Angel Funds offer a unique opportunity to invest in early -stage ventures, enabling
investors to support and benefit from the growth of promising startups. Unlike
traditional investment methods, Angel Funds provide a gateway to innovative
companies at the ground level.
Angel Funds provide capital for business startups, usually in exchange for convertible debt
or ownership equity. Angel Funds typically involve higher risk but offer the potential
for substantial returns if the startups succeed.
Why Invest in Angel Funds?
Investing in Angel Funds allows you to be part of groundbreaking innovations and
entrepreneurial journeys. It's an opportunity to diversify your portfolio with
investments that have the potential for high returns. By investing in startups, you not
only support new businesses but also position yourself to benefit from their success.
Angel investors held the largest share at 53.9%, followed by venture capital firms, Corporate VC
funds, and investment banks.
Total Startup Funding: The total funding raised by Indian startups saw a 40%
year-on-year decline in 2022, amounting to $25 billion.
Seed Funding: In contrast to the overall decline, seed funding experienced a
27% growth in 2022, reaching a total of $2 billion.
Bridge Funding: Grew by 11% in 2022, amounting to approximately $709 million.
Source: Inc42
High Return Potential: Participate in the early success of startups with
the potential for substantial financial returns.
Portfolio Diversification: Diversify your investment portfolio beyond
traditional stocks and bonds.
Innovation Exposure: Gain exposure to innovative and disruptive business
models and technologies.
Direct Impact: Directly contribute to the growth and success of new
ventures.
Networking Opportunities: Connect with entrepreneurs, other investors, and
industry experts.
High Risk of Failure: Startups have a high failure rate, posing
significant risks to your investment.
Illiquidity: Investments in startups are often illiquid, with no guaranteed
timeline for return.
Limited Information: Limited access to comprehensive financial histories
and market data for evaluating startups.
Long-term Commitment: Returns on investment, if any, may take several
years to materialize.
Dilution Risk: Potential dilution of ownership due to subsequent funding
rounds.
Learn More
Angel funds are a type of venture capital fund that focuses on providing the much-needed capital to high-growth potential startups during their early development stages, when traditional sources of financing may not be available. Angel funds play an important role in strengthening the startup ecosystem by supporting them and helping them to develop into successful businesses.
An ‘Angel Investor’ is usually a high-net worth individual who provides funds for start-ups or entrepreneurs in exchange for ownership equity in the company. It can either be a one-time investment, or consistent financial support through the struggling years of the start-up.
For many small companies, without financial backing, angel investing is the only primary source of investment that works. In addition to providing funding, angel funds also offer startups valuable resources such as management mentoring, guidance, and industry contacts that can help them grow and succeed.
Although they both give money to start-up businesses, venture capitalists are usually experienced investors who make large portfolio investments in a variety of new businesses, offer practical advice, and use professional connections to support the budding company.
Conversely, angel investors are typically affluent people who like to invest in start-ups more as an interest or side activity and might not offer the same level of specialized advice. Additionally, venture capitalists typically follow angel investors in terms of investment timing. While angel investors offer crucial support throughout the early phases of a business, venture capital funds concentrate on investing in later stages of the enterprise.
As per SEBI regulations, angel investor can be anyone who wants to invest in an angel fund and fulfils one of the following conditions:
An individual investor who has net tangible assets of at least two crore rupees excluding value of his principal residence, and who:
has early stage investment experience (i.e., prior experience in investing in start-up or emerging or early-stage ventures), or
has experience as a serial entrepreneur (i.e., a person who has promoted or co-promoted more than one start-up venture), or
is a senior management professional with at least ten years of experience;
A corporate body with a net worth of at least ten crore rupees
An AIF registered under these regulations or a VCF registered under the SEBI (Venture Capital Funds) Regulations, 1996.
An angel investor need to invest a minimum of 25 lakhs INR over five years in the startups he/she likes, through the Angel Fund.
Business Agreements are more flexible
Due Diligence processes less complex than traditional investments
Angel investors can become valuable advisor and counsel for the start up
The points where the two categories differ are as follows:
Corpus: Angel funds shall have a corpus of at least 5 Crore. Other AIF require to have a corpus of 20 crores.
Minimum investment limit for a single investor is set at Rs. 25 lakhs for Angel Funds unlike other AIF where the limit is set at Rs. 1 Crore Rupees
The Sponsor/ Manager is required to have a continuing interest in the Angel Funds will be lower of the two; 2.5% of corpus or Rs. 50 lakhs. This requirement is significantly higher for other AIF, though.
Under AIF Regulations, Angel Funds can be set up and they have following key features:
Such funds can accept investment from Maximum 200 investors, earlier it was limited to 49 investors.
Investment by an angel fund in the venture capital undertaking shall not be less than Rs. 25 lakhs and shall not exceed Rs. 10 crore.
The Lock in period required for Angel investor is reduced from 3 years to one year.
AIF are allowed to make investments in organizations incorporated in previous 5 years. Previously, this incorporation limit was set at 3 years.
As per markets regulator SEBI, each scheme of an angel fund is an independent investment vehicle with its own set of investors. Investors in angel fund have the option to selectively participate in investment schemes as each investment being a separate one. In addition, investors will be considered investors of only those specific schemes for which they have given approval.
Angel funds shall not invest more than 25% of their total investments under all its scheme in one venture capital undertaking.
An angel fund can invest in the securities of companies incorporated outside India subject to such conditions or guidelines that may be stipulated or issued by the Reserve Bank of India and the Board.
The category I AIF are given pass-through status, whereby the responsibility for taxation shifts from the fund to the individual investor, even if the investor hasn't redeemed their investment. Investors are required to pay taxes on their interest income in accordance with their respective tax brackets. To ensure compliance with tax regulations, the fund houses deduct Tax Deducted at Source (TDS) from the interest payments distributed to investors. Moreover, the possibility of capital gains tax may arise in certain scenarios, and the fund will provide details on this in its quarterly reports and statements.