In last five years, eight companies from India have crossed billion-dollar valuation mark. This number is expected to grow significantly in next five years. A lakh worth of shares of OLA five years ago would have been worth more than INR 30 crores now.
I am sure you would have often wondered about the crazy valuations of these companies and the thought naturally comes, is it really possible to make money by investing in some of them? Have you also thought of becoming an angel investor and don’t know where to start?
Initially, angel investing was restricted only to rich investors as the access to good companies and diligence costs were prohibitive. But, with the emergence of technology platforms, individual investors can invest as low as INR two – five lakhs in one company and create an angel portfolio in INR 20 – 30 lakhs. Moreover, these platforms aggregate lot of information about companies, which helps investors in taking informed decision.
Three core reasons why one should look at angel investing
- Highest return as an asset class (40% Average Annualised return)
- Can contribute in the success of a small company
- Can learn new things and be part of journey of an entrepreneur
Before turning an angel investor, an individual should understand how to evaluate an angel investment opportunity. You should evaluate the team, product or service that the company is into, it’s addressable market size and traction. It goes without saying that team is the most important factor in the success of a company. You need to assess the commitment of team and their ability to execute. If they are building a technology product and one of the co-founders is not a technology guy, it is difficult to build a great product.
The second aspect is the product/service itself. It is not first because for early stage companies, the product/service evolves but team generally remains intact throughout. The third aspect is the size of the market for the product/service one is trying to sell. If the overall market is not large enough, they will have difficulties in getting next round of capital. The fourth aspect is traction. Traction includes number of users who are using the product/service (paid/free), their experiences and revenue generated. If large number of users are willing to pay for the product/service, the company has a good chance of success.