Understanding the Angel Investor

It’s common for startup founders to look out for investors for their ventures. However, there is absolutely no need for all startups to go out and look for investors. Take investment from outside investors, only if you must, and not if you can.  I have come across several businesses that have done perfectly well without taking a single cent from external early stage startup investors. Completely, self-funded or bootstrapped, as one might call it.

For the moment, let’s assume that a startup needs money. The first stop would be friends and families. Once the investment potential from the circle of friends and families has been exhausted, the next stop would be angel investors. However, many entrepreneurs are neither fully aware of the investment potential from angel investors nor how to identify the right angel investor.

But first, who are angle investors?

They are individuals, who have the risk appetite that is needed for business startup fundraising. Broadly, they can be classified into one of the categories. First, they could be successful entrepreneurs who have made their money and are now keen to support fellow entrepreneurs. They are passionate about supporting entrepreneurs and investing in new ideas and innovations brings an adrenaline rush to them. Second, are successful and senior professionals, such as doctors, lawyers, actors, sports persons, and corporate executives. Many of them would wish to have their own startups, but because of their constraints, are unable to. Investing in startups helps them to get to close to their wish of having their own startup.  Third, are the traditionally wealthy, i.e., the old economy money. Startup skill sets are different from those in traditional businesses. The traditionally wealthy therefore invest to be a part of the new economic paradigm. A fourth category that I am increasingly seeing are the young professionals and the middle class who are eager to be a part of the startup wave that is currently sweeping the country.

Despite the differences, a common characteristic of all angel investors is that they invest in startups because they want to, and not because they have to. [To understand the difference, I give the following example: you have to pay and file your taxes, though you might not want to 😊] It is a matter of choice. VCs and financial institutions might have investment targets, whereas angel investors do not. Founders should remind themselves that among the various categories of investments that compete for the attention of angels, such as real estate, stocks, SIPs, gold, and so on, they also choose to invest in startups. Furthermore, angel investors, irrespective of which category they belong to, are expecting attractive financial returns on their investments. It is not charity.

Angel investors, in addition, do not have the resources to do an extensive background check and due diligence on the startup before making an investment. They, therefore, look for and rely on certain trust factors to give them a degree of comfort, provided they like the business idea. And the factors that they look for can differ from investor to investor. Therefore, choose an investor who seeks the trust factors that you have.

Identifying the right angel investors in India can be a daunting task for many entrepreneurs. This is where platforms like YNOS Venture Engine come into play. YNOS Venture Engine is a technology-driven platform specializing in business intelligence and fundraising analytics for nascent and early-stage entrepreneurs. Through their user-friendly website filters and comprehensive lists, entrepreneurs can access valuable resources, including curated lists of the best investors in India, promising startups, and government funds, making the art of startup fundraising a more streamlined and informed one.

Quite often, entrepreneurs tell me that angel investors do not respond to them when they write. Remember, angel investors are not obligated to reply. As they say, trust can’t be demanded, but earned. The onus is on the entrepreneurs to elicit a response from them. If an entrepreneur consistently does not get any response, then what they have is either a wrong idea or they are approaching the wrong investor. The growth in the number of angel investors in the country today, paradoxically, has also considerably increased the probability of approaching the wrong investor.

Well, how to identify the right angel? Now, that would be the focus of my next piece. Watch out for it.