5 Reasons Why Angel Investing is Best For Small Businesses
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All businesses need funding for growth and success. In order to give your venture a financial head start, angel investment is a very sensible choice. However, before you take any such decision it is important to find out what you need to know about angel funding.
The concept of angel investing is hardly new. There are historical allusions of these investors, the most legendary them being, Christopher Columbus’ convincing Queen Isabella I of Spain about sponsoring for his voyage to India tho he landed in America.
Today the major issue facing new businesses is funding. However, the ways and routes to get the required fund for business growth are often nebulous. Though there exists a plethora of ways to get funds for business, angel investment, remains the most popular choice.
Angel investors are not venture capitalists or banks. These investors put in their own money, be it, their personal capital or business fund. Since this kind of investments come with less people to confer with and fewer signatures to secure the funds, angel investment is popularly known as a quick road to funding.
If you are planning for angel investment for your business, here is what you have to know so that you can take full advantage of this method of funding.
What is Angel Investment?
Angel investments are often provided to start-ups by affluent professionals or serial entrepreneurs. These investors offer funding for businesses with the expectation of potentially high rate of return.
Small businesses often seek angel investment in order to launch their venture. Today, there is no dearth of angel investors even in India, who are investing money in products or sectors which they understand.
Read on as industry experts explain the ways of getting the best out of angel investment to give a new boost to your business -
Without institutional investors, stockholders and board members, angel investors are freer to operate and invest. According to Angsuman Bandyopadhyay, Past President, Eastern Chamber of Commerce, these guys work fast and rapidly while getting the approval and due diligence done. “This benefits the small businesses who are mostly stuck because of funds. It is also good for the morale of the young and small business owners,” he added.
Angel negotiation will set the valuation for your venture. Often both the parties end up being unhappy with the outcome of negotiations. “The sensible means to make both happy is to get a third party in the procedure of valuation. There are now many professional business valuators in the market who can be of help. However, you can also make use of financial tools,” advised Bandyopadhyay.
Access to Expertise
Anuj Gupta, CEO and Founder, Adda52, feels, since angel investors are known to fund businesses which they know about, getting such an investor means you are also getting a mentor in the form of an industry expert. “Start-ups can make use of that knowledge to their utmost benefit. The angel investor normally also comes with valuable words of advice and not just funds,” he notified.
A Personal Touch
According to Gupta, any investor puts in money with the intention of getting it back with profit. “This being the case, your angel investor will have a vested interest in the success of your business and will do his best to guide your operations while investing money. This will in turn help you in making your business successful,” he shared.
Getting the much-needed Funds
Angel investors often give the funds in form of a lump sum. “This is of immense benefit for quick growth of a venture. In most other types of investments, money is released in instalments and is mostly spread over time,” shared Debaditya Chowdhury, founder, Chowman, a chain of Chinese restaurants.
The best thing about angel investors is that they don’t aspire for board memberships or take interest in future funding. “They always look for less-complex arrangements, which most often than not comes in the form of capital in exchange for equity. These guys are known to be rather "hands-off" type than the venture capitalists. This works well will new businesses as it endows with more autonomy,” informed John Mayne, a serial entrepreneur
However, we all know that there is no free lunch in this world and investors, angels or others, will wait for a sizable share of the profit in the long run. You may get investors who are ready to wait for about five years before asking for the money back, but be sure that they will do so with the expectation of a return, nearly three times of their investment.
“Angels will also look for an exit strategy, and it's your responsibility to give them one. Also keep in mind that angel fund is flexible but expensive,” warned Mayne.