Money Returns Cannot be the Only Motivator for Angel Investments
Leading angel investor Revathy Ashok believes that it is important for investors to guide new ventures, in addition to just pumping-in funds.
With a portfolio of over 15 domain-agnostic investments, Revathy Ashok's name triggers a thought, amongst the entrepreneur community in India, with respect to being a handy angel for new ventures. Now, Revathy's work whilst being associated with the Indian Angels Network (IAN) is well known, but what drives her to mentor new ventures in a domain that is generally considered as a male bastion. To hear straight from the horse's mouth Entrepreneur India interacted with the angel herself.
It's the thrill of working directly with entrepreneurs
Angels are generally also known to be mentors for entrepreneurs, but with today considering the sheer number of new ventures that have mushroomed, every one of these cannot offer the same degree of smartness (to investors). Therefore, those offering a truly entrepreneurial solution to plaguing issues get chosen and funded (and mentored).
"Each new investment brings with it new learning and new challenges. Money cannot be the only motivator for Angel Investing since the mortality risk is very high and the returns may not always be commensurate," stresses Ashok.
For her, it is the feeling of working alongside entrepreneurs helping them create valuable businesses, which is the next best thing to being a mentor to entrepreneurs.
Funding is only a part of the equation
She stresses the importance of angel investors playing an active role in supporting the entrepreneur by reviewing and sometimes co-creating the growth strategy, providing access to networks, working through some of the execution challenges, getting the product development roadmap validated by experts, and getting the necessary metrics and governance in place in preparation for the next round of funding.
"In short, I like being a sounding board and ready to jump in to support wherever required," she adds.
Recognizing the huge gap that exists between potential and performance, Revathy co-founded Strategy Garage which aims at precisely filling these gaps for startups that have raised a funding.
Revathy believes that her background of having started and run global businesses, and in investing, deal making , shareholder value creation, and her position in several large company Boards gives her a certain vantage point.
These vantage points can then be shared with the boards of companies that are looking at funding, before these funds are raised.
The enthusiasm to turn angel and mentor to new ventures
"I like to invest in businesses that are solving a big customer pain-point based on product innovation, or a disruptive business model with high potential to scale," states Ashok.
Her statement above stresses the importance for entrepreneurs to start thinking of a path to profitability early on and build the right balance between growth, profits and cash flows. In the case of enterprise product businesses, angels prefer seeing customer validation via some paid pilots which is the best way to secure customer interest and good feedback.
"I always tell my investee companies that it is first important to survive before you grow. If you run out of cash because you grew too fast that would be a real pity," she stresses.
At this juncture, it is worth noting that many startups with a great idea have failed because of their inability to strike the right balance. Therefore, Revathy recommends that development of the right idea is the key for survival in a crowded market scenario. This is critical for survival.
Startup strategy for raising investments: From an investor's perspective
Entrepreneur India sought Ashok's insights, from the investor perspective, on how early-stage ventures can raise investments from large corporations/backers. She had the below strategy points for startups:
- Build a strong founding team with complementary skills, people who you know and can work with.
- Demonstrate skin in the game, have resilience. Entrepreneurship is a long and hard journey and you must have the ability to take risks and withstand high pressure.
- For startups that don't have a prior track record raise your initial round through family and friends so you have a product prototype to showcase. Unless you have a great track record or an absolutely breakthrough idea, it is difficult to raise money without something to showcase.
- As the founder you have to be the best sales person, whether with customers, potential hires or investors. Remember that you are selling your dream and you want them to feel that they want to be part of your dream.
- Prepare well before meeting the investor. Build a strong business case and a focused pitch that quickly explains the opportunity size, scalability, your offering and competitive advantage. As investors we see a number of pitches. So it is important in the first meeting to stay with these major highlight items so that the investor interest is kindled for a second meeting.
- Pick the right investors who will not only write a cheque, but will also provide you the networks and access, also guide you and mentor you through some challenging situations. When the company is growing rapidly you will find this support particularly valuable.
Future prospects are optimistic
"The venture capital scene is very vibrant and I am quite bullish about the prospects in the coming years because the start up ecosystem is just beginning to break out," believes Ashok.
As far as promoting women entrepreneurship is concerned, entrepreneurs can consider networks such as the Indian Angel Network, Venture Catalysts, , Mumbai Angels, Chennai Angels, Lets Venture and more.
Internal governance in terms of basic financials and reporting to investors is often found to be very poor or non-existent. This is extremely critical since regular reporting is the only way in which investor can review the information, the business and meaningfully contribute .A number of startups that began on a promising note failed not because of a bad idea but because of poor governance, reporting, and poor cash management.
"There is enough money in the system. But our start ups have to prepare and organize themselves better to receive institutionalized funding This is an important message for start ups and they would do well to structure themselves better to receive institutional capital." she signs-off.