Who is an angel investor?
Angel investors are the backbone of any startup ecosystem. These investors often invest very early in the life cycle of startups especially when the startup is young or just starting out. In return for their investment, they get to own a stake in the company. Most angel investors in India often have day jobs as CXO’s, founders or even employees in a company. Some notable angel investors in India are Jiten Gupta of Jupiter, Kunal Shah of Cred, Rajan Anandan of Sequoia, Vijay Shekhar Sharma of Paytm to name a few.
When do startups approach angel investors?
Angel investors invest small cheque sizes into startups since most likely they are working in an individual capacity as an investor. Startups approach angel investors when they need funding and guidance as well at an early stage. Startups raise angel rounds before they raise Series A(when they are growing and need a large sum of capital). Hence when founders are just starting out, angel investors are ideal since they can lend their sectoral expertise along with capital to founders.
How do I become an angel investor?
Before we answer this let’s bust a few myths.
Myth 1: You need a large sum of money to angel invest.
Answer: You don’t. You can start with a sum as little as Rs 3 lakhs.
Myth 2: Angel investing = amazing returns
Answer: No. Unlike public markets where data is plentiful, angel investing is risky since nearly 90% of the startups fail & there is a data deficit on startups. There is no guarantee that you will realise your investments or get returns. However, with patience and time, you can realise returns in the future. Don’t expect it from day 1.
Myth 3: Anyone with money can become an angel investor.
Answer: Not always. Angel investing is a very risky investment approach hence the Securities Exchange Board of India(SEBI) has laid down some guidelines as follows.
- According to SEBI Angel Fund Regulations, "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 (it means prior experience in investing in start-up or emerging or early-stage ventures, or
- Has experience as a serial entrepreneur (it means a person who has promoted or co-promoted more than one start-up venture, or
- Is a senior management professional with at least ten years of experience?
- A body corporate with a net worth of at least ten crore rupees
- An AIF registered under these regulations or a VCF registered under the SEBI (Venture Capital Funds) Regulations, 1996.
- An Angel Investor must invest a minimum of 25 lakhs INR over five years in the startups he/she likes, through the Angel Fund.
- Additionally, LetsVenture requires that the Angel Investor is aware of the risks of investing in Startups as an Asset class.
- When you decide to invest, you will be required to complete the one time KYC (Know Your Customer) that requires your address and identity proof as per SEBI requirements.
Being an angel investor is an incredibly exciting journey however before you being your journey as an angel, be well aware of the risks and temper your expectations accordingly.
Keen to be an angel investor and invest in startups? To learn more about the same, visit us at: https://letsventure.com/