Beyond 'Angelic' - The Investors' Side Of The Story
They shouldered the rise of India’s start-up ecosystem from the ground up but remained quite unsung until few years back. Despite backing so many start-ups in the last 10 years or so, in most of which they even got their fingers burnt, these angels along with new ones on the block now have an even bigger task ahead – to make the ecosystem as big as the Silicon Valley in the least time. Entrepreneur while celebrating this spirit, presents India’s leading powerpacked angel investors and their side of the story so far.
I Turned Angel Because…
Making money is the last motivating factor for these angels to invest. Getting their hands dirty with the founders through their experience and wealth being close to latest of the opportunities, love for risk taking and taking pride in being called the first backer to a potential unicorn are some reasons why they put their money where their mouth is.
“I do angel investing along with Rohit (Bansal) just to keep my thinking fresh as the most cutting-edge entrepreneurship is being done by start-up entrepreneurs. We can’t live in a bubble thinking what we are doing as a company is the most cutting edge,” says Kunal Bahl, Cofounder and CEO, Snapdeal.
Haresh Chawla led multiple investments for media conglomerate Network 18 during his 12-year stint as its Founding CEO, which he quit in 2012. He has been investing in Internet businesses since year 2000 beginning with Moneycontrol, followed by BookMyShow, Yatra, Burrp etc. The understanding that he built in that time with Internet entrepreneurs got him to angel investment. “I thought helping entrepreneurs with my experiences - successes and failures - would be very satisfying,” says Chawla, Partner, India Value Fund Advisors, a Mumbai-based PE firm. His first private investment came in Delhi-based ethnic products e-tailer Jaypore.com, and the realty portal Housing.com.
“I saw an ad of Housing on the web and the problem it was trying to solve in real estate impressed me. So I found a way to contact them while they were still at IIT Bombay,” says Chawla.
For those, who have been in technology and entrepreneurship in the past and continue to be so, have become the greatest evangelists of the ecosystem. Through angel investments they get to be entrepreneurial though indirectly.
“For me angel investment started as proxy-entrepreneurship. It has remained that way all these years. It’s my way of playing with non-linear change. I get to think about where does non-linear change happen? Why does it happen? What will it disrupt? And which white spaces will it fill out? For me, making money is the byproduct of seeing the start-up creating value,” says Sharad Sharma, Co-founder & Member, Governing Council, iSPIRT.
K Ganesh, Founder, GrowthStory, a venture building platform, also took up angel investing for the love of
entrepreneurship. “Angel investment allows me to live vicariously and enjoy the ‘pleasures’ of entrepreneurship without the attendant pressures,” says Ganesh.
However, for someone like Sasha Mirchandani (previously co-founded angel group Mumbai Angels and
currently runs early-stage venture venture fund, Kae Capital) his tryst with angel investment unlike others was out of an unfortunate reason. “I took up angel investing during the dotcom era because I got greedy to make money,” says Mirchandani who invested around half a million in a comparison website. The business however pivoted to avoid the dotcom bust and was named as Fractal Analytics. The company was reportedly looking to raise $70 million in January 2016. However, looking at the entrepreneurial spirit in founders of his initial investments, his greed to make money transformed into love for supporting entrepreneurship. “I got addicted to angel investments as I started loving interacting with entrepreneurs from all walks of life. This was a dream situation for me seeing their enthusiasm and passion,” says Mirchandani.
Before I Invest…
First things first, passion, excitement, persistence – the ground rules to a successful start-up have today become the most abused words for anyone coming up with a start-up whereas the ability to raise funding has gained importance. The onus hence lies on these angels which form the basis for these start-ups to enter the next stage of growth.
“The investments are driven by the view that one get from the founders’ excitement, the sectors they are in and the level of innovation. If all those things are met, one makes an investment,” says Ratan Tata, Chairman Emeritus, Tata Sons, underlining the significance of founders’ potential to make it big.
Bahl too is of the opinion of seeing how excited the founders are and the size of the problem they are solving. “We mostly invest in marketplaces that are reducing the asymmetry of information between demand and supply because India has completely been ravaged by middlemen over the years. If you can cut out few middlemen in your business, everyone benefits including our economy, customers and sellers.”
Anand Ladsariya, Founder of Mumbaibased chemicals manufacturer Everest Flavours, who along with his son Siddharth has close to 80 investments, also stresses on the execution capability and an exit possibility but he doesn’t put too much faith in any of the ideas because of their high-risk nature at early-stage.
