Rise of the new angel investor3 min read . Updated: 29 Jan 2015, 03:16 PM IST
In the last two years, LetsVenture has emerged as the largest online platform for start-up funding
Late 2012 was a time when entrepreneurship was continuing to see a surge in India—a lot more entrepreneurs were emerging who were willing to take the less privileged, high-risk path to build products and start-ups from India. However, fundraising continued to be a challenge. I personally know of friends who had spent seven months raising their angel round and met with 61 investors face to face before they closed their funding round at a valuation that was less desirable.
My survey with entrepreneurs on the top three challenges of being a founder was “Fund Raise, Fund Raise and Fund Raise"! Connecting to investors and raising funds continued to be an offline, full-time sales process for founders. With a vibrant start-up ecosystem in India, it was surprising that investing had not gone online and continued to be a linear, offline process.
In the last two years, LetsVenture has emerged as the largest online platform for start-up funding. It is an online marketplace that connects start-ups looking to fund-raise with investors globally. In its first year, LetsVenture closed 22 deals on the platform, saw $6.5 million being committed online. The very interesting statistic to note is that of the 170 angels who invested online, 40% of them were new angel investors, making their first investment through LetsVenture.
What makes a new angel investor? Who are they and what drives them to make a decision?
With start-ups creating new jobs, creating new opportunities for the economy, the new angel investor will now start to emerge as a powerful enabler to the funding ecosystem.
As the founder of LetsVenture and as a new angel investor myself, some of my key takeaways have been the following:
(a) Who is the New Angel investor? At LetsVenture, we have seen four categories of new investors emerge:
n Senior executives in multinational companies/corporates who have enough play money to start to invest in start-ups. We call this smart capital—along with money, such investors bring in customer connects and domain knowledge in their areas of expertise.
n Second generation of family businesses where the globally educated Indian seeks to be the pseudo-entrepreneur. Brings in a lot of fresh thinking along with a high-risk appetite. Being in the family business, they also have a high degree of business acumen.
n The Global Indian: well-established, and successful and who is now keen to begin to invest in Indian start-ups. They want an easy way to discover, connect and invest in star-ups remotely. They also help start-ups by helping them access to new geographies.
n Serial entrepreneur: this category does not need introduction. The entrepreneurs who have been through the pains of building a start-up, hold empathy for the process and have lived the journey are now starting to engage with new start-ups. The most desired category among the new angel investors.
(b) How does a new angel investor decide which start-up to invest in?
At LetsVenture, we have noticed the following investing behaviours of new angel investors:
n When a syndicate opens up on the platform, a credible lead investor or a credible participating investor does instill confidence for a new angel investor. As a new investor, the first few investments is about following some of the successful investors and writing small cheques to begin to test the waters.
n Entrepreneurs who have been there, done that are faster to decide. We also see them leading them deals on the platform. Most of such investors already mentor/advise start-ups and at the time of fundraising, come in to lead the round.
However, as someone who has sat in countless pitch meetings and heard investor-start-up interactions, for a new angel investor, before they write their first cheque, I recommend you meet a lot of start-ups. Listen to start-up pitches along with other experienced investors. Meet the founding teams in an informal setting and try and understand the product better. Even for an experienced investor, it is hard to decide which start-up to invest in. There is no magic formula—there is no fixed formula while evaluating start-ups, or understanding team dynamics or deciding on which start-up could be the next billion-dollar baby.
As a new investor, you could follow the leaders but remember—if the leaders knew where the jackpot lay, would they not be starting up instead? Create your own rulebook and take the risk and be prepared to write off all the investments as bad decisions. That’s why the world over, all angel investors are reminded of the theory of probability when it comes to investing.
Shanti Mohan is the founder of LetsVenture, which enables start-ups looking to raise seed and angel money to create investment-ready profiles, and connect to accredited investor.