(GIST OF YOJANA) Angel Funding - August - 2017

(GIST OF YOJANA) Angel Funding - August - 2017

Angel funding or investments are typically the earliest equity investments made in start-up companies. Angel investors invest in small start-ups or entrepreneurs and they usually invest in the entrepreneur starting the business rather than on the viability of the business. They help start-ups take their first step and do not bother about the possible profit they may get from the business.

The term ‘angel’ has been taken from theatre, where it was used to describe wealthy individuals who provided money for’theatrical productions that would otherwise have had to shut down. Angel investors are almost always wealthy individuals and commonly band together in investor networks. Often these networks are based on regional, industry, or academic affiliation. In recent years, India has emerged as one of the top three countries globally in terms of the number of start-ups founded and the Indian start-up landscape seems to be very vibrant. According to India Venture Capital and a private equity report prepared by the Indian Institute of Technology in Madras (IIT-M), the total venture investment in start-ups during the period 2005-15 is estimated at Rs. 117 billion (using 2015 as the base year). Actual investment could be much higher since details of investment amount are not available for many of the deals. The average annual growth rate in investment flow during the period 2005-15 is about 42 percent. Between the years 2005-15, more than 10,000 start-ups have received funding. The average.annual growth in the number of start-ups that have been funded for the period 2005-15 has been 16 percent. In most sectors, there has been an equivalent Indian start-up to that of a foreign start-up. While many foreign start-ups have also started operations in India, the presence. of an Indian start-up meant that the Indian consumer need riot have to wait till the foreign company started operations in India. Current ‘best practices’ suggest that angels might do better setting their sights even higher, looking for companies that will have at least the potential to provide a 20 to 30 times return over a five- to seven-year holding period. After taking into account the need to cover failed investments and the multi-year holding time for even the successful ones, however, the actual effective internal rate of return for a typical successful portfolio of angel investments is, in reality, typically as ‘low’ as 20-30 per cent. While the investor’s need for high rates of return on any given investment can thus make angel financing an expensive source of funds, cheaper sources of capital, such as bank financing, are usually not available for most early-stage ventures. Indian Angels Network is the country’s oldest network of angel investors, which started in 2006. Last year, it signed 18 term sheets and completed 11 deals in a broad range of companies from food tech start-up Mukunda to an online marketplace for co-operative and community-based producers GoCoop. Some of the other angel groups include Mumbai Angels, Harvard Angels, Chennai Angels and India Quotient.

Young entrepreneurs can be optimistic about raising financing from angel investors, as highly publicised success stories are encouraging more angel investors to commit capital to start-ups.

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Courtesy : Yojana