“Half of the importance for me is about founder and his team, his/her passion, quality and ability, etc. as business plans keep changing. This is quite subjective assessment because there is no parameter to judge them on this. This is followed by the business and its ability to scale, market size, etc. Then comes how founder can execute everything and actualize the idea. Lastly, if there is an exit possibility or the ability to raise further funding,” says Ladsariya. Chawla too echoes similar factors before putting his money. But one area where he remains more cautious is entrepreneur’s mindset. “Business plans may not be fully thought-through, but I look for whether founders have the ‘dhanda’ mindset. Also, how much founders are willing to give up to pursue their ideas, whether they are looking to make quick money and exit or they like to spend next 10-15 years in building the business. From my perspective, I am backing an entrepreneur more than a business opportunity,” says Chawla.
I’m Not ‘That’ Kind of an Angel
As much as angel investment is about backing the idea and the founder, what doesn’t work out is an investor micromanaging founders by everyday calls and updates. The idea is to overlook from a macro level.
“Angel is the only asset class where you can influence and help businesses grow to the next level unlike gold, real estate or listed equities. It is about contributing not controlling. If founders want to ask anything or if I have to share something important, we would connect. So around an hour in a month is enough,” says Sanjay Mehta, a serial entrepreneur turned angel investor.
Rajesh Sawhney, Co-Founder, InnerChef, an online food discovery and delivery platform, and Founder, GSF, a multi-city tech start-up accelerator, echoes the same theory. “I meet my investee companies as often as required by founders, though I prefer to get monthly or quarterly updates.” Micromanaging, in fact for the sake of value addition as Ganesh puts it “do more harm than good.”
“Mentally, I write off the amount when I invest. I neither have much time nor do I like offering ‘gyan’. You cannot do backseat driving of a start-up,” says Ganesh. Chawla, however, is in a league of his own. Not just his ticket size is higher than a typical angel deal, but his approach varies too. He firmly believes
that investing few lakhs cannot give a significant headway to founders early on. “I invest Rs 2-3 crore in very few deals. Giving them a few lacs and asking them to set-up a business is not a great way to do that. I only invest when I can devote time to a founder and help them craft the business. I don’t call entrepreneurs; they call me whenever they have to.”
Rajan Anandan, VP & MD, Google India & Southeast Asia, too doesn’t have to call founders as much as they do. For them, he is always a call away while on his part, Anandan prefers to get short monthly updates on start-up’s product, user, revenue, market situation, etc. from fellow investors in the group. “I run Google 18 hours a day. So I don’t have much time to spend with any one of the companies but I am always available on call,” says Anandan who unknowingly turned angel by investing money from his job at McKinsey & Company in start-ups launched by his friends from Massachusetts Institute of Technology and Stanford University in the US. He returned to India in 2005 and joined IAN with first Indian investment in Gurgaonbased e-learning platform WizIQ.
“When I moved to India, I wanted to get more systematic about the Indian market and understand its intricacies as it was a new market for me. I invest in businesses where founders are able to build large businesses and also if the idea is interesting. WizIQ today is one of the leading education SaaS companies but it started as virtual classrooms provider. I am still there with the company,” says Anandan.
My Style of Investment
Most of these angels prefer to invest in syndicate or co-invest rather than leading the round or being a solo investor as angel investment is one of the many things they do unlike a professional VC or PE. Moreover, leading the round requires more time, resources, interest and money to put in. “I prefer investing in syndicate. However, if other investors think that I would be better to lead it and if I too have interest in the start-up, I lead the round as well. The beauty of investing in syndicate lies in sharing the wisdom and efforts,” says Ladsariya who has led investments in four-five deal out of around 80 investments so far, rest all are his syndicate deals.
“If you lead the round, you have to take the board seat in a start-up. So if you are a lead investor in let say 10-12 companies, you would have to commit yourself so much to them that you would start choking and you won’t be able to do justice to all entrepreneurs. It would be quite tough because it would be your money and on the other hand unlike a VC you wouldn’t be paid for your time and effort,” says Mehta who led nine deals so far and over 40 in syndicate.
