Nurturing startups for long-term success: Role of angel investors in entrepreneurial ecosystem

India is currently the third-largest startup ecosystem in the world right after the US and China. The rise and growth of the startup segment in the country can be accredited to several factors, including supportive government policies and increased access to funding. Despite the flourishing segment, traditional investors such as banking institutions and VCs mostly vouch for promising startups that are due for exponential growth. This creates a financial gap for startup owners to access funds. However, angel investors in India have emerged as reliable entities that help entrepreneurs meet this gap by providing first-time founders access to initial capital funding. The timely financial support empowers start-up owners to turn innovative ideas into reality and scale market growth. Besides extending access to early-stage capital, angel investors provide new entrepreneurs with valuable mentorship, advice, and networking opportunities.

On that note, the role of angel investors in nurturing startups and helping them build a strong foundation in the seed stage is quite important.

Angel investors typically follow a series of steps before they provide entrepreneurs access to initial capital support. To begin with, a seasoned angel investor starts by identifying startups with strong business models and operation strategies. Subsequently, they evaluate the investment opportunities and make suitable investment decisions based on their findings.

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An experienced angel investor can help entrepreneurs scale their business growth and expand their market presence in several ways.

Access to capital

Angel investors provide entrepreneurs access to crucial funding when traditional financing sources like bank loans are challenging to obtain during the early stages of the venture. The challenge arises as banks hesitate to invest in new startups owing to the risks involved. This helps entrepreneurs avail themselves of the required funds and the needed push to start their business venture.

Mentorship and guidance

Seasoned angel investors bring years of market know-how and invaluable insights about handling a business and guide them through the same. Their expertise makes them a valuable source to learn from and navigate entrepreneurial challenges and business strategies with tact and resolve.

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Scope for networking

Angel investors have an extensive network and connections that they developed over their investment activities and market operations. Their industry connections come in handy for startup owners and provide them with opportunities to explore strategic partnerships, additional funding, and clientele. Startup founders can leverage the investor’s business network and benefit their business prospects accordingly. Their connections can help startups grow faster than they would alone.

Increased credibility

Securing initial investment from a trusted angel investor can help enhance a new start-up’s credibility. This can help entrepreneurs attract more funding opportunities and meaningful collaborations and create brand awareness.

Share industry expertise

The angel investor may possess experience in the same industry as the new startup, say tech. Their expertise can offer insights and advice on the sector, industry trends and regulations, and pathbreaking practices. They can also help companies with legal compliance and financial planning to help them develop more suited business strategies.

However, founders often avail of financial assistance, mentorship, and networking opportunities in exchange for a part of their company ownership and decision-making power. Angel investors often have a high risk-taking capacity and are more willing to park money into companies in their early stages, with or without a proven track record. The early investment is crucial for startup owners who can use the capital to fund operations and marketing activities, hire staff, and innovate products or services. They are known to be more involved and hands-on compared to venture capitalists and offer more than financial aid to young companies. Their support helps entrepreneurs make confident and impactful business decisions. However, it should be noted that angel investors typically do not demand a sizable stake as a venture capitalist but involving them would cause dilution of equity to some extent.

The presence of angel investors creates new avenues and asset classes for startup diversification. By providing companies access to timely funding, valuable mentorship, and scope to network, seasoned angel investors help startups overcome common challenges faced by startups in their early stages. Hence, their role in nurturing new companies is crucial for the growth and success of India’s startup ecosystem and economy.

The author is co-founder at Ivy Growth Associates, Angel Investor and Financial Advisor. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.

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