Angel Investing Explained: How To Start Investing In Startups
The growing startup market is drawing immense attention from angel investors. These are wealthy private investors with the capacity to finance small business ventures in exchange for high equity.
What if we told you that you, too, can become an angel investor with Grip?
If you’re curious, read on to know more. This is a comprehensive guide to angel investing for beginners, covering all the basics, such as what angel investing is, who can become an angel investor, the angel investment process, the benefits and downsides of angel investing and more.
To begin with, let us understand what angel investing is.
What Is Angel Investing?
Angel investing is a type of private equity investment in which individuals or groups of investors invest their own money in early stage or startup companies. The goal of angel investing is to help these companies grow and become successful. Investors earn a return on investment (ROI) down the line.
Startups don’t find angel investing easily in the first place, and angel investors are not always ready to back a startup that is still in its early stages. So, Grip has come up with a great way to support this ecosystem. It has made Angel investing in startups possible for everyone.
Who Can Be An Angel Investor?
A high-net-worth individual (HNI) who meets the standards of being an accredited investor can become an angel investor in India and benefit from investing early. You must also qualify according to the following criteria to be eligible as an angel investor:
- Experience: You must have experience in early-stage investments, may have been a serial entrepreneur or have worked as a senior management professional for a minimum of 10 years.
- Net Worth: An individual investor having net tangible assets of at least INR2 crore, excluding the value of their principal residence or a body corporate with a net worth of at least INR10 crore.
- Risk-Taking Capability: Angel investors understand investing in start-ups is a high-risk and high-reward approach. They are willing to bet on the potential for success in the business while accepting the possibility of losing everything.
At What Stage Of Companies Do Angel Investors Invest?
Angel investors typically jump in during the early days of a company’s journey. This could be when the business is just an idea or when the startup has just started offering its product or service.
At this point, it’s common for the company to have few customers or some revenue. They might have a handful of beta users, some early adopters, or just some market interest.
Angels are often the first outside investors, coming in after the founders have used up their initial funds. Their investment is key at this stage, as it helps the startup grow when larger venture capital firms aren’t ready to get involved yet.
How Much Do Angel Investors Typically Invest?
Angel investors step in early, offering small amounts of funding to help startups get off the ground, especially when they’re not yet appealing to venture capitalists.
Venture capital firms usually come into the picture only after the startup has made some progress with the help of angel funding.
The size of an angel investment can vary a lot based on the startup's potential and how much funding it needs to grow. Individual investments often range from $5,000 to $150,000.
A typical round of angel funding might raise between $100,000 and $250,000 from 3-5 investors. In some cases, angel investments can go up to $1 million, though these larger sums are usually the result of groups or syndicates of angels pooling their money and expertise.
How To Become An Angel Investor?
Typically, angel investors stay invested in a company for 8 to 10 years. Many startups in India, like Myntra, Yulu, Testbook, BharatPe, etc, have been propelled to success with the push of their angel investors.
According to PrivateCircle Research, angel investors participated in 36 deals in January 2025 alone, and their participation continues to grow in the Indian startup ecosystem1.
If you wish to become an angel investor yourself, here are the steps:
1. Identifying Investment Opportunities
Ideal investment opportunities can impact your success as an angel investor. As most startups remain hidden from public view, knowing the performing startups can be difficult without the right approach.
In India, angel investing still remains a closed-group activity. To participate in this angel network, you can join a syndicate or a group of investors who share your passion. The angel networks also connect you with experienced investors from whom you can learn, and this can also open up access to upcoming startups.
2. Due Diligence
With startups, there would not be a lot of performance data. So, due diligence on potential investment opportunities is crucial. This requires evaluating the business model and finding out whether it has the potential to succeed. Go through the financial statements and understand the revenue streams.
The success of startups relies greatly on the founders in the initial stages. Also, angel investors often work closely with founders to steer the company in the desired direction. The background of the team that the founder has brought in is also important. More importantly, deep market research is needed to determine the viability of the business, products, or services.
