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Funding Basics - Angel Investing

Posted by Health Entrepreneur 02/01/2016

The journey of a new business starts with great idea and it passes through several phases of the business cycle. But transition from one phase to another is facilitated by funding generated through various means. There are many ways for generating funds and one among them is Angel Investors.
 

Abstract:

According to market analytics, the number of healthcare startups has increased by 68% in 2015. This time is regarded as the “Golden Era” of Healthcare startups with Venture capitalists interested to venture in the healthcare sector and reduced initial investment requirement due to cutting edge technology. However, out of 1000 startups only 8 of them can grow big. The main reason for this observation is that the entrepreneur does not have proper guidance and knowledge about the funding processes. The main catchphrase of this article is to provide useful information about the Angel funding process and illustrate the various facts associated with this funding process. This information can help the entrepreneurs seek the right kind of funds, to help their business grow and flourish!

 

At a Glance

  1. Angel Funding

  2. The Process of Angel Investing

  3. Legal Constraints Linked With Funding Process

  4. Summary

 

Introduction

Show me the money! Well if you are an entrepreneur undergoing business metamorphosis, funds will be the first thing you would seek.

According to Gavin Newsom, "Accessing capital to start a business can be a daunting process, especially for entrepreneurs who start out with a great idea but have no real familiarity with the business world."

Funds are the lifeline of any business. The journey of any new business starts with a great idea and radically passes through several phases of the business cycle. Transition from one phase to another is facilitated by funding generated through various means. These include bootstrapping, equity crowdfunding, angel investors, micro VC’s and Venture capitalists.

 

Figure 1: Stages of funding in business lifecycle

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In a typical business lifecycle, the founder bootstraps the idea with prototype and rolls out the product by generating revenues through angel funding and seeks venture capitalists for future expansion and growth.

 

Angel Group

Angel investors are upscale individuals who invest their money in startup companies or small businesses in exchange for profit shares or ownership equity. Originated from the Broadway Theater, the term “Angel” has become popular in the capital funding markets. The angel investors sometimes organize themselves into networks and form angel groups that invest the collective capital in to new ventures. Angel investors are much more tolerant and encouraging to the startups. The prime focus of angel investors is a brisk growth of the company’s business rather than procuring higher profits.

In the United States, the Silicon Valley monopolizes the angel investing market. An angel investor invests somewhere around $25K to $100 million.

Traits of the companies that the angel investors look into before investing are:

  • Novel technology or product

  • The quality and liability of the founders

  • Chances of the company becoming the next big thing

  • Well stratified business plan with some evident profit

Angel investors are classified into two broad groups:

  • Affiliated Angel: An affiliated angel can be someone with some association with the entrepreneur or the business in which he they are investing but may not be related or a close acquaintance.

  • Non-affiliated Angel: A non-affiliated angel is someone without any connection to the entrepreneur or the business.

 

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