Why investors are Angels to Start- ups??
When I started out with my investments in Equity, I remember that all I wanted to do was earn an extra buck through trades. I did not know the difference between Investing and Trading at that time. I did not even realize the risks involved in trading & investments in equity. Every morning and evening, I would rush to know the trade value of equities and take a decision to sell or buy with adrenaline pumping like a driver who races his vehicle without knowing what lies ahead. When I became an equity broker myself for a short stint and began to manage others’ money, I became more like a pilot for them towards investments. I read up on fundamentals of whatever I knew but was very cautious on Stock selection, always investing in Equities that gave best returns. All my investment in the present company, Focus Infotech, came through my investment in a Stock called Sathyam Computers. It gave amazing returns and I still hold some 500 Shares sentimentally but now it is merged with Tech Mahindra. Investments in gold and real estate continue to see good participation as well as through the Mutual Funds route as alternate investment models.
Fueling my risk appetite and finding alternate methods of investing is my special interests area. Six years back, I started investing in a few start-ups by following only their Passion. Then, the ecosystem was not very mature for investors and exits from investments was not evidently known. My first few investments failed due to not understanding the problems related to scale of operation and also without proper financial fundamentals. Sometimes, the business model also failed. I realized that I was not evaluating the opportunities giving credence to all scenarios but only limiting myself to the passion displayed by the entrepreneur, not comparing with existing competition and anticipation of technology changes.
Four years back, one of my friends called me and asked whether I would be interested in investing in start-ups through IAN, he was a member and I was not then. I co-invested through him and fortunately I saw good returns. This enthused me very much and I became a member of IAN (Indian Angel Network), wanting to know more about the investor community and their philosophy. Bangalore being where most investors resided, monthly 3rd Saturday I visited Bangalore for pitch sessions where the stalwarts of the IT industry would be present for evaluation of that day’s presentation. Every start-up would be given a 45 minute slot to get the attention of investors. Members also asked various questions and even before the end of that 45 minutes, we fairly understood whether it was worthwhile for us to look at the start-up for further due diligence. Within 45 minutes they evaluated the entrepreneur’s passion, whether he had the capability, openness to change, reason for investments and did the domain and business model look attractive …. These were Mini MBA Sessions for me.
For my first few investments I followed a few seasoned investors and mentors in the industry. And being part of TiE, was invited to sit in a few Pitch Sessions as well, where many start-ups will have “speed dating” sessions with many investors. I realised that I could be a bridge to fill up the gap of the investors’ expectations and the entrepreneurs readiness for such investments, by being a mentor to interested entrepreneurs to help them understand what an investor would look for while evaluating a biz model and to judge for themselves whether their idea passed the basic tests. This helps entrepreneurs understand better where they stand and what it takes to get funding.
One day I got a call from one IAN investor to accompany and speak to a start-up based in Chennai who was planning to Pitch that Saturday with IAN in Bangalore. I traveled along with him to Bangalore, had an opportunity to talk to him on his venture, his long term views about the domain and asked all such questions mostly investors were going to ask him. He had answers for all those questions. I was convinced about this start-up even before I reached the venue for the pitch. He pitched before the investors, many of them were very seasoned investors and post pitch there was divided opinion. The investor who requested me to accompany him looked at me and asked if I was interested. Since I was convinced already that this start-up merited investment, I immediately agreed and I was made a co-lead to the investment.
My interest become a responsibility now to do due diligence and find & provide the details to the rest of the investors to take a call on their decision.It was then that I realized that these investments itself were high risk and low Liquidity, they increased my responsibility when I was a lead investor. I felt their Success also became part of my responsibility and that I had to play the role of eyes and ears for other investors.
Few Days back another member of IAN from Germany emailed me for a call to know about my latest investment which I led one month back. I thought it was one of those short calls to know the status of investment and agreed but the call went on for an hour and he asked me about how I was convinced about the scale of the business and why do we need so much money in this Phase. I had to explain to him how I looked at this opportunity. My parameters for consideration of investment are:
- Clear Purpose of the entrepreneur to get in to this start-up
- Their passion in what they do
- My discussion with customer
- Plan for Scale
- Details of an all-around execution plan
- Openness of the entrepreneur to adapt to any Ambiguous situations
- The VC companies who follows them for their interests in next round if they scale.
- Meticulous follow up on all issues in relation to investment and scale
- How they attracted media etc
At the end of the call he told me I was too involved with that Start-up. I was exhausted and smiled to myself that it was required for me to know so much detail to speak to next round of investors…
Other than the learning for me in the new domain, though my experience is in the Services business all throughout my career, I am also privy to young entrepreneurs’ thinking and energy levels. When those entrepreneurs look at all investors who came as ANGELS to help them, it also gives direction for my Purpose.
I see many people wanting to become Angels. I feel that if the goal for the investment is just returns, one can be part of Angel Funds and be far removed from the details of the start-up as the evaluation will be done by someone for the group but if one wants to make a difference to the community of fund seekers and fund givers, and feel the passion of an entrepreneur and experience the thrill of seeing a new start-up grow, it’s best to become an Angel for one, a mentor who will be with the start-up through its ups and downs and hopefully see a new start-up take root, spread its branches and grow well.