How can you become an Angel Investor in India?
2022 was a great year for India; we have become the fifth-largest economy in the world. And have seen 23 startups become unicorns in India (as of Sept 2022).
Boost in the startup ecosystem and entrepreneurship spirit has helped India to supplement growth. While as of 2 Dec 2022, there are 84 active unicorns in India, the most existing part is that new startups are coming and disrupting the marketplace with innovation and helping their investors earn huge returns every year.
The success of these startups has boosted investors’ confidence and garnered the most returns from early investors who bought the equity of this business at a discounted price and earned huge returns — angel investors.
Angel investors are high-net-worth individuals who invest in early-stage Startups in exchange for equity. Unlike other businesses, these startups are risky, as they don’t have much data on these companies to make an informed decision.
They invest in a startup at its “seed” stage, which startups use in product development or market research. In a way, they fund a business to kick from the idea stage.
That’s why they are also called “seed” Investors.
Unlike Venture capitalists who use investment funds to invest in a business, Angel investors, on the other hand, use their wealth — making their investment riskier.
As there are many conditions to become a Venture capitalist in India, angel investors are still the best bet if you want to get high returns and enter into starting investing in startups.
Risk in angel investing:
With 10% of startups failing in the first year since their inception, no wonder angel investing is considered a risky endeavor as there are many other risk factors at both the micro and macro level that impacts a startup. Some risks are manageable, while others are uncontrollable.
It is hard to predict or time to invest in early-stage startups.
In the last couple of years, startups have become a trend that has increased the number of players. This trend means many companies are fighting to get on top of the same industry.
This fierce competition has made it harder for companies to acquire a customer. Most early-stage businesses need colossal funding to market and advertise their product.
Opportunities in Angel Investing:
What entices the most investors to invest in early-stage startups is earning the potential of huge returns.
Though it’s not easy to find and build a unicorn, there is a possibility that a business that becomes huge helps you earn huge returns on your initial investment.
Along with as an angel investor, you get to diversify your investment. As most angel investors only invest 10% of their investment in these startups, they can benefit by investing in an industry outside their portfolio. This way, you also follow one of the basic investing principles: “Don’t put all the eggs in one basket.”
Now that you know some risks and opportunities in angel investing, before you start finding your unicorn, you need to see if you qualify to become an Angel investor in India.
In 2020, Sebi issued informal guidelines. The AIF (alternative investment fund) regulation act 2012, where Angel investment was one category (Alternatives investment funds), has been exempted from specific rules that other types still have to follow.
But still, there are specific guidelines that should be followed to become an angel investor in India.
To become eligible, you need to have one of these.
A) Individuals must have a net asset value of at least INR 2 crore. This doesn’t include the investor’s residence. Along with that, the investor has;
- Experience investing in an early-stage startup.
- Has experience in running a business.
- A CXO professional with ten years of experience minimum.
B) Angel investment fund body with a net worth of a minimum of INR 10 Crores:
C) It is registered under AIF under SEBI AIF 2012 regulation. Or a Venture Capitalist firm registered under SEBI (venture capitalist funds) regulations, 1996.