3. Negotiation Of The Deal
Often, large corporations and institutional investors have higher control over the startup. Without a structured deal, angel investors may face potential losses. Legal protection in the form of a solid deal is important. Many aspects, like liquidation preferences and board representation, must be discussed in detail before investing.
If you like to be a part of executive decisions within the startup, you must clearly negotiate that with the founders. Angel syndicates and protection through Alternative Investment Funds (AIFS) can offer protection for angel investors.
The term sheet must contain all the information, such as investment amount, equity stake, valuation, and investor rights. Ensure that the valuation is fair, considering both current and projected growth. Safeguard clauses highlighting anti-dilution rights and information rights are also important.
4. Investment Agreement
While a term sheet outlines the agreements, a legal and binding investment agreement must be signed by the involved parties. This must contain rights and protections for investors, voting rights, control over key decisions, and possible exit strategies.
The agreement must clearly contain the roles and responsibilities of both investors and founders. Exit terms must be well-defined so that angel investors can minimise loss and optimise their returns on investments.
5. Mentorship And Involvement
Depending on experience and expertise, angel investors offer strategic guidance and support for the startup's growth. Often, they act as mentors and share industry insights. Startups having a good rapport with angel investors can find potential partners, customers, and other investors2.
Sometimes, angel investors would have negotiated a board seat so that they could weigh in on key decisions. For new investors, joining hands with experienced angel investors can open new avenues for investment and also help them learn while supporting the startup.
6. Exit Strategies
Angel investors have the flexibility to define their exit strategies to optimise their returns. They do not need to stay invested in the company longer than they want. So, finding potential existing strategies with good returns can boost the portfolio returns of an investor. Some of the ways that an angel investor can exit are:
- Early Exit: If the startup decides on a dividend payment for investors, it can distribute its profits instead of investing in the business. Even though it happens rarely, it can offer decent returns for investors who have invested more recently. Some angel investors also have a royalty agreement. Other investors who want to increase their investment may offer a buyback of shares, which can also be profitable for angel investors.
- Management Buyout: The company's management or its employees may offer to purchase the shares of angel investors to increase their contribution.
- Acquisition: Startups that have innovative products or services are often acquired by large companies in the market. One of the profitable ways for angel investors to exit is when a larger company acquires the startup. This provides good returns on the investment of angels.
- Initial Public Offering (IPO): For any startup, going public and launching an IPO is a huge step that shows the world that it has, in fact, succeeded. After the IPO, angel investors can sell their shares to the public, earning returns on their investment. This is generally considered a well-deserved exit for an angel investor.
- Secondary Market Sale: Sometimes, angel investors may get an opportunity to sell their shares in a secondary private market. This can help them exit their investment without an acquisition or IPO. The buyers can be VC investors.
7. Portfolio Management
Diversifying the risk of investment is crucial for any investment. Instead of concentrating all investments on a single startup, consider investing in multiple startups in varied niches to spread the risk4.
Continuous monitoring of the startup's growth is crucial so that you can adjust your portfolio based on its performance. Some startups may require additional funding, and it can propel their growth. For angel investors, this can also mean increasing their investments in the startup companies.
8. Returns On Investment
Getting returns on investments takes time for angel investors. Staying invested for at least a few years is necessary to capitalise on the company's growth. It is a high-risk investment which can also result in potential loss5.
Consider metrics like Internal Rate of Return (IRR) and Multiple on Invested Capital (MOIC) to evaluate how well your investment has performed. Often, choosing to exit at the right moment is crucial to materialise the expected returns.
How To Start Angel Investing On Grip?
Till now, investments in startups have been available to large venture capitalists and private equity players. These investments were available for a high ticket size that easily ran into a few crores. Moreover, there was no assurance of the success of these companies as there was no way to perform due diligence and background checks on them.
So, what has Grip done? It has created a new alternative investment option called startup equity. This lets small investors put their money into startups. By reducing the ticket size for individual investors, Grip has opened high-growth VC-backed startup equity investment opportunities to non-institutional investors.
