If the VC refuses to raise the investment to the next higher level, then, the angel could be in a sticky situation. Particularly if the startup is a capital-intensive one, eg.as in the e-commerce domain.
Once an angel has invested, not only does he provide funds, but he also lends support in team building, matters of taxation and finance.
Inherently, these investments are a very risky proposition for the angel, as a lot of startups fail in the early stages. And hence, the expected returns on investment are quite high, almost ten times the original investment, within 5 years.
The total period of time that the angel investor stays on in the startup, is from 3-5 years and exits when there is an IPO (Initial Public Offering), an acquisition or the VC buys out the angel.
Angels sometimes invest online or at times may be a part of a network. There are a few such networks which are regional like the Chennai Angels, Keiretsu Forum, Mumbai Angels, Calcutta Angels, CAN, Chandigarh Angels Network and India Angels Network (IAN). Eg. iKure Techsoft Pvt. Ltd. from Kolkata, which has 8 health clinics in rural Bengal, got first funding through Calcutta Angels.
The CAN has a rather unique system of functioning, in which there is no corpus fund. Instead, each person invests upto Rs. 5 lakhs in a startup of their own choice.
Interestingly, a club deal between angel network Empire Angels from New York and VC firms Sequoia Capital India and Nokia Growth Partners raised $11 million for self-drive car rental company Zoomcar.
Another emerging trend which is discernible, is that, investors prefer funding startups where the founders are Indian but the market is western, eg. US., which is the largest startup ecosystem. Here, the opportunity to the investor, is tax benefits. Eg. Sify led a Rs. 3 crore ($500,000) round into Brainstorm Health, a US startup with Indian founders, that makes fitness apps for gyms.
India Angel Network (IAN) has invested in Jigsee, a Canadian mobile video-streaming startup, and Mobilewalla, along with Rajan Anandan of Google India and iSPIRT’s Sharad Sharma. It also has a live investment in LoudCell in Silicon Valley.
To conclude, kudos to these angels for being the knights in shining armour, for startups!
An interesting tid-bit, that I came across, was, that the word “angel” originated from Broadway theatre, which referred to “wealthy individuals who provided money to theatrical productions which otherwise would have shut down!!”