Your Future Plans Cannot Depend On Returns From Angel Investments For every 0.6 investor there is one startup.
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Shanti Mohan, founder of LetsVenture, an online fundraising platform, told Entrepreneur that angel investing is a "high-risk" business and how one needs a considerable amount of "play money" to become one.
Angel investor – Be prepared to lose that money
Typically if you want to get your returns as an angel investor you have invest in at least ten startups over a period of 2-3 years. You have to de-risk your investment by diversification of your portfolio. You cannot start angel investing with 5 lakhs, typically we look for a 50 lakh corpus because you need to put 5 lakhs in ten startups over a period of 2-3 years.
Again that corpus cannot be the money that you would use for your children's education it has to be money which you are okay to lose if you have to. It's a cheque which you should be willing to write and forget about. If you are comfortable with that only then you should become an angel investor.
Do's and more importantly don't as an angel investor
Firstly, why do you want to be an angel investor? If you are looking at only money as the return then probably you should become a follower to a lead investor. We typically recommend that you meet at least 20 start-ups before you make your first angel investment. So don't jump into the first investment. The startups will make you feel like God. The ratio of angels in India to startups in India is 0.6. So for every 0.6 investor there is one startup. So when an entrepreneur meets you and you tell him you are an angel investor, he's really going to make you feel good and that might cloud your decision making. So really ask yourself why you want to invest in the company and based on the why you must define your investment thesis.
Secondly, you should be able to keep aside a corpus for angel investing which should be considered as play money on your part. It cannot be money or savings for retirement, or for children's education. Your future plans cannot be depend on the returns from angel investing. And, people still have to internalized that point.
Third is you should get a buddy investor as a mentor to guide you. However, nobody can advise you whether you should make an investment or not. It's ultimately it is going to be your decision to write the cheque. You should collect data points, talk to people and then take the call.
If you bring domain expertise, you should try and look for startups or ideas within that domain, because, you understand the details of that domain which probably other investors may not understand. As a person who wants to become an angel investor? Typically people who are already successful in their jobs; domain experts or running family investments. They all bring a different kind of skill to angel investing and you must see how you can leverage that skill as an angel investor.
Startup- Are you ready to be funded?
At LetsVenture we are trying to focus on start-ups that can be readily funded . That is, the startups which can be funded today! You might be a good startup but you might not be funding ready. Being a good startup and being ready for funding are two different metrics. Because you are not funding ready does not mean you are not a good startup. It just means you still need some extra time before you go and raise investor money.
At a very early stage, you don't know a startup is going to become big or not and if somebody says they know it they are not telling the truth. You cannot predict which company is going to do well, but there are certain parameters which can show you the measure of execution skills. In the end, an idea is only an idea if it's not executed well.
When we talk about good execution skills, we don't mean only IITans. So for example if you are building a health startup, do you have people in your team who understand healthcare. You cannot get into a huge domain and not have any understanding of the domain.
Angel investor – 2016 to be a good year
Amid anaemic funding and Flipkart's devaluation, Shanti said that 2016 will be a good year for angel investors. Angel investors will not make money if they enter at very high valuations. If you search the term "downturn in angel investing', most of the articles that will come out will be back in 2008. During the house burst in U.S. Ola was founded in 2010! Entrepreneurship doesn't stop because of a downturn.
It will help clear off all the chaff from the system and people who want to build real companies will still be there. Angel investors will get a good deal on valuations because that is the right way to invest. You cannot be investing at such high valuations. It's not just about the valuations today; you have to build the company to where you can bring in ten times more value over the next 10 years.
Shanti, who is currently reading Alibaba's World, says going forward in 2016 she plans to make LetsVenture the category leader in open market space model in India and enabling every founder in getting the best solution.