- Now, you are not investing crores and can start with a minimum investment of INR 2 lakhs.
- A venture capital firm leads each investment opportunity
- Grip conducts due diligence, finalises the valuation and is responsible for the ongoing corporate governance of the startup
- These include companies that have previously raised leasing or inventory financing from Grip
- Thus, all these companies have a verified track record in terms of payment and adherence to Grip's credit requirements.
- Investors looking for regulatory comfort can rest assured as the investments are enabled through a SEBI-registered Alternative Investment Fund.
- Investors need to fulfil certain KYC requirements
- A minimum of INR 2 crore net worth and a commitment to invest INR 25 lakhs over five years is required, which can be easily accomplished.
- Grip maintains complete transparency in its operations.
What Are The Benefits Of Angel Investing?
There are several benefits of angel investing. The obvious one is the potential to earn exponentially high returns on investment. When you invest in an early-stage startup, your investment, even in just a few lakhs or crores, can generate exponential amounts of wealth as the startup's value grows with time. Other than this, a few other benefits are as follows:
- Diversifying Your Investments: Angel investing lets you branch out into a high-risk, high-reward type of investment.
- Building Your Network: By teaming up with startups and founders, you get plugged into a whole ecosystem of support and collaboration that's rare in the corporate world. Angel investing opens up connections to founders, other investors, partners, lawyers, and a wide tech network.
- Monetizing Your Expertise: If you have the right skills, founders might ask for your guidance, which can lead to more angel deals or even paid opportunities.
- Learning The Startup Life: You get firsthand insight into the highs and lows of running a startup, gaining lessons that no textbook can teach.
- Staying On Top Of Trends: Working with startups keeps you in the loop on new trends and technologies, giving you a reason to explore new markets and keep your mind sharp.
Risks And Challenges In Angel Investing
Every startup has a unique situation, and often, angel investors do not have solid data to determine whether it's a good investment opportunity. Some of the risks are:
Regulatory risk: Compliance issues and intellectual property disputes can impact the viability of the business and investor returns.
- Team risk: An Inexperienced or misaligned team and founders can disrupt the execution and adaptability of the business to the market.
- Market adoption risk: Startups working in unproven markets or with products that do not meet the needs of the market can cause revenue shortfalls due to poor adoption.
- Technology risk: Companies may not have the required technology stacks and frameworks to stay competitive.
- Intellectual property risk: Inadequate intellectual property protection or infringement issues can jeopardise the market position and valuation of a startup.
- Financing risk: Investors risk dilution of their equity if the startup fails to secure necessary funding in the subsequent funding rounds.
Beyond these risks, there are a few challenges for angel investors, such as:
- Limited access to high-quality deals: Finding high-quality investment opportunities is difficult for angel investors, particularly those who are new to investing. Many venture capital firms are increasingly participating in early-stage funding.
- Complexity in due diligence: Conducting due diligence requires time and expertise, which new individual investors may not have compared to experienced investors with a strong background.
- Portfolio management: Managing a diverse portfolio of startup investments requires professional monitoring and support, which again is resource-intensive.
- Exit uncertainty: Angel investors must predict successful exits to gain returns. It can be hard for some to realise returns when startups fail.
Tax Considerations For Angel Investors In India
Before the Union Budget 2024, startup companies had to pay angel tax when the total investment value exceeded the fair market value. To boost the startup ecosystem, the angel tax was abolished. This allows startup companies to focus on operations and innovation instead of worrying about litigation due to taxation.
The income that angel investors receive from their investments in startups is considered capital gains. If the holding period is less than 24 months, they are considered as short-term capital gains and are taxed at the income tax slab rate.
For investments held longer than 24 months, long-term capital gains are taxed at 12.5% without indexation. When investors get dividend income, they are added to the total income from investments and taxed at the slab rate.
