November 28, 2022

Risks to Angel Investing for Saudi Arabia Investors

Risks to Angel Investing for Saudi Arabia Investors :

Angel investing is a startup ecosystem’s most significant funding source today. And it seems to be gaining even greater ground in Saudi Arabia. According to the H1 2022 Saudi Arabi Venture Funding Report, the amount of capital deployed into Saudi startups from investors grew to a record high of SAR 2.9 billion, i.e., $584 million. This marked a 244% increase from H1 2021. While it is undoubtedly good news for the startup ecosystem that the number of Saudi Arabian VC funds and angel investor groups (and consequently, funding) available is increasing, the implication of this positive is that the number of inexperienced investors is also growing.

Angel investing can be very rewarding, but it also involves significant risk. And to that end, new investors from the Saudi region must be adequately educated on the risks involved in angel investing.

What are the Major Angel Investing Risks for Saudi Arabia Investors

One thing every angel investor must acknowledge and accept is that the majority of funded startups fail. For instance, in 2020, the US government received about 4.4 million applications for new businesses. However, according to data from the United States Bureau of Labour Statistics, about 20% of companies shut down in their first year. Several more will eventually wind up later on. In fact, according to Shikhar Ghosh of the Harvard business school, over three-quarters of all funding still fails in their lifetime.

Considering this significant risk and the enormous amount of money lost, angel investing is not for the fainthearted.

Since today’s funding environment is so fast-paced and complex, startup investors must stay on top of their funding game to keep their place at the cap table. This venture is because companies will keep raising money in subsequent funding rounds as they grow. Some companies raise as much as from a pre-seed game to a series D. The problem is that angel investors typically don’t have such deep pockets and can’t afford to invest in all these rounds. So unless you are game and able to invest in every company that grows so fast that it can keep the value of its price per share rising, then you may have to watch as your percentage of ownership shrinks.

Minor control and influence

Because angel investors usually support all amounts(relative to the amount invested by institutional investors and VC funds), the amount of control and influence they minimal on the company and product is minimal. Ultimately unless there is a pre-existing and intimate personal relationship with the founders, you won’t have a say on critical matters. Not only do angels not get board seats, but they usually don’t even set the terms of the deals they get.

Conclusion

Angel investing is fraught with risks. If angels seek to limit the risk to their investments, they may consider partnering with other angels to support as a group. Regardless, guiding startups to profitability remains fulfilling for many angels. And angel investors remain an indispensable pillar of the startup ecosystem.

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