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What is Angel Investing? How Profitable Is It?

Have a new, creative business idea caught your interest? Perhaps you can think of becoming an angel for the business -the angel investor. Angel investing not only helps in delivering ample support to a budding startup, but you can also leverage the benefits offered by angel investing to amplify the growth of your business. 

Angel investments can be regarded as the earliest forms of equity investments that are ensured in any startup company. These investments are typically bound together in the existing investor bandwidth. Angel investors can be former entrepreneurs themselves while working with companies at the earliest stages of business development. 

Who are Angel Investors?

Angel investors are regarded as affluent private investors who aim at financing startups or small businesses in exchange for equity. In comparison to a venture capital agency using an investment fund, angel investors are known to make use of their respective net worth. 

An angel investor in India can also be a person typically working in exchange for ownership equity or convertible debt. These efficient angels assist entrepreneurs to shape specific business models. They also help with creating dedicated business plans and connecting to relevant resources without stepping into the operational or controlling role. In most cases, angel investors are entrepreneurs who have built their companies successfully or have dedicated a major part of their career to counseling young startups or organizations.

What are Relevant Sources of Angel Investing?

The process of angel investing can be understood in several ways. Some of the reliable sources of angel investing can be:

  • Angel investor newsletters providing information on upcoming opportunities and deals in multiple industries. They also provide relevant tips on identifying a helpful deal from a poor one, the amount of money an entrepreneur will require for the respective business idea, and so more -making them reliable sources of ample knowledge -especially for first-time investors.
  • Websites of angel investors hosting company profiles or allowing you to search profiles by investment amount or category.
  • Conferences, clubs, and networks of angel investors -providing a platform for angel investors to connect and meet, along with potential investments.

How Angel Investing Works?

Angel investing is a form of private equity investing. In this process, high net worth investors aim at earning high returns by undertaking more risks in comparison to investing in public markets.

Angel investors usually go ahead with financing a small business or a startup during their early stages of operation. Capital out from angel investors is usually utilized for the purpose of research & development -helping the organization create its products & service offering, come up with a dedicated business strategy, or identify the target markets. 

As the business continues growing and scaling its overall production, marketing, and operations, the role of venture capitalists comes into action to offer the next round of funding. An angel investor can think of supporting a startup with a one-time investment or continuous capital contributions. It will ultimately depend on the financing needs of the company. 

Benefits of Angel Investing for Small Businesses

  • Extensive Connections: Angel investors are known to be well-connected in any business scenario. They are capable of connecting small business ventures with new clients, business partners, funding options, and other important entities.

 

  • Expert Investors: Angel investors tend to possess in-depth industry-specific knowledge. They could be business owners themselves having relevant expertise in the given industry. Therefore, they are able to offer coaching and guidance to help small businesses thrive.

 

  • Extended Support: As most angel investors own businesses themselves, they will only profit when the business venture is profitable. They are typically encouraged by their respective positions to contribute to the best possible extent. Also, as you add their names to the respective business profiles, it will help in leveraging their benefit to raise ample funding. Therefore, you can expect extended support from them.

Is Angel Investing Profitable?

Angel investors tend to make ample money -only when they are aware of what is going on in the business. At the same time, it is imperative to pay attention as angel investing can be risky if you are not careful enough. Angel investing has grown rapidly in the past few years as the aspect of profitability for small businesses or startups has helped in making this form of funding a primary source for most early-stage startups. 

If your business already has some traction and you have decent revenue coming in, it is better to go for an option where you don’t have to dilute your equity for funds. Many providers like Velocity. in provide revenue-based financing to online businesses so they can have access to working capital without diluting ownership. Revenue-based funding is quickly catching up amongst new founders given the flexibility in repayments that it has to offer.