Many high net worth individuals (AKA the rich) in India want to try their hand at being angels. It sounds like a glamorous occupation, and a great way to get rich quick. After all, all you need to do is identify bright founders, and sign a cheque – and how hard can this be?
The problem is that they are misled by shows on TV like Shark Tank. While they are fun to watch, they are very misleading, and you need to remember that they are only of entertainment value! No serious angel would every hand over money based on a 10 minute pitch, no matter how sexy the idea.
Serious angel investing takes a lot of time, energy and effort – there are no shortcuts, no matter what you read about supportive angels who had the foresight to sign a cheque after hearing a super-smart founder sketch out his clever business plan on a napkin over a drink in a cafe. Most of these stories are folklore – and the very fact that they have become so popular itself suggests that they are extremely rare!
Just like it takes hard work to be a good founder, being a good investor also means that we need to invest much more than just our money – we need to contribute our time and energy as well!
Why Angel Investing Is Hard Work
We have learned to be very picky and choosy in which companies we invest it, and over the years, as we have learned our lessons the hard way, we have become better at saying No. Investment in our portfolio companies is backed by a strong belief we have in them.
For example, in Clearmydues, we feel they have a novel business idea with a technological moat; and in Instinct Innovation, we are inspired by the founder’s grounded vision and strong passion in improving the supply chain of drugs to the retail chemist. Even if these companies go through a rough patch (which they most definitely will!), we will continue to back them , if our original belief remains intact.
We try to say No to companies which we feel have been able to generate revenue just because they have achieved some initial traction. While it’s tempting to be opportunistic and to piggy back on their success, we need to be able to buy into the founder’s vision, and have conviction that he will be able to survive through the winter which every startup encounters.
By investing in a startup, we also become partners in the pains that come with growing that business. A good investor understands his limitations, and invests only in companies which are in his circle of competence.
Going Deep Rather Than Spreading Thin
Because we have limited funds, we need to be picky and choosy in deciding whom to back. We need to be significantly invested in terms of time, capital and dreams in each of our portfolio companies, which is why we prefer going deep rather than trying to spread ourselves too thin. Startups will always find themselves cash strapped, and we are happy to provide additional funds (either as a bridge round or when they raise more money), as long as the founder’s behaviour reaffirms that our trust in him is well-deserved.
We prefer doubling up on our winners, rather than in looking for new opportunities, as long as our thesis remains intact. This is why we may pass on companies which seem to be doing well, because we believe our resources could be better utilised in other portfolio companies where we have bought into the founder’s vision because he has been able to wow us.
Many angels are surprisingly naive, and just affirm the rule that a fool and his money are soon parted, no matter how rich a fool he may be.
Insights for this article were provided by my colleague, Tushar Agrawal, who is an Analyst at Solidarity Advisors where he handles the angel investments portfolio. Solidarity Advisors is a multi-family investment office providing investment solutions to its clients.
[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]