Moreover if the lead is known, “it gives lots of comfort to take the investment decision,” adds Mehta who has coinvested with Sharad Sharma and others. But Anandan never leaves it up to the lead, he makes decision for himself irrespective of who is leading the round. Although he too used to invest as a lead around four years back, now he prefers co-investing. “I won’t invest in a start-up just because someone
known and experienced is investing in. I have to know about the space and talk to entrepreneurs first. I either invest with a handful of investors at IAN, with seed funds like Blume Ventures and Kae Capital or with venture funds like IDG Ventures or Kalaari Capital for complimentary skills to benefit start-up,” says Anandan.
Chawla, unlike other angels, prefers to invest all by his own to “align his interest fully with entrepreneur” as he says and even avoids announcing his deals in public. Investing in consortium, Chawla believes nobody pays real attention to the founder. “The entrepreneur doesn’t know whom to reach out to.
Investors are not able to give time to entrepreneur. Also my investments are not public unless it is necessary to do, as it is about the relationship between me and the entrepreneur. I have a very moderate expectation of returns from my investments as failure is par for the course for me,” says Chawla.
Oops! I Missed
From coming across an idea to cutting a check, the entire process is the result of many permutations and combinations between the investor and founder. While many investors simply ignore the idea or often the deals are called off midway for different reasons, all that becomes a part of the game with few hits and few misses.
While there were none that Mehta missed because he didn’t want to invest in them or he and founder couldn’t get on the same page, he did lose couple of them to VCs. “I wanted to invest in CleverTap (Mumbai-based mobile engagement platform earlier known as WizRocket) and Haptik (personal assistant app) but I lost them to Accel Partners and Kalaari Capital respectively who offered them better term sheets. Entrepreneurs are attracted to glamour names and make the mistake of taking funding at seed stage from VC, which limits their opportunity to maximize in the series A round,” says Mehta.
Towards the end of 2011 when Mirchandani was raising fund for Kae Capital, he got an opportunity to invest in a one-year-old app that offered cab booking but he couldn’t since he was in the middle of fund raising. He calls that as an error he made as he could have written a personal check to its 24-year old founder from IIT Bombay. “It was the error we made and should have put Rs 50 lakh when he came to us. I still remember that I and my colleague were blown away by his maturity. He was looking for money for quite a while so we thought that he would wait for three-four days but the next day he met other people and they invested in his start-up,” remembers Mirchandani. The start-up in just five years became a $5 billion company known as Ola headed by Bhavish Aggarwal. Not only Ola, he also missed that space could become in India,” admits Anandan.
The biggest learning for all of them is to invest the amount that you are ready to forget if a start-up fails. If there are chances of liquidity, it might take from around two years to seven or 10 years to get returns. Spend sufficient time with the founder as this would enhance the chances of success as it is tough to judge the founder in initial meetings.
As far as exiting the businesses is concerned, while few like to invest in follow-up rounds and hang up till the end like Ladsariya, Mehta and Sawhney. Investors like Sharma and Ganesh prefer staying with their winners for a long time, but they avoid investing in followup rounds. Mehta, on the other hand, is happy to stay with the founder if he/she is willing to build business for next 10-15 years.
In the Downturn
The recent numbers on private investments in India suggests that investors have slammed breaks on angel investments too apart from Series A and beyond. As per data research firm VCCEdge, angel investments fell from 133 to 115 while Series A dropped from 66 to 14 in Q1 of 2015 and 2016 respectively. The total deal size for the same period also dipped from $75 million to $25 million in angel rounds and around $235 million to around $65 million in Series A for the same period.
“Angel investments are also choppy right now. What was around six months back, it is not very similar. In next six months, you might see drastic slowdown in angel funding as well. It will take another 12-15 month before the market picks up the momentum. Few sectors that will attract funding will be artificial intelligence, IOT, B2B technology, medical devices, QSR, media and entertainment,” says Mehta.
However, Ganesh doesn’t believe in the downturn at the angel level. He rather expects the change in the type of angel investors who invest in the current markets. “Investors who came in because of the glitz and glamour of the start-up valuation would go away as they see the softening in the funding environment. I expect angel/seed valuations to come down to earlier reasonable level. I also expect venture funds that started doing seed deals will stop and focus on Series A and pre Series A deals, leaving angel investing to typical angels only. All this is positive for the ecosystem,” says Ganesh.
This article first appeared in the Indian edition of Entrepreneur magazine (April 2016 Issue).