The author is Founder of Burgeon Law, a new-age boutique law firm that provides a one-stop legal shop to emerging companies, incubators, accelerators, angel investors, family offices and venture capital/ private equity funds.More From The Author >>
What Emerging Businesses Can Gain From Angel Investments
Startups that receive angel investments not only gain a competitive edge but have also been known to be more likely to thrive in the market and expand their business and team while also raising funding from other sources.
Once a business idea is finalized and the business is launched, the next, and perhaps one of the most important aspects to focus on is the funding. For emerging businesses funding will add fuel to their growth and allow them to further build the businesses. India’s startup ecosystem is the third-largest in the world and one of the key reasons is the capital infusion they have received with the investor community supporting their growth journey. Over the years, the investor community has evolved tremendously, handholding startups throughout their journey. In the investment ecosystem, besides Venture Capitalists, family offices, and other funding networks, there is one subcategory of investors who are recurring/constant entities in a startup’s growth journey and fundraising processes – angel investors.
Angel investors: A brief
Often a High Net-worth Individual or a group of individuals who provide capital to a startup in exchange for ownership equity in the company, angel investors are the ones who give wings to the business. Taking the plunge for high-risk, high-reward investments, most angels invest in a startup when it is only just being incorporated and the business is beginning to take shape. However, angels go above and beyond simply writing a cheque and may play an integral role in helping startups grow and obtain the right connections to expand their business by assuming a hands-on role in the company.
As for startups, angel investments not only provide capital but also bring a wealth of knowledge and expertise required to guide the business towards success. That said, here are some of the key benefits startups can get from angel investments.
Quick decision making and low liability
For a startup, cash flow needs to be regular. However, when they avail a loan from conventional sources such as banks, there is always the risk of repayment whether the business is successful or not. On the other hand, since angel investors make an equity investment, the guarantee of repayment isn’t required, making it a low-liability exposure for the startup.
Furthermore, besides regular cash flow, startups may also require quick capital infusion which may not be possible when seeking funding from other sources. Angel investors make quick funding decisions, don’t come with an unyielding set of rules, and don’t require the startup founders to pay out of their pocket even in case of no exit, making them more flexible. In addition, it’s also more likely that the startup will have better order/discipline given that there is outside scrutiny.
Value addition with knowledge and expertise
As mentioned earlier, angel investors transcend the role of merely providing capital infusion and add value to the startup in terms of their abundance of knowledge and expertise. Since they have a thorough understanding of how startups work, what guidance and mentoring they require, etc. Angels are often seasoned investors and are deeply invested in the startup, providing them the necessary handholding throughout their journey – be it business planning, strategizing, or enhancing operational efficiency, and even product innovation, angel investors offer in-depth insights that will help startups drive growth.
When a business is being built, networking with the right sources is crucial for developing it further. Angel investors not only bring knowledge and capital but also bring a multitude of opportunities in the form of their contacts. They are typically well-known and well-connected in the industry and can help the startup find the required contacts to further grow and establish its business.
Adding credibility and attracting additional funding
Since angel investors are well known in the industry, being backed by an angel is one of the best credibility additions for a startup. This can pave the way for startups to secure additional funding from other sources such as VCs, further facilitating their growth and business expansion. Moreover, if the angel investor has built a business in the same industry as the startup they are investing in, they will know the nuances of the industry and can bridge the knowledge gap alongside adding credibility.
Startups that receive angel investments not only gain a competitive edge but have also been known to be more likely to thrive in the market and expand their business and team while also raising funding from other sources. As an excellent source of flexible, quick financing, and knowledge, angel investors can be instrumental in charting the growth of a startup. Backed by angel investors, a strong core team, and expert legal guidance throughout their journey, startups can undeniably jumpstart their business and flourish even amidst heavy competition.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
Around The World