We are living in a start-up age where every single day someone is starting something with an aim to establish their brand and authority in the market. But how many really make a difference. Barely, few! Many start-ups fail not because of their idea, expertise or enthusiasm but due to the out dated ecosystem surround a start-up. One important part of that eco-system is the ‘funding’ which every start-up needs in its early years. Although, venture capitalist, and bank loan provides vital funds to a start-up but these days many entrepreneurs find more attraction towards ‘Angel Investors.’
Here are the reasons:
Provide Money that You Need
Funds are vital to carry out any business operation. No matter how great your ideas are, if entrepreneurs don’t arrange required funds in the initial period of their start-up business then chances of survival looms quite low. Many times own savings and crowd funding from close ones also does not suffice to meet the required cash flow. In such cases, entrepreneurs have options of taking a loan from any financial institutions. But any bank demands for collaterals (assets to secure credits) and many of the times start-ups do not have such assets on which their loan gets approved. Moreover, entrepreneurs have to pay a significant interest rate to the bank in fixed intervals which also work as a financial burden on the start-ups.
In such a scenario, an angel investor can prove to be a problem-solver. An angel investor provides the required amount of funds which is necessary to carry out business operations or even that too without any collaterals and interest rates.
Angel investors are those persons who are financially very sound and do not bother to invest their surplus money into a start-up. In return, entrepreneurs give investors some equity in their business. Most of the start-ups require money in smaller amounts that up to $500,000 and angel investors are very much capable of proving this much funds. According to one research, angel investors provide two third of the funding for start-ups. Therefore, chances are high that you will get the required funds from the first few angels you approach.
Ready to Fund in a High Risk Project
Start-ups can be successful or prove to be disaster. But what is written in a particular start-ups destiny no one knows. One of the harsh realities is that- most of the start-ups get failed. In one research it was found that only one third of the start-ups survive and succeed in this fierce competitive world. On the other hand, shockingly, two third of start-ups never succeed. This is one of the reasons why most of the lenders get shy away to fund a start-up.
Contrary to venture capitalists and banks, angel investors are very much keen to invest in a start-up. Angel investors know that there is a high risk associated with every start-ups and their investment may not give them a good return at all. Still, they are eager to invest with the hope of receiving high returns if the business get succeeds.
Every human is very much enthusiast about certain areas and the problems associated with it. And when someone provides the solution of some widespread problem or gives some solution that can improve the existing processes, such things attracts an angel investor towards the start-ups.
Angel investors believe in your idea. They value it and provide you the necessary resources on time-to-time even knowing it is a high risk investment.
Also provide something more Vital than ‘Money’
If a ship have a captain who has deep experience in sailing then probability of sinking run low but if the captain is new and lacks exposure then the chances of drowning increases significantly in case of any catastrophic like situation.
Most of the start-ups are usually start by professionals who are new to the entrepreneurial world. Such professionals turned entrepreneurs do have expertise in their core technical skills and can create ideal services and products that people can die for and are also charged with enthusiasm, passion and optimism towards their entrepreneurial venture. But they don’t have any experience in running a successful business. On the other hand, Angel investors are usually successful businesspersons, who have vast knowledge about industry, management principles, and know the common pitfalls and their solution to run a business in a hassle free manner that too without any interruption. Moreover, angel investors also have deep contacts among the top level executives from variety of business verticals. Any start-up that can attract an angel investor towards their business can reap all such benefits as angel investors not only invest money but they also give advice and share their expertise and contacts to make a start-up successful. Angel investors work with equal passion towards the success of your entrepreneurial venture as you do. Therefore, having an angel investor on board is none less than finding a treasure.
No Need to Pay Interest
Most of the angle investors want to invest in place that is too close to their heart. Their intention of investing is not only to earn some monetary gain but such investors always see the bigger picture. With their investment they want to be part of something unique that have the potential to help the community at large, create employment, and stimulate economic growth at local level. Such investors understand that every start-up needs money in the initial phase of their business lifecycles, therefore, remain very much flexible about their investment return. Unlike in case of a bank loan or venture capitalist firm where you have to pay interest on monthly basis, here you have the liberty to start paying the dividends (usually, without any interest) that too only after you start earning profits. Such flexibility in payment helps start-ups to stabilize their business which is the number one priority for any entrepreneur after establishing any new business. And help sailing smooth in the initial period.
These are the vital reasons behind the popularity of angel investors in the market. Entrepreneurs thus need to pick the right angel investor and convince him/her about your idea to turn a start-up’s fortune all around. On boarding an angel investor to your business can be prove to be a turning point and help you to flourish in an efficient manner.
Read More: The 4 Things that Every Investor Must Know
– Ashwini Deshmukh
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