Here’s why angel investments can be beneficial for emerging businesses
When a business is launched, one of the most important aspects is the funding. India’s startup ecosystem is one of the fastest-growing in the world and these emerging businesses require funding to further their growth.
Fortunately, the investor community in the country has evolved immensely and supports several startups in their growth journey. Out of this, apart from Venture Capitalists (VCs), family offices, and other funding networks, there is one such sub-category of investors who are recurrent figures in the fundraising processes – angel investors.
Angel investors often invest when a startup is only beginning to take shape. They may also play an instrumental role in helping startups grow and get the right connections to scale up/expand by assuming a more hands-on role in the company.
Here are five key benefits new businesses can gain from angel investments.
Flexibility, low liability, and quick decision making
When a startup avails a loan from a traditional source such as banks, there exists the risk of repayment regardless of whether the business is successful or not. Additionally, most banks and financial institutions require a security as collateral/mortgage. Typically, the promoters will be expected to give a personal guarantee.
Angel investors, however, give emerging business wings to take off and there is no guarantee of repayment required since it is an equity investment, making it a low-liability exposure for the startups and founders.
Moreover, angels also don’t require an extensive amount of time to make an investment decisions and don’t come with a rigid set of rules. Since startups may require quick capital infusion, angel investors are the best bet as they make investment decisions quickly, and given that there is no personal asset required from the startup, it allows more flexibility. Besides, there may also be better discipline/order due to outside scrutiny.
Expertise and knowledge
Angel investors possess a wealth of knowledge and their expertise is unparalleled as they have a complete understanding of how startups work, what they require to grow, etc.
So, they can guide and mentor a startup on various aspects – right from business planning and sales strategy to enhancing operational efficiency, addressing staffing issues, and even innovation in products, angel investors offer invaluable guidance and insights.
When a startup receives capital from an angel investor, they gain access to a treasure trove of knowledge that can be used to fortify the business model, make smart, informed choices, and drive growth.
Assisting in strategic collaborations
For a startup, networking with the right sources plays an important role in contributing to its success. Angel investors can open up an array of opportunities for networking. This also adds a significant amount of credibility to the startup have invested in, and the angels become a catalyst for the company’s growth.
Bringing in a different perspective
It always helps to get the opinion of experts who possess substantial knowledge about a subject and for startups, this would prove immensely beneficial.
Angel investors can also offer a fresh perspective that can spark innovations and help formulate new ideas to enhance the product offerings and even build new ones.
Attracting additional funding
Since they are extremely well-connected and have vast networks in their area of expertise, angel investors can help you attract additional funding from VCs. Being backed by an angel investor can be one of the most solid arguments in favour of a startup when they require capital.
This will enable startups to further boost their growth and expand their business. Additionally, if a startup is successful, it can attract further funding from the angel’s contacts.
Startups that receive angel investments from experienced investors can gain a competitive edge over others in the industry can further their growth quickly. As a great source of financing and knowledge with less risk, angel investments can be pivotal in a startup’s progress and growth trajectory.
While it is said that a significant number of startups don’t take off, those backed by experienced angel investors, a strong core team, and expert legal advisors to guide them throughout their journey, are sure to get a jumpstart to their business and emerge successful amidst the increasing competition.
Edited by Saheli Sen Gupta
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)