In this developing era, development is not cynical but institutionalizing the path for development is arduous, climbing only the first stair is cumbersome because the other stairs will automatically show its way. As an already running company does not have much difficulty to touch the sky of pinnacle but laying down the foundation for such development is onerous. Similarly, starting up of a young company is very arduous, and any one who institutionalizes its path by providing the most necessitated need of capital is acclaimed to the position of an Angel, and this remains the junction where the Angel investors comes down with their golden wings. The angel investors are the primary and critical source of capital for young startups looking to raise their first round of cash. They tend to invest long before professional venture capital or private equity firms do. Angel Investors are typically high net worth individuals who invest very early into the formation of a new startup company. After friends and family funding, Angel Investors are the first checks written by “outside” investors in a company. They tend to be the first professional capital into a deal, but they are also looking to trade the risk of being in early with the reward of getting more equity (stock) .
Going into a little flashback of such investment, it was established due to the concern raised by the planning commission and establishing a committee in 2011 to look into the matter of young entrepreneurial developments. As per the report of the committee the early stage investment in India is very inadequate. Angel investors will drive significant early-stage investments in countries with high entrepreneurial activity. Apart from capital, Angel investors will also provide mentoring and network access to entrepreneurs. They will play a critical role in scaling up businesses to make them attractive for institutional investors such as venture capital funds.
The penetration of this concept of angel investment is from the west. In USA there are more than 6000 angel investors has completed thousands of deals till 2011, now as this has also been enlarged in India and is working in India through different names. Like Indian Angel Network in Delhi, Mumbai Angels, Hyderabad Angels etc. The current record shows that the IAN has finalized more than 26 deals , the Mumbai angels has also finalized more than 20 deals and so on, which shows that there is a tremendous development in this arena.
KINDS OF INVESTMENT
Assembling the kind of deal structurisation the Angel Investors generally invest in, it ranges from equity stake to convertible note. An equity stake is something whereby the investor invests in lieu of equity and not refundable money and interest existing upon it but rather exchanging their money for ownership interest in the company. The amount of equity the investor receives will depend upon the valuation that company agreed up on with the investor. Whereas a convertible note is basically a setup as a loan to the company, so if the investor put in some money as a convertible note, it would mature (come due) at a specific date in the future, let’s say a year from now. During that time it will likely accrue interest. At the maturity date in the future, the investor can choose to either ask to be repaid back in cash (like a loan) or convert that money back into the company as equity based on a valuation determined at that time.
The entire cycle of flowing up of deal begins with the seed capital stage which is basically the first money put into by the founder, his family & friend ,then the stage proceeds towards valuation, whereby the net worth value of the company is measured , it could be both pre-money valuation and post money valuation. Pre-money valuation is the valuation of the company before the money has been put into by the angel investor and post money valuation is the net worth of the company after the money has been put into by the angel investors now the next step of deal flow will arrive towards the amount and structurisation of the investment and once it has been agreed upon, a term sheet will be provided by the investor. A term sheet is simply a non-binding document that outlines the terms and conditions in which an investment is to be made. It’s similar to a Letter of Intent in that it indicates a strong interest to move forward, but it’s not the same as guaranteeing an actual deal gets done, till now the deal only reached the junction of summarization of the investment by the investor. Now the next stage flows towards rewarding the investor by giving him dilution right into the share capital of the company, but the flow does not ends and stop here it could also continue providing incubation and mentoring services to the company.
EXAMPLE & CONCLUSION
Therefore Angel Investors are one of the newest and one of the most important source of capital investment in a company, not only fulfilling just the capital needs of the company but also other basic demands of the company for the development of that company as these investors are basically experienced successful entrepreneur, hence they will guide the young startup in all their aspect ranging from guiding the growth financially and making their step strong into the financial market. In the last decade we have seen a considerable growth rate of young entrepreneur company because of the funding of these angel investors. Some of the good examples of such angel invested entrepreneur are Windmill Health which is a start-up dedicated to the innovation of low-cost technology that creates a high impact on health in the developing world. The company’s first innovation is NeoBreathe , an affordable, neonatal resuscitation device enabling frontline health workers to resuscitate newborns effectively, Dhruva funded by Indian Angels Investor which is also a great example in this field
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