot of angel investors out there who like to do their business in groups of multiple investors and not as an individual. These types of investors are generally a part of a syndicate. You can search on the internet if there are any in your locality.
Use Online Platforms
One of the most efficient and simple ways to find your angel investor is through an online platform. These platforms are websites that have thousands of investors connected to them. You can pitch your business ideas to any one of them.
One of such online platforms is Inflection Point Ventures (IPV). This 6800+ strong members angel investing platform supports new-age entrepreneurs, providing them monetary & experiential capital by connecting them with diverse investors.
How Do Angel Investors Get Paid Back?
Generally, when an angel investor puts money into a startup, he gets a stake in the company. A stake is a percentage of ownership of a company.
As the startup grows and performs well over time, the company’s worth increases. This increase in worth reflects in the shares of the company. As the share price goes up, so do the investor’s returns. Things are not only limited to this; apart from a stake in the company, investors also get to be involved in the decision making of the company in some cases, which is influential in itself, especially when the startup becomes big and significant in the industry landscape.
To maximise the gains from an investment, angel investors look for companies with huge growth potential in the coming years. Angels generally aim to take about 15-25% ownership of these companies and cash out once the company’s max growth potential has been reached.
Running a startup can be a daunting process, even for someone with decades of experience. Consistently getting the right funding for it can be even more challenging, but with a clear and deep insight into angel investors, things can become a bit easier. In this article, we learned what angel investors are, how much money to expect from them and how you can get one for your startup.
If you found this article helpful, feel free to share it with your friends and family who might be looking to know about angel investors. Most importantly, have fun starting up.