Start-ups are not cake-walks. Ask anyone who’s tried and they’ll tell you. Although movies lead people to believe that it is all about making investors happy, gaining their attention, and trust; there’s more to it than meets the eye. But for any startup, the most important ingredient (so to say), is investor traffic. What this means, is having a steady source of initial capital and/or kind investment/ but if you are planning on bringing an investor on board, what are the roads you can take?
The main kind of investment a startup looks for falls into two categories: Angel Investment, and Venture Capital Investment. The names seem fancy and, I must admit, slightly unprofessional. But, if you want to survive the hectic uphill climb of a start-up, you need either of these as a harness. Let me begin by spending a few lines on trying and explaining what each of these terms means.
Their support is not restricted to the economic spectrum but also includes contributing advice and business expertise that the individual might have gained over time. There is no restriction to which part of life these people may be from. They could be well-to-do business folk, a group of such individuals, or simply friends and family who wish to support the start-up. What do they seek in return? Shares in the business. Angels make their own decisions with regard to the amount, the methodology, and provision of the personal equity of investment. It should be emphasized, that their purpose is not to build up the start-up, but to kick-start it.
Venture Capital involves, not just an individual, but more often than not, a firm, a company, or a board of directors to fund the start-up. VCs are provided only to those start-ups that seem to have a high potential for growth. ‘The typical venture capital investment occurs after an initial “seed funding” round. As compared to angels, VCs have more control over the company, its decisions, and also a significant ownership over the company.
Definitions apart, let me categorically also try and compare and contrast the two types of investors. Although they seem to be superficially tending to same ends – funding, there are some fundamental differences in the functioning of the two types of funding. One might even say that they are the polar opposites.
Angel investors make (but not restricted to) small investments. They generally look for seed funding. VCs, on the other hand, make investments that are multi-million deals. These could be done via crowd-sourcing, online platforms etc. Again, more money means more expectancy from the start-up. An interesting thing to note is that angels use their own money while VCs generally use other people’s money(so to say). This draws a significant difference on the risks involved for the investor.
Angel investors prefer early start-ups, businesses in their early stages, the ones who have just started, but also have some credibility. VCs abstain from the freshers and prefer a company/start-up that has a high record. Although this is changing, especially if the start-up is in a key sector of the industry, the VCs prefer to back a company that has practised what it has been preaching: delivering its products.
Angel Investors generally make decisions quicker than VCs, because they are generally individuals, i.e. working alone. VCs need longer time scales to respond because they need to do their research and decide first individually, then in teams.
Angels have less control over the start-up. They have shares and equity yes, but not a lot of power in the decision making. They are also very flexible in most of their inputs, advice etc. VCs often have more decision-making authority, more often than not, Veto power in decision making. If in the initial stages of the start-up, chances are that the VC would direct the rest of the growth structure as per their will.
The angel does not require a position on the board, but this is a mandate for the VC.
The following are a few Angel Investors in India:
Srinivas Anumolu – Founder of Elance
Alok Bajpai – CEO of ixigo.com
Anil Jain – Co-founder of Venture Catalysts
Ankur Warikoo – Founder and CEO of nearbuy.com
Meena Ganesh – CEO of Portea Medical
Rajan Anand – Google MD, India
Sachin Bansal – Co-founder and CEO of Flipkart
(A more exhaustive list can be found at the following link(s):
Currently, in India, and in general, angel investors are looking to fund companies that are aiming at cleaner/greener energy, or sustainable development. Their main aim is to increase the productivity of the start-up, especially if it is related to technology that can help sustain the environment.