investment | Angel Investment Platform: A new better way to invest, getting annual returns of 20 to 25%

Mumbai: After developed countries, now Angel Funds ie Angel Investors are becoming popular in India as well. Generally, HNIs ie High Net-worth Individuals or companies form Angel Funds. These angel funds invest in emerging startups for the long term and help them grow. With the growth of startups, the investment value of angel funds also increases. In this way, Angel Funds are successful in creating a good wealth and then distribute that profit among their investors. Capital market regulator SEBI has recognized angel funds as a sub-category of venture capital funds. These are operated under the regulations of SEBI. Earlier, only big rich investors, called HNIs, used to invest in Angel Funds because of the huge amount invested in them, but now the way has been opened for small investors to invest in them as well. This way opens through Angel Investment Platforms (AIP). AIPs connect individual investors with startup companies seeking seed funding. Many angel investment platforms are starting to become popular in India. In which AngelList India, Ah Ventures, Mumbai Angel Network, Chennai Angels, Venture Catalysts, Indian Angel Network, Let’s Venture, Lead Angels Network are the main ones. These platforms provide the facility of investment from as little as Rs 20,000 to Rs 3 lakh. AIP is becoming popular among investors as a new better investment vehicle and it has the potential to give high returns with some risk, but as with every investment vehicle investors need to think carefully and weigh their risk appetite. One should invest accordingly, similarly before investing in AIP it is necessary to analyze all aspects of its benefits and risks. Only then can you get full benefit of it. It would be right to consider 7 major things before investing in them. Investment vehicles and regulatory impact You can invest directly to become a shareholder in the startup or use the AIP platform which is a pooling vehicle for the aggregate investment of investors and then on behalf of all the shareholders this vehicle You can invest through If such an investment vehicle is used, investors should understand the type of vehicle along with the regulatory implications as the minimum investment commitment for an angel fund investor in one or multiple startups over a period of five years is Rs 25 lakhs . Further, not all types of entities are permitted to invest through angel funds and accordingly investment may not take place if the investor is outside this permitted list. Costs Associated with Investing Angel investments come with great potential to deliver very high returns, but an investor needs to understand that gross returns can be quite different from their net returns. This is because the cost or expenses associated with such investments are relatively higher as compared to listed investments. These expenses may include setup fee, annual management fee, annual subscription fee to the platform and profit share at the time of exit. As a simple example, if the investment platform charges 20% profit share (or carry) and the exit is at 2x or 100% return, the profit share’s return nets 80%. Responsibilities and Rights Angel investments are long-term investments that can extend up to 8 to 10 years. During this period several incidents may happen with the startup which may affect the investment. It is important to understand the responsibilities of an investor forum and your rights to effectively manage these investments. Investment Instruments and Valuation Investors should also understand the valuation of the startup in the round in which they participate as a percentage of the post-money valuation. Also, it is usually seed or bridge rounds done through angel platforms, where the total raise is lower as compared to institutional VC rounds. For faster closure of such rounds, the founders may prefer to raise funds through convertible instruments like debentures or preference shares instead of equity shares. In such cases, it is important to understand the terms of the conversion, such as conversion triggers. Also Read Documentation and Reporting With every investment, an investor will require relevant documents for accounting and tax purposes as well as for receiving regular updates regarding his investments. It is the responsibility of the investment platform to ensure proper reporting to enable necessary compliance and updates for investors. Risk of being written off It is important to know that as attractive as angel investments are, they also come with a significant amount of risk. This implies that if the business of the Startup fails and ceases to exist, the equity holders cannot recover any amount on their investment, thereby completely writing off the equity investment. Making the Right Decisions Essential Angel investing is a great way to participate in the latest trends and be a part of some unique, disruptive businesses. If planned properly, they can create immense value for an investor’s portfolio. Hence it would be advisable for the investor to consider all the aspects first. Good potential to deliver high returns Vivek Goel, co-founder of Tailwind Financial Services, says that angel investment is a type of funding where wealthy individuals with prior experience in startups invest in a budding startup in exchange for equity. Let’s invest. The angel investing community in India is over 26,000. Angel Investment Platforms (AIPs) connect investors with startup companies seeking early stage funding. However, even though these investments have tremendous potential for high returns, there are some risks. Investing considering those, then definitely the possibility of investment in AIP becoming profitable becomes more. Investment in these is for a long period of 5 to 8 years and looking at the returns of major AIPs, they are getting annual returns of 20 to 25 percent.