Getting Started Becoming an "Angel Investor"

Based on the data collected DailySocial, there are at least seven deal in Indonesia which announced it received funding from angel investors in 2020.

In conversation with DailySocial some time ago, Edward Tirtanata never mentioned the condition angel investors in Indonesia. According to him, ecosystem angel investors here is still not very developed. In fact, not a few startups seek access to early-stage funding through this route.

Indonesia currently has an investment network angel through WIND (Angel Investment Network Indonesia), but if you refer to information from a number of startup founders, access to connect with angel investors it doesn't feel like much. Existence angel investors In Indonesia, it's not that they don't exist, it's just that they don't want to be exposed to their names.

In addition to access, there is another issue that is quite interesting and much discussed, namely the amount of investment value to be angel investors. Can someone who may not be rich, become angel investors? If the answer is yes, what is the ideal value that can be met to become angel investors?

Definition angel investors

In a blog written by a journalist and investment observer Chris Müller, there are some tips that can be copied by anyone who wants to try their luck as a angel investors, although maybe not very rich.

Before we get there, let's clarify what it is angel investors. Muller defined it as someone who has enough money to invest in an early stage business or business Existing which has developed. Like investors in general, angel investors crave a return on investment which is usually in the form of equity in the company or profit sharing (revenue sharing).

While quoting Entrepreneur, their motivation to invest is not solely for profit, but based on the desire to help new business people. Angel investors can come from a variety of professions, such as doctors, lawyers, suppliers, or business partners. Unlike the VC which stands as an institution to invest other people's money.

When referring to regulations in the United States (US), anyone can be angel investors as long as they meet the requirements as "accredited investors" by the Securities and Exchange Commission (SEC) Stock Exchange Commission, i.e. have net worth $1 million or more (excluding main residence) and earn $200.000 per year.

How much capital is needed?

Back to the question at the beginning, is it possible to invest in a small amount of money? How much does it take to become angel investors? Muller revealed, when referring to recommendations from experienced investors, investors allocate up to 10% of the portfolio for angel investing.

Indeed this does not answer how much is needed. The easiest answer that can be given is that it depends on the type and size of the investment being targeted. If you cheat on television show references Shark Tanks, You can start by investing hundreds of thousands of US dollars.

In fact you could have invested on a smaller scale, say $10.000. However, Muller underlined that the smaller the investment, the smaller the shares owned (and of course the profits). This amount can also be a factor that affects the involvement of investors in making business decisions.

He gave an example, if the total investment in the portfolio is $100.0000, this will fulfill the 10% portion as mentioned earlier. But, if you want to invest in a good startup business, he recommends having at least $50.000-meaning that the overall portfolio could already be close to $500.000.

Meanwhile, quoting in the blog Pluang, Angel Capital Association data notes that investors with entrepreneurial backgrounds invest an average of $39.000. There are also those who invest an average of $28.000. There is no specific amount, it all depends on the investor and the business being targeted.

Collectively, angel investors global funds up to $24 billion to invest in 64.000 startups each year.

Plus and minus become angel investors

Basically investing is not just a way to enjoy profits. It's a risky investment and you could lose probably all of the money – even if the company underperforms or goes bankrupt. Other data Angel Capital Association show at least 50% of angel investors lost half the money.

Again we also need to underline that this is an investment, not a loan. One of the reasons why business people like angel investing is because this is not recorded as a loan in their balance sheet. Angel investors buy part of the company. This means that there is another way if the business fails and you lose money than bothering to take action if it is a loan that cannot be repaid.

Otherwise, angel investing can also potentially generate return very high. Muller gave an example, Peter Thiel's investment in Facebook became one of the angel investing most popular. Thiel injected $500.000 into Facebook in 2004 before Mark Zuckerberg's platform go public. If only Thiel hadn't sold his 80% stake by now, Thiel's stake could be worth $10 billion today.

Another plus is that you can build your company the way you want. angel investing it is possible to gain ownership of the company, which automatically enables you to be involved in making decisions. However, this is all provided that it refers to the size of the investment and the agreement you make with the business owner.

No less important is investment diversification. According to Muller, angel investing provide investors with options to expand their investment portfolio, such as stocks, bonds, and exchange traded funds (ETFs). Investors can become part owners of the company and can pocket returns in the form of company profits.

is angel investing profitable?

Still referring to the blog Pluang, a number of angel investors reported a ten-fold higher return on their initial investment after selling their stake in the company.

According to a number of studies, only 5-10% of angel investing recorded profit. On average, 11% of funded companies earn exit positive ones. Even that has results exit which varies.

It can be concluded that not all exit profitable for angel investors. All of this goes back to the research conducted by investors regarding the company and the business category to be funded. First understand the business you want to fund before deciding to invest.