Unit 3

Angel Investors

• Also known as a business angel, informal investor, angel funder, private

investor, or seed investor
• Angel investors are private individuals who invest their own money in
someone else's business.
• They are called "angels" because they invest in companies that don't qualify
for other types of investment.
• Angel investors are usually one of the first funding sources an entrepreneur
receives after exhausting self help sources such as credit cards, investments
from friends and family, and home equity loans.
• They give support to start-ups at the initial moments (where risks of the
start-ups failing are relatively high) and when most investors are not
prepared to back them.
• Some angels are professionals and some have inherited wealth.
• Many angels are business people who have built their own companies and
taken them public or sold them.
• As a result, they bring both money and business experience to entrepreneurs.
• Angels with experience in an entrepreneur's industry are especially valuable
because they can
• Mentor the entrepreneur and help avoid costly mistakes
• Introduce him or her to potential clients,
• Help identify and recruit new employees,
• Make contacts needed for further rounds of funding.
Types of angel Investors

The Partner
The Family The Super Angel
Angel Angel Investor
Investor Investor
The The “Sport
Domain Fisherman”
Angel Angel
The Investor Investor
The “True The Barter
Relationship
Believer” Angel
Angel
Angel Investor
Investor
Investor
• The Family Angel Investor
• Is not really a classic Angel Investor at all, but a supportive family member
that "knows you."
• Their motivation comes from the interest in supporting a family member
or friend.
• Their basic investment thesis is that they trust you.
• This investment is totally emotional and personal.

• The Relationship Angel Investor

• The Relationship Investor is a co-worker from a previous company or a
business friend that the entrepreneur knows for a while.
• This investor may or may not understand what the new company is doing,
but has a track record working with the entrepreneur
• They want to be supportive on the one hand, but are also looking for a
return.
• They can also be wildly supportive in terms of finding employees and other
resources.
• The Domain Angel Investor
• Investors in this category are usually operating executives who have spent
their entire careers in a specific industry vertical, like internet travel, for
example.
• They will have the ability to “see” the opportunity that the startup is going
after unlike anyone else, save the entrepreneur because they inherently
get the space.
• PROS: Industry-insider who serves as a validator for the rest of the
investment syndicate, extremely helpful advice and network connections.
• CONS: May be more proactive in “offering” advice that is uninvited.

• The Super Angel Investor

• He/ She makes investments in a large number of companies
• PROS: the vast network of portfolio CEOs which can be tapped into for
connections and help.
• CONS :potential lack of “value add” because his time is spread so thin
amongst many portfolio companies.
• The “True Believer” Angel Investor
• Are those angels out there who hear startup’s story, instantly believe, and
want to immediately invest sometimes in spite of the financial risks.
• PROS: Over-the-top encouragement and support, a cheerleader as a
balancing voice amongst what-have-you-done-for-me-lately investor
syndicates.
• CONS: Lack critical eye and challenge to push an entrepreneur after the
investment has closed.

• The “Sport Fisherman” Angel Investor

• These mega-wealthy individuals, sometimes not from the startup world,
invest an extremely small portion of their net wealth into early-stage
startups so that they have something to talk about with their friends at
cocktail parties.
• They do it merely for the entertainment-value of participating and care very
little if their investments actually yield a return.
• PROS: Sometimes these individuals are well-connected or have a public
persona which could be helpful to the business.
• CONS: Potential lack of concern for the entrepreneur or the company
• The Partner Angel Investor
• They are usually buyers in disguise
• They would prefer to purchase the company but lack the financial resources
to do so
• They are often affluent senior executives or former business owners re-
entering the workforce
• They usually have a high need for control and often desire senior positions.
• They also offer the entrepreneur a way to exit the business

• The Barter Angel Investor

• These investors provide their investment in kind rather than cash usually
offering goods and services the company would otherwise purchase with
cash
 Angel Investors
• Is an individual
• Usually has other full
time job
• Usually is not involved
with the working of the
company
• May not ask for a board
seat
• Wants to bring the
product to the market
• Invests in the long term
Venture Capitalists
• Is a company
• Investment is full time job
• Wants to involved with the
working of the company
• Asks for a board seat
• Wants to scale existing
offering
• Wants large return on
investment
• Helps the company go
public
Business Incubator

• Business Incubation is the name given to the process, wherein an individual

or an organization supports the establishment and growth of a start-up.
• Those supporting the start-up or new companies are called business
incubators.
• These business incubators see the growth potential and weigh the
opportunity before supporting or funneling funds into any start-up
• In other words, it is an organization that helps startup companies and
individual entrepreneurs to develop their businesses by providing a full scale
range of services starting with management training and office space and
ending with venture capital financing.
• Their goal is to help create and grow young businesses by providing them
with necessary support and financial and technical services.
Types of Incubators

Virtual Startup
Business Social Studio
Incubator Incubator

Kitchen Corporate
Incubator Accelerator

Medical Venture
Incubator Seed Building
Accelerator
• Virtual Business Incubator
• Also known as online business incubators
• Allows companies to garner the advice of an incubator without actually
being located at the incubator site
• This model suits those entrepreneurs who need the advice an incubator
offers but still want to maintain their own offices, warehouses, etc.

• Medical Incubator
• This is a business incubator focused on medical devices & biomaterials.
• For encouraging innovation and entrepreneurship in medical
technologies, through technology, business incubation support is given
to innovators, start-ups and industry.
• Kitchen Incubator
• It is a business incubator focused on the food industry.
• Starting a commercial kitchen from scratch can cost a huge amount of
investment.
• The average food entrepreneur has to spend plenty before even making
their first batch of food item.
• Entrepreneurs who want to make a profit have to successfully package,
market, and sell their products, too and the food incubators provide help
with all this.

