In this blog post, Rituparn Uniyal, a fifth-year law student at Balaji Law College,Pune and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the duration of an angel investment as well as the different circumstances for which time is taken for an angel investment.
Angel Investor
An Angel Investor also known as Business Angel, private investor or informal investor, is a person who is interested in small startups and entrepreneurs which have less access to capitals. An Angel Investor can often be in family or friend, etc.
Illustration- Mr Vijay has an idea to generate power with small flexible solar panel rather than electricity. He wants to build a prototype and accordingly set up his business so that he can capitalise his idea and start marketing is the product. Mr Vijay finds Mr Raman, an angel investor. Raman is a wealthy friend of a friend, 
who wants to see Vijay’s idea successful. Mr Raman having idea of the risk of the business invests Ten Lacs rupees and receives 40% of the company.
Shane (2009) defines an angel as “a person who provides capital, in the form of debt or equity, from his funds to a private business owned and operated by someone else who is neither a friend nor a family member.[1]” Moreover, an informal investor is described as one who invests in businesses owned by someone else, including friends and family, unlike an angel. Macht and Robinson (2009) define angels as “wealthy private individuals who invest their money and experience in small, unquoted, entrepreneurial ventures.”[2]
Importance of Angel Investment
Angel Investment is the basic foundation of commerce. Angel Investors differ from venture capitalists, therefore play a major role in developing business and commerce in the world. One of the most important roles of an angel investor is that they have an active participation in business resulting from the role in management and boards of the companies. Angel Investors sometimes also provide crucial managerial and technical advice in the area where the entrepreneur has no experience. Many household names, like Google, PayPal and Facebook were financed in their earliest stages by angel investors.[3]
Origin
The term “angel” originally comes from Broadway theatre, where it was used to characterise wealthy individuals who furnished money for theatrical productions that would otherwise have had to shut down. In 1978, William Wetzel, then a professor at the University of New Hampshire and founder of its Center for Venture Research, completed a pioneering study on how entrepreneurs raised seed capital in the USA, and he began using the term “angel” to describe the investors that assisted them. A close term is a patron, commonly used in arts. Angel investors are often retired entrepreneurs or executives, who may be interested in angel investing for reasons that go beyond pure monetary return.
These encompass wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and rely on their experience and networks on a less than full-time basis. Thus, in addition to funds, angel investors can regularly provide relevant management advice and important contacts. Because there are no public exchanges listing their securities, private companies meet angel investors in several ways, including referrals from the investors’ trusted sources and other business contacts; at investor conferences and symposia; and at meetings organised by groups of angels where companies pitch directly to an investor in face-to-face meetings.[4]
Angel Investment in India
India is a developing nation having a vast scope for entrepreneurs who need rejuvenation. The Indian government has reformed and reviewed the economy and attracted much needed investment. Angel investing is a boost to the Indian entrepreneurs. Angel Investment has been in practice for long, but this was done by industrialist families to help their communities or family friends.
As per the Planning Commission’s report 2012 US $700 million of angel investment is required in the coming ten years of the potential to create 2500 enterprises from 10,000 startups that will need to be created for which an estimated capital infusion of US $ 55 bn, made up of half of debt, and equity is estimated to be required.[5]
Time is taken in Angel Investment
Multiplying investment or money has never been an easy task. Investing a sum of money in some idea and knowing the risk factor is a great deal and time-consuming process. Depending upon the comfort, it is difficult to find a suitable investor. One has to go through a number of meetings, due diligence, negotiations on terms, etc.
Factors which Angel investors look for –
- Scalability of Company.
Scalability means the power of an organisation to earn revenue quickly with a good margin excluding its expenses.
- Return
Every investment is based on a mathematical calculation or combination of how much we invest, how much of the stock investor owns and the acquisition purchase price. Therefore it is important that one must not only have the idea of how the company might be sold but how much be one’s investment and whether the extra or additional investment dilute the share.
- Management Team
The investible organization must be led by a strong management team with the knowledge, skill, and experience.
- Product or Service
A product or service to be invested must have a clear and tested value proposition with customers. Product or services must have a researched market transaction.
- Competitive Landscape
Angel investment must be well-equipped with the knowledge of the competition in the market and the barriers to entry by the competitors. They must also have the knowledge whether the product has enforceable intellectual property. The product must have some uniqueness and inventive step which could be capitalised.
Conclusion
There has been a good investment from 1999 till now by the angel investments. Angel investment can be nowadays be found on typically in new sectors such as – online services, IT products, and services, e-commerce, education and healthcare. The transactions result into the interesting direction for further research and evaluate the deals and contracts.
References:
[1] Van Osnabrugge and Robinson (2000)
[2] ibid
[3] David Robinson, Associate Professor of Finance, Duke University’s Fuqua School of Business.
[4] Angel Financing for Entrepreneurs: Early-Stage Funding for Long-Term Success-By Susan L. Preston.
[5] Planning Commission Report 2012
