Musings on Angel Investing in India by Anuj Pulstya

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Angel-investing
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So, what’s this post all about? Well, I have been associated with the world of startups in India for about a decade now and in this time I’ve had the good fortune of interacting with a variety of people and companies both from the investor community, as well as entrepreneurs.

This range of experience has given me some insights that I felt would be valuable to both sides of the coin, so here’s my attempt at penning down some of these thoughts which hopefully will help you, if you ever find yourself looking for an angel investor in India, or want to become one yourself. So, here goes!

What exactly is an angel investor?

No they don’t roam around with a halo upon their head. Aside from being a catchy name, they are often ‘angels’ for entrepreneurs at the start of their journey. To put it plainly, someone who has money to invest, ideally is an entrepreneur herself/himself or was in the past. If they have experience in the startup field, they will bring more than just money to the table and that’s as valuable for entrepreneurs as the money is at the beginning. These people have the right kind of experience; understand startups and the risk associated with them. So when looking out for one, this is an important lens to look through. They usually come in after the product has been developed and there is some proof of concept.

Is there a standard range in which angel investors in India operate in?

Depending on the stage of the business and a few other factors, the range can go anywhere between a few lakhs to up to 3 Crores. Accelerators however operate in a different range. Back in 2010–11, you could get a cheque for as low as INR 1–2 lakhs and the fund raise could be as low as 10–15 Lakhs. Over the last few years, accelerators have realized that startups need more capital at this stage to experiment and now I have seen the range shifting to 30–40 Lakhs.

Although the individual cheques might still be low numbers but the range is a floating number and it’s on the rise. It might also be different for different markets and industries. But I think it’s a great thing for all stakeholders and gives enough cushion to entrepreneurs to go out and test the product market fit at a deeper level.

Should entrepreneurs expect mentorship from Angels?

I think it’s a mix. For example, if you’re raising a Crore and you’re reaching out to 10 investors and you want mentorship from all, then you might up end confused. It has to be a mix where you’re saying this one’s my tech mentor, this one’s my business mentor, my sales mentor and so on. That’s the ideal scenario but that happens rarely. So what ends up happening is you get money from a pool of investors and you keep updating them on a need basis. People will step in whenever required and say okay I can help you with this connect or that resource.

What are 3 main things I evaluate a startup based on?

So the first and most important thing for me is, of course, the founding team. When I say team, as corny as it may sound, I just look for the passion in them. What I try to judge is, will this person run away at the first sign of trouble or will they stick? I try and have as in-depth a conversation of their idea, keep getting deeper, and question question question.

I understand that in that early stage of business, entrepreneurs don’t have all the answers and things are figured out along the way, but what I try to gauge for is the thought process and accepting what still needs to be figured out. If someone is passionate about their idea, they would have thought of all the basics at least, will have a hypothesis on which they are building the business and the deep level of questioning would not faze them.

Although ideally I would like a complimenting team but I don’t worry much about diversity in the cofounding team in terms of skills sets. I do, however, try to see how the sync is between the cofounders. That is much more important to me at early stage. 2 cofounders is okay, 3–4 is good, but anything above tends to becomes a little tricky.

Aside from the team, I like to focus on the thought process. For example, if you want to raise ‘X’ amount of money, how have you thought about dividing it? Where all will you deploy it? What are the projections? By projections I don’t mean show me a hockey stick, I’m looking at what all elements of the business have you thought of already. This tells me whether the person has thought about everything or at least has the ability to think right.

Then of course, since it’s about money, you should see a future return for everyone. You need to understand market size, current competitor landscape, scalability and comparable success stories. These 4 would be my top evaluation criteria.
What have I learned as an investor that other potential investors can find useful?

This is in no order of priority.

Getting to the details of cofounder agreement at a certain stage is important. Mostly, when entrepreneurs start, it’s often when a group of friends come together. They trust each other and they don’t think about this. This is important and should be something an investor should also look for.

It should be thought of during this stage so keep a lookout for whether they have thought about this level of detail. It’s important so that future problems are avoided and it shows foresight. It should include details like how the equity is working, what’s the split, the vesting period and so on.
Another thing is I don’t get stuck on valuation and equity numbers because I think in the long run all of this gets normalized. At the end of the day, if the company isn’t doing well then your numbers mean nothing. If the company does well and raises a next round, then it all evens out by the end so don’t break too much sweat on this at this stage.

Do the basic due diligence and then back your entrepreneurs and yourself and let them run with it. It’s important to trust your gut, and to trust your entrepreneurs.

Learnings for wannapreneurs:

There’s a lot of noise around funding. Raising funds is not the goal. Funding is like any other tool that you need to succeed in business.

You should always be thinking about fund raising as ‘I need this to take the business to the next level, so what’s that next level? How much money do I need to be there’ and define it. Rather than saying I want to raise 1 cr because that’s the norm. It has to be specific to your business. A bigger amount doesn’t mean it’s necessarily right for you. Maybe 50 laksh, 20 lakhs or even just 5 lakhs could also get you there.

Similarly, it is important to understand your customers early on. By this I mean, what your ideal customer looks like and it should not be generic like 17–35 males but a little more specific. Age group is just one of the many things. It also means that you need to understand what is the buying behavior of your customers for your product. You are building the product for customers and not your investors. So basically talk to your potential customers and get an ‘on-ground’ feel of how they think and how they want to use your product. Here’s a pretty cool example of how someone is using Uber to hack this.

 

 

Anuj Pulstya is one of the cofounders at 91springboard. He is an MBA from Carnegie Mellon University and also holds a Masters in Computer Science Engineering from USC. Anuj has worked as an Independent Business Consultant, helping businesses streamline their processes (Financial, marketing, internal). He also founded Mute Health Bar and Co-invested with CIIE (IIM-A) for 3 years. As an Angel investor in India he has personally invested in many startups. The list looks something like this: Innovese (acquired), Croak.it(acquired), FrameBench (acquired), Mangoreader, Ideophone, Mobiotics, Zuvvu, SquadRun, Tookitaki.

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