Mike Markkula was intrigued by Steve Jobs and Wozniak. He realized that the duo had built the first affordable and useful computer for people. In the year 1977, by investing $250,000 in Apple he became its Angel Investor.
Angel investing is appealing, but there is a huge risk of losing your money. So, what are the advantages of investing in angels? And how to become an angel investor?
Some important aspects of Angel Investing are discussed below.
As an angel investor, how much should I invest?
Angel investors in India contribute anywhere from Rs 5 lakh to Rs 2 crore. It is recommended that an investor invest no more than 5-10% of his or her total capital in a single company. Angel investment in a firm in the United States typically runs from $25,000 to $100,000, though it can go much higher in some situations.
But what if you have limited funding capacity- can you become an angel investor with little money? Let’s find out.
How can I become an angel investor with little money?
Depending on the demands of the company, you can invest on a much smaller scale, say, lakhs of rupees. However, keep in mind that the lesser your investment, the smaller your portion (and, consequently, profits). It would also limit your power to make judgments, so it will become more of an investment with high risk.
How to become an accredited angel investor?
SEBI manages angel funds in India under the Alternative Investment Funds Regulatory Framework (AIFs). Certain prerequisites must be met by an angel investor, according to the AIF regulations to be an accredited angel investor. To qualify as an angel investor, the investor should possess net tangible assets of at least Rs 2 crore, excluding the value of his or her primary residence, or a net worth of at least Rs 10 crore if the investor is a corporate body.
What is the significance of this? Because companies that raise money from accredited investors can benefit from tax exemptions. Also, SEBI ensures that accredited investors have the financial resources to bear any losses resulting from unregulated securities.
Recognize the dangers of investing in start-ups
When you become an angel investor, you take on a lot of risks. According to statistics, nearly half of all angel investments lose part, if not all, of their money. However, if you invest in a start-up with a good chance of success in its early phases, the results can be spectacular.
Consider portfolio diversification to minimize risks
Diversification should go beyond numbers. If a sector has a lot of volatility, having 30 assets in the same industry is futile. Rather spread your investments among a number of start-ups from various sectors.
Reach out to veteran angels for guidance
Angel investing can be risky especially for new investors. So, seek help from people who have already gone through that path. It’s not only a quick way to acquire practical advice from seasoned investors; it’s also a good way to start forming relationships and expanding your angel network for future investments. As a result, it makes sense to begin your adventure by asking questions about angels.
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Consider joining an angel group or platform
It’s easier to acquire angel investing guidance from angel investors who are members of angel groups such as AngelList, LetsVenture, Mumbai Angels, etc. Attempting to be a lone angel raises the risk of angel investing even further. Multiple viewpoints and insights from people with a wide range of relevant experience can help you succeed.
Utilize Q&A sessions to bond with start-up founders
During the Q&A session, you’ll most likely get your first taste of the investment experience. Asking questions is the most effective technique to comprehend and evaluate investing prospects. Get rid of whatever fears you have about asking a “stupid question.” If you have a question, other angels are likely to have it as well. Talk to the start-up team, if you are on the same page as them, it will pave a path for a long-term business relationship.
Get acquainted with start-up jargon
Learn the terminology, legal words, investor rights, and performance indicators that different sorts of start-ups employ. Joining a start-up community might help you develop a better understanding of market dynamics. Attending pitch days is another useful strategy for learning what distinguishes a successful start-up from a terrible one.
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Q. What do I need to study to become an investor?
A. If you aim to build a career as a professional investor and have an undergraduate degree or planning one in finance or economics you can become an angel investor, as the major subjects that involve are: classes in accounting, managerial finance, business ethics, marketing, banking, and corporate finance.
Q. How does an angel investor get paid?
A. The easiest way an angel investor makes money or gets paid is through an exit plan. An exit plan is when an investor decides to end his involvement with the business by selling his equity.
Q. How do I become an angel investor?
A. Any investor wanting to be an angel investor should have a net tangible asset of Rs 2 crore, excluding the value of the personal residence.
Q. What is a good ROI for angel investors?
A. Within the expected time span of 5 to 7 years, angel investors typically expect an annualized internal rate of return (“IRR”) of 20% to 40%.