Angel Investing - The Basics.

Angel investors are individuals or groups of people that provide funds to promising startups in the early stages.

• Angel Investors use their own money, unlike Venture Capital firms.

• Angels need to be accredited. To invest in India, you need net tangible assets of at least INR 2 crore or $250,000.

• Angels invest in the Early-Stage rounds. This includes Friends & Family round, seed, and sometimes Series A. More on this in later posts.

What it’s not?

• Not a passive investment

  Angel Investors are committed to the success of the company, which means providing mentorship, expertise, and network to the companies you invest in.

• Not a get-rich-quick investment

  About 9/10 new startups fail in the first three years. Angel investing is a high-risk, high-reward game where you should enjoy the journey as much as you like the end.

• Not liquid like the stock market

  You can sell your S&P500 Index fund instantly, but your money invested in a startup can be locked for 7-10 years.

What’s this exit they all talk about?

There are various types of investment agreements, but a basic agreement includes equity in exchange for money. But that begs the question - how do you get a return on investment?

There are two ways this happens:

1. Acquisition - A different company acquires your startup.

2. IPO - Your startup becomes big enough to go public.

Myth Busting time

There’s a misconception that if a startup you invested in gets a bigger investment in later rounds of funding, you make money. That’s not always true.

• It only happens when a bigger investor wants to buy your shares at a higher valuation.

• Your shares may get diluted with a larger investment round, and you may have a smaller piece of the pie.

• You may have a chance to add more money to keep your share percentage the same.

Friends & Family Round - the Indian context

Growing up in an Indian middle-class family, I was taught never to mix money and relationships. Indians are more risk-averse than their western counterparts. Losing money can mean broken friendships and severed relations. I want to be proven wrong! Is this still a challenge for new founders?

Mental Magnifying Glass

As promised, I am creating a list of unique ways through which existing investors find and evaluate great ideas and companies. These will evolve over time to become our foundational investing principles.

1. Ask why a big influx of money is important for this startup.

2. We all have “undue advantage” gained with our unique experience, knowledge, and life. Use it to see what others cannot.

3. Being the first company is not always the best. Sometimes, being second has its own advantages.

4. Find a winning theme, then invest in multiple companies adjacent to it.

Reply to let me know if you disagree with anything and why? If you know anything worth adding to the list above - even better! Please share!