Advantages Of Business Angel Funding
Starting a business from scratch is invariably hard and rightly so. One must be completely dedicated and invested in the start-up enterprise to find success. A start-up requires funds and capital to run. Many start-up owners are unable to fund their businesses from the get-go. This is where Angel Investors can be of great help.
Angel Investment in Start-ups can depend on a plethora of things. Angel Investors are people who have an abundance of spare cash available and want to make money out of it. They do this by investing in start-ups they think have potential. By giving you their money, you forgo some amount of equity from your company. Angel Investors typically expect a return of around 30-60%. Attracting the right Angel Investors is sometimes hard. However, I’m here to explain the importance of Angel Investment in Start-ups.
Six reasons why angel investors are beneficial.
1. Low Risk
An important aspect of angel investing is that it is a relatively low risk as compared to debt financing. Loans have to be paid back even if the business fails, however, this is not the case for angel investors. This makes angel investing relatively low risk.
Unlike with loans, angel investors are as committed to the business and want the business to succeed. The success of the business will guarantee their return on investment. Apart from the financial gain they may acquire, an angel investor is also looking for personal opportunities in the company itself. So the dedication they will show to the company is not ill-perceived.
3. More Discipline in the Company
Since the start-up is being funded by an outside source it provides an extra jolt of motivation for the employees and entrepreneurs to work ten-fold to make sure the company succeeds.
Most angel investors have been in the investing business for a long time and as a result, have a lot of experience and knowledge they can impart. Their business experience is by far and large very good. Start-up employees and entrepreneurs can learn a great deal from these investors about a business as well as what can help it grow etc.
Any established angel investor will have a huge base of contacts. These contacts can turn into potential customers or employees. Their contacts with regards to industry professional will also be a large one and such the company will be exposed to accountants, lawyers, investment bankers etc.
Most angel investors who invest in start-ups are known to reinvest their returns back into the company. This is of huge benefit to the company. They are also known to help the start-up with new ideas on how to promote and expand the business. All in all, it is very profitable to have an angel investor on board.
To Sum Up
The best way to decide if your start-up does require an angel investor is by having a complete business plan. Your business plan should also include a One-Page Business Plan. I have developed a one-page business plan for all start-up founders and entrepreneurs. This business plan helps you ideate what you would like to achieve the following year as well as the activities you are willing to give up. It helps you to understand the shortcomings of the previous year as well.
About Devansh Lakhani
Director of Lakhani Financial Services, and a Chartered Accountant, he helps start-ups raise funds from his network of investors. He guides and advises start-ups to scale up by providing efficient sales, marketing, team building, and business management strategies. He has executed fundraising by block deals on the stock exchange and conducted IPOs and right issues on the SME platform to the tune of over Rs. 50 Crore. He is currently working with start-ups from various sectors to help them channelize their business models and investments.