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Risks and Rewards in Angel Investment

Becoming an angel investor is not as easy as it seems, it becomes a tad bit risky if proper examination lacks while making out decisions
BY Jaspreet Kaur
Feature Writer, BusinessEx
Sep 12,2020

In recent times, many people including retail investors show interest in angel investment. Several platforms are created to form groups of angel investors and carry out angel investment. Considering the present time, failures and disruptions have occurred in the business ecosystem. If an investor lately infuses money into a startup there would be 6-7 months of reeling involved and lock burn will continue to happen, thus, the potential of raising rounds will become difficult.

The investors are relooking into their portfolio and commitments are breaking, thus, less investment are being made. Meanwhile, it is a good time to not look at new startups but see existing startups that are buoyant in the market and have conceptualized as well as done incubation. Therefore, it is also the right time for capital infusion. 

BusinessEx holds BusinessEx Learning Series- Invest, Scale and Value. This webinar enlightens enterpreneurs about Risk and Rewards involved in the angel investment

To make angel investment bets right, there are a few things that angel investor should ensure, which are as follows:

Angel Investment is not a Vogue

If a person does not want to be an angel investor for a long term and seek to do it momentarily, then he should not do it. Nowadays, many people jump into angel investments and do not a clue what angel investment is. Out of this, a small group of people have a structured approach to everything and in turn, become successful.

Timing

While investing, a person needs to see a stage and ascertain what time is telling him. He has to see a portfolio from the perspective of 2-3 years and observe what will happen to the horizon.

Investing is a long term and one has to put a long-term investment horizon. To define the time, one has to infuse money into the business. 

Strategic Investment

People having an expertise in technology primarily infuse money into technology only. In a similar vein, media people invest into media-related businesses only. So, depending on one's domain capability and strategic advantage, one has to invest in the business ecosystem or else, if one is purely a financial investor then it is advisable to diversify one's investment. However, it is advised to not overdo the investment, keep it tight, structured and diversified.

Investment in Research

Before one actually begins angel investment, there are a lot of things one has to research. Several international Indian tools can be used to pitches which are coming in. One has to place oneself into that network. Although, it is advisable to put oneself into training so as to become an actual angel investor.

Mechanism and Rebalance the Portfolio

Understanding the mechanism of monitoring is important. It is crucial to see what small data points one has to monitor on regular basis.

It is integral to rebalance the portfolio if one seeks to be a part of the journey. One has to earmark some capital while has to take out some. It is not good to overindulge in an asset or go alone into an asset.

Risks Involved in Angel Investment

While calibrating an asset, it is important to see the asset from risk point of view as well. Here are some of the ways to examine risk factor involved in deals:

Founder

An individual has to identify if the founder is critical to the business and does not let it go. Sometimes, it becomes problematic if he is extremely attached to the business.

Disruption

As the time is going by, various good startups are falling apart. There is a disruption that is being done or is about to be happen. Thus, identify disruption that is going to happen in that particular sector.

Institution

Presently, entrepreneurs and startups are creating multiple products as well as services. However, they lack institution which is really important in the first place. Institutional idea or strategy is a prerequisite while deciding out to infuse money into an investment.

Raise Capital

Another thing that holds immense significance and helps assess risk involved in the asset is the company's ability to raise capital in the offing. If the company manages to attract investors and garner capital, then it seems progressive and lucrative enterprise.

Becoming an angel investor is not as easy as it seems. One needs to understand cruxes, risk and rewards of the angel investment process. Only then, one can decide out whether to step foot into this space or not. Thus, keeping on gathering knowledge on angel investment sphere so you can fit into the shoes of an angel investor.  

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