Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Opinion / Angels and omens
BackBack

Angels and omens

Having the right angel investor is critical for a newborn start-upeven more important than picking the right venture capital investor

Photo: Priyanka Parashar/MintPremium
Photo: Priyanka Parashar/Mint

I don’t know a lot about the mobile analytics business. I may write about the odd funding deal in the segment. Even talk to a couple of start-ups now and then. But that’s about how deep my knowledge runs. So imagine my surprise when an old friend reached out a couple of days ago for advice on a mobile analytics start-up he’s evaluating for an angel investment.

My friend is a bright young man, a journalist, and has some experience investing in the stock markets. This will be his first angel investment. He’s experimenting with the asset class, he says. He plans to invest up to 5 lakh (a little under $8,000). It will be part of a 2-3 crore round that will involve another 15-20 angels. “He (the founder of the start-up) is a childhood friend, seasoned entrepreneur. I know how he will make money," he tells me when I query him, genuinely curious, on whether he knows enough about the mobile analytics business.

There are two problems here. First, he’s seeking advice from somebody who is as clueless as he is about the mobile analytics business. Second, apart from being a good friend to his childhood buddy, which is great, he brings no other value to the table as an angel investor. The money is not substantial. He has no domain expertise. And he has no operating experience to make up for the lack of money or domain expertise.

In a nutshell, he’s exactly the kind of angel you don’t want to bring on board at your start-up. Technology start-ups, such as the mobile analytics company we’re talking about, currently number between 4,200 and 4,400 in India, according to Nasscom, the software industry’s lobby group. Many of them have raised or will raise their first pre-institutional capital from angel investors.

Start-ups typically have access to two kinds of angel investors in their formative stages—family and friends, and professional angels. India is currently experiencing a boom in professional angel investors. The group consists of serial and former entrepreneurs, founders of well-funded companies, business tycoons, investment bankers, stock market brokers and corporate professionals. Some of the familiar names around the circuit include Google India chief Rajan Anandan, serial entrepreneur Krishnan Ganesh, e-commerce entrepreneurs Sachin Bansal and Kunal Bahl, and Tata Sons Ltd chairman emeritus Ratan Tata.

Together, such investors have been part of over 400 start-up funding deals worth nearly $2 billion this year alone. Everybody wants a piece of the start-up wave that’s currently under way in the country, including my friend, the aspiring professional angel investor.

He isn’t the only one. I’ve come across several mid-level executives from the corporate sector, small business owners, retired professionals, even a couple of second-tier movie actors, who want to explore angel investing as a means to diversifying their investment portfolios. Nothing wrong with that except that having the right angel investor is critical for a newborn start-up. Even more important than picking the right venture capital investor.

Angels are much more than financial investors. They help connect the dots for first-time entrepreneurs. Their domain expertise or operating experience or both are useful tools for laying strong foundations for what could potentially become a large, disruptive business. They also leverage their own social and professional networks to enable entrepreneurs to access customers, partners and, most important, institutional capital from venture capital investors.

Most entrepreneurs don’t really care where the money comes from. At least not in these heady times when investors are pouring billions of dollars at sky-high valuations into Indian start-ups. But when the music stops, and it will sooner or later, you don’t want to be stuck with an angel who’s invested a few thousand dollars in your company, doesn’t really understand your business, and is anxiously counting down to when he’ll get his money back.

Snigdha Sengupta is the founder of StartupCentral, a digital news and analytics platform focused on venture capital. She also periodically contributes stories on venture capital and private equity to Mint.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 23 Oct 2015, 12:39 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App