Why Are Indian Angel Investors Too Risk Averse

Lots of Indian entrepreneurs feel that Indian investors are very backward and timid. While they’re happy to fund copycat clones, they’re not willing to back a courageous solo entrepreneur who has an earth-shattering idea which can change the world. Lots of them compare Indian funders unfavourably with fabled Silicon Valley investors who are known to sign cheques after meeting a clever entrepreneur in a cafe, simply on the basis of an idea sketched on the back of a napkin.

These stories make for interesting reading, but I think they are often the stuff of fairy tales. While it’s fine to admire their courage, we also need to understand that this is not a disciplined or systematic way of making investments. While it may work every once in a while, the fact that these stories are the stuff of legend obviously means that the vast majority of the time this is an approach which is doomed to fail.

The True Worth Of An Idea

Part of the problem is that entrepreneurs overvalue the value of their own ideas. They think their ideas are original and unique because they live in their own little bubble. They are consumed by their idea, until they start believing that no one else in the world has ever had such a good idea.

This is obviously not true, because investors are deluged with clever ideas from bright founders all the time. We have learned that an innovative idea is simply not enough – you need to be able to execute it, and this is a hundred times harder in the real world.

Entrepreneurs believe that funders don’t give them enough credit for their dreams and their drive. They can’t understand why rich investors aren’t willing to part with their money to back them. This is why lots of Indian founders believe that Indian investors are stingy and don’t have the courage to be able to take outsize bets.

Money Matters

The truth is that when you are spending your own money, you have to be careful about whom you give it to. Just like entrepreneurs feel that investors undervalue their ideas, investors also believe that entrepreneurs treat their money very cavalierly. They worry that because it’s the investor’s money, they spend it way too casually – easy come, easy go! If it were their personal money, they would be much more frugal. We don’t want to kill their dreams, but we do need to keep them grounded.

This is the gap which needs to be bridged. Ideas are important, and so is money! Each of us needs to value what the other brings to the table so that we can co-create something which is more than the sum of our contributions.

[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.