Case Studies: Successes And Failures
Even though India is a growing startup ecosystem hub, only 20% of the startups survive for more than 5 years6. Also, only 8% can thrive beyond 10 years. So, there is a huge risk for angel investors.
In 2024, 12 new-age tech companies went public through IPO, which shows the success of Indian startups7. This indicates potential for success for angel investors.
In India, angel investors like Kunal Shah (notable investor in Unacademy, Razorpay, Slice, Mensa), Ramakant Sharma (notable investor in PharmEasy, Byju's Trell), and Anupam Mittal (notable investor in Ola Cabs, Druva, Sapience Analytics) are all hugely popular and successful.
Some of the well-known successes and failures for angel investors are:
1. Ola Cabs: Started as a local taxi service and, with early angel support, scaled up to become India’s leading ride-hailing app, successfully competing with global players like Uber.
2. Mamaearth: Identified a growing demand for toxin-free personal care products. Backed by angel investors, it leveraged strong branding and niche targeting to become a Unicorn.
3. Overcart: Focused on refurbished electronics, but struggled with quality control and lost customer trust, resulting in no successful exit for investors.
4. Stayzilla: Once popular in the homestay market, it ultimately shut down due to operational inefficiencies and misaligned business strategies.
These examples underscore the high-risk, high-reward nature of angel investing in India. While some startups achieve remarkable growth and deliver strong returns, others may falter, leading to losses. For angel investors, thorough due diligence, understanding market trends, and backing strong founding teams are crucial to increasing the chances of success in this dynamic ecosystem.
Conclusion
The Indian startup ecosystem has grown by leaps and bounds in recent times. Individuals are coming up with ideas that can simplify the lives of people. These startups require an opportunity to grow and you as an investor can be a proud equity holder in a startup. Not only are the profits highly rewarding, scaling your investment graph is like a dream come true especially if the startup becomes a unicorn.
So, if you are looking to put your money towards the chance of exponential growth, consider doing so with Grip Invest's Investment plans.
FAQs On Angel Investing
1. How much money do I need to start as an angel investor?
To qualify as an angel investor in India, you typically need net tangible assets of at least INR 2 crore (excluding your primary residence). The minimum investment in a startup through an angel fund is currently INR 25 lakh, though SEBI has proposed reducing this to INR 10 lakh for greater accessibility
2. What sectors or trends are attracting the most angel investment in 2025?
In 2025, the most popular sectors for angel investing in India include fintech, SaaS, deep tech, consumer tech, healthtech, edtech, and sustainability-focused startups. Emerging trends also show increased interest in AI, clean tech, and digital transformation ventures.
3. Who is the most successful angel investor?
Ratan Tata is widely regarded as one of the most successful angel investors in India, with investments in Snapdeal, UrbanClap, and Zivame, among others. Globally, Jeff Bezos stands out, having backed companies like Uber, Airbnb, and Google through his venture firm, Bezos Expeditions
References:
1. Private Circle, accessed from: https://blog.privatecircle.co/monthly-funding-recap-january-2025-a-strong-start-to-the-year/
2. HDFC Bank, accessed from: https://www.hdfcbank.com/personal/resources/learning-centre/invest/what-are-angel-investors-startup-funding-guide#:~:text=Screening,strategic%20guidance%20and%20networking%20support
3. Seraf Investor, accessed from: https://seraf-investor.com/compass/article/angel-investing-exits-wins#:~:text=Early%20Exit:%20One%20of%20the,of%20a%20larger%20sales%20force
4. Times Pro, accessed from: https://timespro.com/blog/how-to-become-an-angel-investor-steps-and-sebi-guidelines
5. Faster Capital, accessed from: https://fastercapital.com/content/Angel-investors--Due-Diligence--The-Due-Diligence-Process--A-Critical-Step-for-Angel-Investors.html
6. Counsel India, accessed from: https://www.counselindia.com/blog-detail/the-percentage-of-startups-failing-in-india-
7. INC42, accessed from: https://inc42.com/features/indian-startups-ecosystem-2024-review-charts-visuals/
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