[Econ] Angel Investors

Angel investors are a class of well-to-do investors, usually experienced industry folk who take equity stakes in startups. They take very early-stage businesses under their wing. Typically, institutional investors such as venture capital funds or private equity funds do not like to commit capital to tiny businesses. Nor do they like to bet their shirt on firms that are yet to prove themselves in the marketplace. Angel investors literally step in where others fear to tread.

These funds that pool money from many individual ‘angels’ so that they can invest sizeable amounts into start-ups and enjoy better negotiating power while doing so. Angel Funds in India, are regulated by SEBI, which lumps them with venture capital funds, SME funds, social impact funds and sundry other funds, under the umbrella regulations for Alternative Investment Funds (AIFs).

SEBI’s rule relaxation has untangled many complex rules that constrained Angel Funds and their investors. Angel Funds have been allowed to source money from as many as 200 investors, instead of 49. They can invest lower amounts (Rs. 25 lakh) in each startup, with shorter lock-ins (one year, instead of three). Investments have been allowed in firms incorporated in the last five years (up from three years). This gives founders a long runway to seek funding before the clock runs out.