What Are Angel Investors & How Do They Fund Startups?
29 March, 2025
Synopsis
Angel investors are individuals or investors who invest their personal wealth in startup companies.
High net worth individuals, accredited investors, entrepreneurs, angel group members, risk-taking industry experts typically invest as angel investors.
The angel investing process involves careful evaluation and negotiation. You can find angel investors through networking, participating in pitching events, through incubators and accelerators, and online platforms.
As you embark on your entrepreneurial journey, the high of creating your own business is soon met with the requirement of funds. You may initially run your company bootstrapped. However, over time, you may need additional help with managing the finances. This is where angel investors step in. They offer capital and mentorship for your venture. Understanding the role of angel financiers is crucial for navigating the nitty gritty of startup funding.
What are Angel Investors?
Angel investors are individuals who invest their wealth in startups. They typically do this at the seed funding or early growth stage. Unlike venture capitalists, who pool their investments from multiple sources, angel capitalists use their own money to fund upcoming businesses. They provide capital in exchange for equity or convertible debt. They take higher risks as they typically invest in startups before they become profitable.
Who Qualifies as an Angel Capitalist?
While there are no strict regulations, angel investors generally meet the below-mentioned criteria:
High Net Worth Individuals (HNIs): They have considerable personal wealth to invest in startups.
Accredited Investors: According to the Securities Exchange Board of India (SEBI), investors meeting financial and experience-based criteria may participate in angel investing.
Entrepreneurs: Many angel capitalists have business backgrounds and use their experience to fund and mentor startups.
Angel Group Members: Some investors become a part of angel groups to share risks and pool funds for larger investments.
Risk-Taking Industry Experts: These types of investors usually have a high-risk and high-reward approach as they bet on the potential success of early-stage businesses.
Angel Financiers: Process and Key Steps of Their Investing
The investment process may vary slightly based on the policies of VCs and angel investors. However, they typically include these steps:
Screening
Investors evaluate the proposal or reach out to potential businesses based on market size, scalability, and innovation.
Due Diligence
Once they notice potential, angel financiers analyze the startup's financials, business model, leadership team prospective market share, long-term vision, and exit potential.
Negotiation and Valuation
At this stage, discussions take place on investment terms, ownership percentage, and the funding amount.
Funding Agreement
Once both the parties agree, legal contracts are finalized and signed. The last step in to complete the seed funding process is disbursement of funds on the agreed terms.
Post-Investment Support
Many investors offer mentorship along with capital to improve the growth prospects of startups. This includes strategic guidance and networking support.
Finding VCs and Angel Investors for Seed Funding
Here are keyways to connect to VCs and angel investors to raise seed funding:
Angel Investor Networks
Angel investor networks are platforms that connect you to angel investors. You may also look up prominent names in the industry to network directly.
Incubators and Accelerators
These programs are a great avenue to develop your business. They help you with the required resources. Additionally, they provide opportunities to find angel capitalists.
Pitching Events and Competitions
Participating in startup competitions is another way to get noticed. It is an excellent way to showcase the vision of your business and attract the attention of potential investors.
Networking Events
You can also build relationships with industry professionals through various networking events hosted regularly. Keeping track of them and attending for exposure helps.
Online Platforms
Due to the startup boom over the past decade, many professional networking sites are emerging to connect startups to angel investors. Social media is another convenient place.
Manage Your Fundings Efficiently with HDFC Bank Demat Account
While you understand how angel financiers work and secure investment for your startup, managing the funds of your new business efficiently is also important. Corporate Banking and retail banking services from HDFC Bank and demat & trading account services of HDFC Securities can help one in managing the funds of the business more efficiently and effectively.
FAQs
What is an example of an angel investor in India?
A well-known example of an angel investor in India is Ratan Tata. He invested in multiple startups, including Upstox, Ola, Firstcry, and Lenskart.
What are the three main types of investors in startups?
The three main types of investors in startups are:
Angel investors
Venture capitalists
Private equity investors
What does VC investment mean?
VC or Venture Capital investment refers to funding provided by venture capitalists, who are a type of private equity investors. They fund startups and small businesses that have high growth potential in exchange for equity.
*Disclaimer: Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.
