The Gear To Growth: Angel Financing

If you stay updated with the various development in the Start-ups community, you must have heard the word "Angel Financing" several times. So, what does it mean? After hearing the name one probably might think that, angel investors were probably sent by the heavens. Extremely affluential, these people provide investment for needy yet deserving business start-ups in exchange for convertible debt or ownership equity. There are many discussions on what really Angel financing is, what are its pros and cons, how it works, and so on.

What is Angel Financing?

Angel financing means an investment model where "Business Angels”, i.e., high net worth individuals – provide financial backing for small businesses in exchange for a certain percentage of equity in the company. Angel financing is either a one-time investment or providing on-going support. Mostly, it is a high risk- high reward kind of financing, because angel investors expect to seek a more favourable rate of return than would be provided via traditional investment opportunities.

Angel Financing: Maker or Breaker source of Financing?

Pros	Cons
1. Less risky than taking a loan. 2. Capital needs are met by angels. 3. Angels bring their expertise like  business acumen, vertical expertise, director services, etc. 4. Reinvests the return.	1. Dilution of control as an Owner. 2. Rapid growth is expected. 3. Angel guidance and support may be limited. 4. Provides less structural support than an Investing company.

Why does any start-up in need of an Angel Financer?

Ordinarily, an Angel investor is a person who actually invests at a very initial phase when either the business is merely an idea or the start-up doesn’t have much popularity among the folks (especially the targeted ones) but does have the potential to explore. A Venture capitalist is only investing when the business already has gained some popularity and has the least chances of loss. Any VC (Venture Capitalist) majorly holds the interest of earning higher ROI hereupon made investment such wise. Whereas, an angel investor will be investing at that very primal stage even though it contains a higher degree of risk, but having that as a trait they’re a doer.

How does it work?

Angel financing for entrepreneurs, is another form of equity financing. First and foremost, business angels find out about interesting start-ups from a broad range of sources, investors looking for partners, or other angels within the same network, fund, or group. After this initial screening process, they will invite the suitable start-ups to pitch, and if the pitch goes well, they will undertake a detailed review of that start-up. Assuming that a start-up makes it this far in the angel financing process, they will be offered a term sheet, and the deal will be closed.

To simplify, the most important objective of the business angel is to sell their stake in that Start-up several years down the line for a significant profit. It's important to note that the investor won't just sit back but they play a much more active role in the business. They will work as a mentor for the business, they will provide advice and expertise to the founders, build their network, and also guide them through any subsequent funding rounds.

Recent Trends of Angel Financing in India

As the idea’s gaining popularity, the number of investors of that kind have increased vastly. In the financial year 2020, Indian start-ups secured 341 investment deals with so-called angel investors of despite Covid-19. The number of enterprises funded by angel investors has been growing in India over the past fifteen years, and sharply after 2016, angel networks have been growing in importance and numbers, and the activity is reaching to a great level.

Conclusion

Angel financers are personage having high net worth. However, there can be some individuals too, investing a small chunk of money. Taking the existent position into consideration, it becomes exigency of the Indian Economy to have more of such investors in order to boost up the economy.

References:

1. https://www.statista.com/statistics/1233096/india-number-of-angel-investment-deals/
2. https://www.forbes.com/advisor/investing/what-are-angel-investors/ 
3. https://gocardless.com/guides/posts/angel-financing/
4. https://www.sciencedirect.com/science/article/pii/S0970389617304664