• Public/Social Incubator
• This is a business incubator focused on the public good.
• Aims to provide social entrepreneurs with the tools to expand their
business.
• Seed Accelerator
• This is a business incubator focused on early startups.
• Seed accelerators, also known as startup accelerators, are fixed-term,
cohort-based programs, that include mentorship and educational
components and culminate in a public pitch event or demo day.
• While traditional business incubators are often government-funded,
generally take no equity, and focus on biotech, financial technology
(“FinTech”), medical technology (“MedTech”), clean tech or product-
centric companies, accelerators can be either privately or publicly
funded and focus on a wide range of industries.
• The application process for seed accelerators is open to anyone, but is
highly competitive.
• There are specific types of seed accelerators, such as corporate
accelerator, which are often subsidiaries or programs of larger
corporations that act like seed accelerators.
• Corporate Accelerator
• It is a program of a larger company that acts akin to a seed accelerator.
• A corporate accelerator is a specific form of seed accelerator which is
sponsored by an established for-profit corporation.
• Similar to seed accelerators they support early-stage startup companies
through mentorship and often capital and office space.
• In contrast to regular programs, though, corporate accelerators derive
their objectives from the sponsoring organization. These objectives can
include the wish to stay close to emerging trends or to establish a funnel
for corporate venture capital investments.

• Startup Studio
• Also known as a startup factory, or a startup foundry, or a venture
builder, is a studio-like company that aims at building several companies
in succession.
• This style of business building is referred to as “parallel
entrepreneurship”.
• Venture Builder
• These are similar to a startup studio, but builds companies internally.
• Are also called tech studios or venture production studios
• They are organizations that build companies using their own ideas and re-
sources.
• Unlike incubators and accelerators, venture builders do not take any
applications, nor do they run any sort of competitive program.
• Instead, they pull business ideas from within their own network of resources
and assign internal teams to develop them such as Engineers, advisors,
business developers, sales managers, etc.
• Venture builders develop many systems, models, or projects at once and
then build separate companies around the most promising ones by
assigning operational resources and capital to those portfolio companies.
• The venture-building company is a holding company that owns equity in the
various corporate entities it helped created
• They raise capital, staff resources, host internal coding sessions, design
business models, work with legal teams, build MVPs, hire business
development managers, and run very effective marketing campaigns during
their ventures’ pre-and post-launch phases.
Government Grants, Subsidies & Support by Ministries

• Government agencies provide finance through grants and subsidies which is

based on stringent criteria.
• Following documents need to be provided by startups to get grants and
subsidies
• Detailed project description
• Detailed project report
• Explanation of the benefits of the project
• Detailed work plan with full costs
• Details of relevant experience and background of key managers
• The proposals are assessed on following criteria
• Significance of the proposal
• Approach adopted while making the proposal
• Innovation & creativity added to the project/processes
• Assessment of expertise by going through the profile of the promoters
• Need for grant should appear to be genuine
• Problems faced by startups in getting grants/ subsidies
• Proposal is nor relevant
• Ineligible geographic location
• Applicants fail to communicate relevance of their ideas
• Proposal does not provide strong rationale
• Research plan is unfocused
• Involved unrealistic amount of work

• There are several ministries /departments which provide financial support

such as Ministry of Small scale industries, Ministry of non-conventional
energy sources, ministry of food processing industries, Ministry of Steel,
Small Industries Development Bank of India
Bank Loan
• Are the most commonly used source of funding for small and medium
businesses
• Advantages
• Startups can put their plans into action much earlier and take advantage of
any business opportunities that arises
• injection to their cash flow without losing any control of your company.
• As long as the startup makes the repayments, banks don't interfere or set
restrictions on what the entrepreneur uses the loan for
• Disadvantages
• Banks may be cautious about lending to small businesses. Their strict
lending criteria can make it particularly difficult for start-ups and newer
businesses to be accepted for a loan as they don’t have the financial or
trading history to back up their application and, if they are accepted, the
interest rates are likely to be increased to compensate for the added risk.
• Preparing for a business loan application can also be a long and time-
consuming process. Not only will you need to fill out an application form for
each lender, but you will also need to provide a business plan, your account
history, and your financial forecasts to show your business is a viable
lending prospect.
Crowdfunding

• Crowdfunding refers to getting funds from a crowd, i.e., the general public.
• Entrepreneurs typically use this option when developing a product that’s
essential to people and not available elsewhere.
• There are crowdfunding websites that enable members of the public to pool
their funds to help various causes.
• Every member can contribute as little as Rs. 100, and the money can go a
long way if many people add to it.
• Startups can use any of these sources of finance to launch their operations
and offer quality products and services to people.
• The people who fund these projects and entities may do so without
expecting anything in return—they're donations to a cause they support.
Others fund these projects in exchange for products, services, or equity in
the entity.
How does Crowdfunding work

• The entrepreneur who wants to raise funds through crowdfunding and the
small investors who are interested in funding new businesses and business
ideas needs to register at the official crowdfunding websites. These
websites are the medium between investors and entrepreneurs.
• The entrepreneur has to put the idea along with projections of the business
through the crowdfunding website so that the potential investors could
decide whether to invest or not to invest.
• Along with the idea and projections, the entrepreneur has to quote the
minimum amount the investor can invest.
• The potential investor needs to show interest in investing along with the
minimum amount it can invest and the procedure as well as details of the
investments.
• If over applications are received, the excess money is to be repaid to the
investors.
• Once the funds are raised and received, the entrepreneur has to pay fees to
the crowdfunding websites. The fee is based on the percentage of
fundraising.