The startup scenario in Bangladesh first came into existence in the early 2010s. This was a time when Bangladesh was seeing steady growth and increased accessibility all around. There are over 1000 startups in Bangladesh as of 2021 and the number is expected to grow as the country and the economy becomes more digitized. But are there enough funding opportunities for these startups? This is where angel investors come in. Though Bangladesh is yet to achieve a healthy investment ecosystem, angel investment has been playing a key role at the micro-level. Now, what is an angel investment and how do startups stand to benefit from it? Read along to find out.
What is angel investment?
Angel investment happens through an angel investor, that is someone with a considerable chunk of wealth who’s willing to invest in the early phase of a startup. While it's mostly limited to the scope of a single-person investment, there are instances where an investment company acts as an angel investor in startups. The mechanism of angel investment is similar to other forms of investments. Here an angel investor invests a certain lump sum in the startup in exchange for ownership equity.
Angel investor faces a lot of risk in terms of the investment itself. A startup has several phases in its growth trajectory. It starts with an idea which then moves onto an MVP or market viable product. After that comes the growth, expansion, and maturity phase. While most venture investors, banks, and equity firms invest from the growth phase with IPO being exclusive to the maturity phase, the scope of an angel investor is limited up until MVP. The initial investment in the idea itself without any proof of product-market fit increases the investment risk exponentially. As a result, you might have to dish out larger equity for a lower investment.
The data regarding angel investment in Bangladesh might not be enough to give a glimpse into its implication in the startup sector. However, the lower limit of investment can be as low as 0.5 million BDT to upward of several million dollars.
What should you look for in an angel investor?
Now you might be thinking what’s there to look for in an angel investor? They are literally investing money in your startup when it’s nothing more than an idea. Compared with the rate of startup growth in Bangladesh, the chance of scoring an angel investor is slim as it is. However, there are still some aspects to be considered to make sure you make the most out of the deal and your investor. Because there are more to angel investing than giving up equity for cash. Here are our top 4 picks to consider.
An angel investor should have sufficient knowledge of the investing industry. Think of angel investors as mentors. Someone who has worked in the industry before knows the ins and outs and things to avoid which you won't generally have access to in your starting phase. This will help any startup avoid potential pitfalls. A study conducted by Nesta showed that angel investor investing in a known industry sees a better return on their equity.