As the year 2015 draws to a close, it surely has turned out to be a memorable one. The themes which were red hot in the beginning of the year have seen dramatic changes in their fortunes. Hyperlocal delivery, foodtech, fintech, housing and car tech were some of the hot areas of investment at the beginning of the year.
The interesting aspect is – all of them got funded! Most of them had their ups and downs. Many of them closed down and very few of them actually blossomed. As an angel investor, one could have been an investor in most of these sectors in 2015. But when one looks back and analyses what happened to these hot sectors it may leave many angels looking for cover! As an investor in most of these sectors, a few pointers which are worth considering :
- A sector which looks very promising and nascent , may become very crowded in the space of a few months .
- Scale always brings its own challenges .
- Capital infusion at the pace of steroids, can be a disaster.
- Experience, quality of management/promoters ensure a higher chance of survival and success.
- Age is a number and not much of a factor for success.
- An education institution is least important factor in creating successful entrepreneurs/startups.
- You can afford to get a business cycle wrong but if you back the wrong management you might as well forget your principal In India , we have no respect for IPRs. The person whom you gave the contract to develop your idea may run away with your idea and start operations – right next door!
Angel investing is not easy. You are taking the highest amount of risk in the value chain and you might be the first person to get killed if the investment goes wrong . You are also the first person to get forced out due to dilution in subsequent rounds. Exits are the most important reasons for any investment.
Most angel investors often forget to ask basic questions before investing : How will I exit?
Who will provide me the exit?
When will I exit?
What pain levels will I go through before I exit?
If you cannot answer these questions then the investment is a task in futility
In many investments we have seen that angel investors come in with lot of enthusiasm and expectations and invest in an upcoming, promising industry , only to find that within few months , a plethora of competitors have jumped in . Many a times the competition is funded by “irrational, happy to splurge and paint and sprint” philosophy, typically larger investors with deep pockets. These investors often expect that steroids of capital will make the entrepreneur deliver fastest growth in the quickest possible time. This is rarely the case
In India , lot of geo political and social issues play out as any industry grows. We have witnessed ugly scenes when firms had to fire some employees because they ran out of “steroids” of capital. We also witnessed the ugliest spat in the history of corporate India , between an entrepreneur educated in the most prestigious educational institution and his investors.
Experience is not a substitute to education. Having learnt lessons in 2015, the hope is that some of these mistakes won’t be repeated and the steroid distributing funds will also learn an important lesson “get involved in your companies , only capital infusion to inexperienced , but well educated entrepreneurs can yield only limited results”
With that , let’s hope 2016 is a milestone year and national interests will prevail over narrow political interests!!