Known as a business angel or an informal investor or an angel funder, these are people who provide financial backing to startups or entrepreneurs when the rest of the world is not willing to take the risk.
Let us start with some enlightment. As per wikipedia “An angel is a supernatural being or spirit found in various religions and mythologies”..Wow!
Do such supernatural beings exist in todays world? I guess the answer is No. But then why are certain species of investors called Angel Investors? Known as a business angel or an informal investor or an angel funder, these are people who provide financial backing to startups or entrepreneurs when the rest of the world is not willing to take the risk. The trend started with friends and family providing the initial seed capital and then had others following suit. So given these investors take the highest risk and trust the entrepreneur they seem like angels to the entrepreneur. In the past few years of being an angel investor myself, I have found no other reason to be called one. If you know of any other then let there be some light.
Given the fact that I spent close to two decades working for MNC corporates, I keep getting asked by my ex-colleagues if they can ‘also’ become Angel Investors, like me :). While I don’t have issues with them following my footsteps, I do try and set their expectations and give them some valuable tips.
There are few tips that I would like to call out here –
- Having set the definition, its obvious that, if you are inclined towards being an angel, be ready to play blind – no not literally – but basically be willing to play risky bets. In other words have some play money that you should be willing to loose for the sake of making big money. If you are willing to digest this fact then read further or else comment why you disagree with me.
- Remember, you are putting your trust in the entrepreneur so let him do his job. He ought to be good at something that made you put your faith in him. So if you have let your association stay on that faith. Try..and please try hard not to drive the entrepreneur. There have been times, and specially with the newbie investors, that they think that by getting a ~1% stake in the startup they have become co-owners of the company and have the right to influence the way the company works. Please avoid this trap as thats exactly what drags the startup down and down goes your money in the drain.
- Try and look for startups in the space of your keen interest and where you can indeed add some value. Now this ‘value addition’ is one of the most abused terms. But if taken in the right spirit the best way one can add value to a startup is by providing industry connections, advise them on go to market strategies (if asked) and help structure the startups finances. In most case a startup, unless has a strong CFO style guy, it will struggle with finance operations. So if you have some acumen there then you can make some use of it.
I could have included couple of more tips but if you wish to be angel and follow the above 3 tips I think you can be respected and potentially be a successful angel.
Finally, AI ≠ AI. Angel Investing ≠ Artificial Intelligence. Don’t assume you will develop some AI that will guide you to make your investment decision. It’s not going to happen. Do your research on the business, talk to people in that space and meet the entrepreneur or startup team a few times to understand their views and passion and then just make the decision – Yes or No. Just DO NOT keep the entrepreneur waiting on a tentative note. Make the decision and move on – its either going to be a hit or a miss. You are better off in either case. Good luck, Angel.