Angel Investor-A real angel to budding entrepreneur
SRISHTI SCHOOL OF BUSINESS BANGALORE WWW.SSB.AC.IN
ABSTRACT It is unlikely that not too many have heard of Angel investing in India. For starters, the monies involved are nowhere near as large as in VC or PE invests. Nor are the companies themselves large. And most angels are individual entrepreneurs themselves who have made it good. Individual private investors who invest in entrepreneurial companies are commonly and affectionately known as "angel investors". Generally, entrepreneurs have a plethora of choice when they want to raise capital, including - Personal savings, Friends and family, mortgages, Government grants, Asset based loans, factoring, banks, Institutional investors (arranged through investment banks), leasing, VCs, IPOs, but here is a new way out to the entrepreneurs to get financed, that is Angel Investment. Projects that are refused by VCs as being too small for their portfolio would be better off getting Angel funding and reaching the right size to approach VC, as these days VCs are ready to finance business when it reaches the stage of at least „prototype‟ making. This research paper throws light on a very recent phenomenon in India, called Angel investing which is generally confused with VC funding, Angels are individuals or groups who not only invest but also mentor entrepreneurs. This paper also covers the preparation by the entrepreneur to get the funding, gives ideas about terms on which to deal and also means to meet the angels. But entrepreneurs have to note that, only 1% to 2% of all business plans presented to either angels or VCs receive funding. Entrepreneurs need to read the necessary books and speak to individuals with financing expertise so when the opportunity arises, they are fully prepared to present their concept to investors. Incomplete business plans are unacceptable in today‟s competitive environment. But it should also be noted that angels always appreciate initiative.
What is Angel Investing? "I think you can do business without a VC but you cannot without an Angel," avowed Amit Agarwala, founder and CEO of Amdale Software Technologies, who raised Angel funds in 2003 in India. What are Angels and why are they so important? Angels, at least in the secular sense, are individuals who invest time and money in very young companies. In fact, they often invest in an entrepreneur at a point when the business exists only as a good idea. Angels are individuals who invest their own money into start up companies. Usually angels also mentor the entrepreneurs in whose companies they are invested. They use their own cash to invest in early stage companies, and they prefer to take an equity position in the company either directly through the issuance of shares or indirectly through other instruments that are convertible into shares. Angel investors are so named because in the early 1900s wealthy individuals provided capital to help launch new theatrical productions. As patrons of the arts, these investors were considered by theater professionals as “Angels.” During the initial conversations with an angel group and during the presentation to the angels, it confuses the entrepreneur to find out which of the members are the real decision makers. This is difficult to ascertain but can be very valuable information because angels are human and they feel safety in numbers. The entrepreneur should focus on the more experienced angels and the managing directors of the angel group. If groups of investors are interested, it is far better for them to invest as an LLC (limited liability Company) than as individuals. VCs are weary of complex capitalization structures and an entrepreneur risks losing access to larger amounts of capital. In addition, major company decision making can become unwieldy if large numbers of investor/owners need to be consulting. Finding an angel investor is like finding a spouse Personal chemistry is...
Winning Angels: David Amis and Howard Stevenson, Prentice Hall, 2001 Business week-Dec ‘07 DARE-Entrepreneurship magazine-Dec07,Jan 08. http://www.smallbusinessnotes.com http://www.indianangelnetwork.com http://www.nenonline.org http://www.boaindia.com http://www.indianinnovatorsforum.org
Appendix 2 - Reading/Surfing List Benjamin, Gerald A. and Margulis, Joel B., The Angel Investor 's Handbook: How to Profit from Early-Stage
Investing, New York: Bloomberg, 2001. Hill, Brian E. and Power, Dee, Attracting Capital From Angels: How Their Money and Their Experience Can Help You Build a Successful Company, New York, John Wiley & Sons, 2002 Simmons, Cal and May, John, Every Business Needs an Angel: Getting the Money You Need to Make Your Company Grow, Washington DC: Crown Business, 2001. Williams, Kelly, Working with Angel Investors for Community Development, New York: Community Development Venture Capital Alliance, 2003. http://www.infinityventure.com http://www.strategicinvestment.blogspot.com http://www.podtech.com http://www.thealarmclock.com http://www.fundingpost.com http://www.angel-investor-guide.com http://www.inc.com
Appendix 3 - Typical Preliminary Questionnaire From Angel Groups To Entrepreneurs • Name of company • Year founded and legal structure (“C” Corp, “S” Corp, LLC, etc.) • Who referred you to this angel group? • Summary of business (in 3 sentences or less) • What problem is your product or service solving? • What is the size of the market, how much has it grown in the past few years, and what is its projected growth? • Describe the competition (companies as well as substitute products) • What are your company‟s competitive advantages? • Why will your company succeed in the long run? • Does the company or its founders have any relevant patents or proprietary technologies? (please do not reveal specific proprietary information) • What is the relevant experience of each member of the management team? Please enclose a one page resume of the CEO. • What is the company‟s sales and marketing strategy? • If you have a website, what is the URL? • What are the major short, medium and long range operational milestones you intend to achieve? • Please complete the table below: • Are 50% or more of revenues generated from one or two customers? • What are the 3 greatest risks of this venture? • What is your capitalization structure? (How many shares are currently owned by founders and investors? How much capital has been invested so far, and by whom?) • How much capital are you seeking, and how will this capital be used? • How many rounds of investment and what amounts do you expect to need in total? • What is your exit strategy? • Please list the name and company of your professional advisors (attorney, CPA, and/or consultant): • Who is the main contact person at the company? Please provide address, telephone, mobile phone, and fax ------------------------------------------------------------------------------------------------------------------------------------------------
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