Indonesia is one of the countries in which angel investors have established an ever-increasing presence. As a result, more and more owners of new businesses and startups in Indonesia have been turning to angel investors for the purposes of funding their new business ventures.
Angel investors are wealthy individuals who can provide financial support for the establishment of new businesses and startups. Angel investors frequently take an ownership stake in a particular startup. Angel investors will make a significant monetary contribution to help a startup begin business operations. The amount that these investors contribute will vary depending on the startup’s needs and the industry to which the startup belongs. In several cases, angel investors are the investors of choice of startups that fail to meet the criteria for bank financing and are unable to interest a venture capital (VC) firm.
There are two major groups into which all investors can be classified. The first group is that of angel investors; the second, venture capitalists. Angel investors and venture capitalists are people who invest their money into new businesses. Both take planned risks when they invest their money; when they do so, they hope to earn a significant return on investment. There are several important points which differentiate angel investors and venture capitalists.
Angel investors are authorized investors who use their own wealth to invest in small businesses. This should not come as a surprise when one considers the fact that a great many angel investors also happen to be owners of small businesses. Angel investors who are owners of small businesses tend to focus on investments that build a business instead of those that generate profits as soon as possible.
Angel investors usually tend to invest their money in businesses which have just been established. They tend to select businesses in which other angel investors are interested. Those who have plans to start up a business may choose to utilize the finances of an angel investor because an angel investor is a person who can provide with enough money to keep the newly established business in operation and eventually strengthen it. Once the business has been established and its owner plans to expand it, only then might the owner opt to employ the services of a venture capitalist.
Another reason why angel investors select certain businesses for investment purposes is because they expect the business to eventually become profitable. For this reason, angel investors generally take more risks than do venture capitalists.
One other important difference between angel investors and venture capitalists can be seen in the amount of business capital which angel investors and venture capitalists typically provide. According to the Small Business Administration, the average angel investor invests US$330,000 – a figure much lower than that of the average venture capitalist investment. Angel investors and venture capitalists also expect different amounts of returns on investment. Angel investors usually expect returns of between 20% and 25%.
Certain angel investors are also classified as accredited investors. According to the Securities Exchange Commission, an angel investor is only eligible to become an accredited investor if the person has either a net worth of at least $1 million or yearly earnings of at least US$200,000.
Venture capitalists do not usually invest in companies by using their own money. Most venture capitalists invest in the businesses which have already been established. In this way, their risks of losses on investment are minimized.
Venture capitalists invest much more money into businesses than do angel investors. The Small Business Administration has found that the average venture capitalist invests approximately US$11.7 million. Venture capitalists also typically expect higher proportional returns on investment than do angel investors. The amount which is expected by venture capitalists typically ranges from 25% to 35%.
Advantages and Disadvantages of Being Financed by Angel Investors
The primary advantage of being financed by an angel investor is the fact that in case of business failure, the business owner does not have to return the invested money to the angel investor. This makes being financed by an angel investor much less of a risk for business owners when compared to using a loan. Angel investors’ investments also tend to be mutually beneficial because they are often in search of a personal chance as well as an investment. In cases of debt financing, the institution from which the business owner borrows money has no control over the management and operations of the organization. Thus, these institutions will not take any share of the profits.
Angel investors also make contributions to a startup by providing knowledge and experience. Although angel investors take significant risks, the rewards can be very lucrative if everything goes well. Angel investors do not need to be paid monthly as is the case with lending institutions. The final major advantage regarding angel investors is the fact that they are becoming more common, so it will be easy for a business owner to interact with one.
However, before you can begin working with an angel investor, you must first be a business owner. This is where we at Paul Hype Page & Co can be of assistance. We will help you set up your company in Indonesia. Our incorporation experts will guide you through the entire process so that you best understand what is to be done.
The primary disadvantage of being financed by an angel investor is the loss of autonomy. The business owner will surrender complete control of the business. Any profits will also be divided between the owner and the angel investor. In this sense, working with an angel investor can be fairly costly. Some angel investors are also untrustworthy. They may initially seem to have the startup’s best interests at heart but actually seek to take complete control over it. Angel investors also do not necessarily provide any additional investment for the organization’s development, even when it is required. One final disadvantage is the fact that angel investors do not have any official national or government recognition.
Those who have the financial means may be interested in becoming an angel investor in Indonesia.
The following are some suggestions to succeeding as an angel investor in Indonesia:
Have good psychological awareness. It is important for angel investors to understand what the business owners with whom they work will be thinking at any given point in time.
Avoid acting too quickly. Making an unnecessarily impulsive decision could cost the angel investor, the business with which the angel investor works, or both large sums of money.
Think about joining an angel investors’ community. By doing so, the angel investor will be able to interact, brainstorm, and collaborate with fellow angel investors. Some of these angel investors may even choose to make investments a small group instead of doing so individually.
Organize and manage cash well. Failure to do so could bring about the financial ruin of the angel investor, the associated business, or both.
Invest carefully and skillfully. The choice of investment made by the angel investor often makes the difference between one’s success and failure in the position.
It should be kept in mind that one does not have to be an angel investor to invest in an Indonesian company. We at Paul Hype Page & Co can help you with this matter. We will help you understand why and how to invest in Indonesian companies so that you will receive as many financial benefits as possible.
Industries with the Most Angel Investors in Indonesia
It should go without saying that certain industries in Indonesia are more conducive to angel investors than others. Thus, it should not come as a surprise that these industries have many angel investors. The following is a list of such industries:
- Food and beverage / restaurants / catering
- Peer-to-peer lending
- Pet technology
- Children’s entertainment
- Employment agencies
- Property technology
- Mobile technology
- Crowd funding
The Indonesian government takes a very positive view towards all foreign investment, including investments made by angel investors. Thus, Indonesia has been encouraging foreigners living there who have the financial means to become angel investors to do so. Furthermore, there are restrictions on neither the nationality of angel investors in Indonesia nor the number of countries in which a foreign angel investor in Indonesia can have this status. Therefore, a person can be an angel investor in Indonesia and another country at the same time.
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