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A Primer on Angel Investments

The term Angel comes from long back in history. In the early 1900s, when theatre productions still struggled to scrape enough money to showcase their art, there were some wealthy men and women who chose to become their benefactors, thus assuming the roles of angels. The term has ever since been in prevalence, as is the sentiment behind the term. Even in those times, investing money in a theatre production could lead to large profits, which could then be reinvested into other theatre productions. There were big returns to be made from investing money in this way. 

While the sentiment remains much the same, the profits to be made from angel investing have definitely gone up. Even today, not much is known about angel investing because the investments are made in privacy and the nature of these investments remains between the investor and the entrepreneur. Angels or angel groups are today much sought after by stat ups and small businesses who get a cold shoulder from the venture capitalists and banks. Angels on the other hand can not only provide the much needed capital required for starting the business, but also the experience and expertise required to grow it. 

How Angel Investors Operate?

For many past years, traditional angel investing has involved only one or two wealthy benefactors who are forward thinking enough to seek minority investment in small companies and growing their net worth through it. However, today the concept of Angel investing has changed a little. Groups of investors have come up, who screen ideas and business pitches of new entrepreneurs or small business, looking for the best investments that can yield them high return on investments. The best investment for an angel investor is that which can give at least 20-30% of returns in a period of 5-7 years. 

In older times, a team of professionals seeking investment was rarely called in for a meeting or a presentation of the plans for the business. Money was given simply relying on the reputation of the person asking for money. This resulted in most of the investment happening behind closed doors, with money given to friends and family or someone who the investors knew, instead of being given to the person with the best or most innovative ideas. 

In the last decade, however, many changes have come up in the ways in which these deals go through. No longer is the angel investment process a secret. This way, there is not only more accessibility to such investors, but there has also been a dramatic increase in the amount of money that is being used for transactions. 

Factors Influencing the Change in Angel Dealings

While some time ago, goodness of heart and the desire to remain connected to a profession were the main factors influencing the desires of an investor to invest money, today most angels end up investing for income. They simply want to increase their net worth by getting good returns on their income. Some of the recent developments which have also changed the way angel investors make their dealings are:

  1. An increase in the number of firms offering venture capital. Venture capital has become increasingly popular amongst private market. What these capitalists do is to lend institutional capital funds of large volumes to private money. Initially, most people invested in this system. However, with time, individual money followed to angel investors group, where it could be given directly to the target and higher returns on investment could be received. The angel investors began investing for income, instead of investing only for the purpose of remaining close to the profession.

  2. Rise of Structured Networks of Angel Investors. With time, more and more angel investors began investing for income into new businesses. However in order to make the best investments, more money was required. It was then that many angel investors would come together and form structured networks. This made the environment for those seeking investments, even more congenial. The emergence of capital conferences soon followed and meetings to discuss ideas and incubate them began. The investment income is usually enough for angels to keep seeking the best investment opportunities.

The Angel Market

The angel market soon began to become even more regulated and structured as more people started to seek seed money for their ventures. While venture capitalists became picky for dispensing their capitals, more and more entrepreneurs began seeking investments from angels. Angels on the other hand, due to the increased investment income, came together to raise larger sums of money for investing. While the initial seed money can be provided by the angels, even the best investments are critically dependent on the venture capitalists to provide money to new entrepreneurs in their second stage of funding. Since the demand for venture capital rises, this gives rise to newer institutions investing money as a second round of funding. The capital markets thus turned around to accommodate the angels. 

The Current Scenario

In today’s time, the concept of angel investments has taken an even larger leap. The investment income of the investors also consequently increases, since there are a large number of ideas to choose from and investors can choose the ideas which they think will stay afloat and yield high returns in the future. 

The economic contribution of angel investors has been significant. Along with that, the investors also continue investing for money and reap benefits from their investment income. The best investments flourish and are able to grow enough to give high returns to the benefactors. The angels alone fund about 300,000 small businesses every year, all over the world.