With the Indian startup eco-system really flowering, I am seeing an increasing interest from HNIs in India and abroad to invest in startups as Angel Investors.
With the Indian startup eco-system really flowering, I am seeing an increasing interest from HNIs in India and abroad to invest in startups as Angel Investors.
Here are some notes based on what does it really take to be an Angel Investor..
Angel Investment Scenario in India
1. Most of the angel investors become angel investors for their passion of supporting startups rather than looking at it as a very serious investment vehicle
2. The angel investment is a highly non-liquid investment. You will get some discrete points of exits along the timeline of your investment, however, it will be very few – typically happens on the next rounds of funding – which are 3-5 in a typical startup
3. The time frame for an exit is 5-8 years. The returns on the investments can vary. Some of them will not return anything and some can be multi-bagger. This article here gives some data points from the Indian eco-system.
4. The corpus allocated should come from the surplus fund. If you lose the money, you should not lose your sleep. Read more about Risks in Early-Stage funding here.
Recommended approach for “Angel Investing”
1. One should not look at making one or two investments as the startup failure rate across the world is pretty high – close to 60%. According to data published from the US market, almost 75% of the investments do not make any returns for their investors.
2. Best strategy is to make 8-10 investments over a period of 2-3 years
3. There is a bit of learning to be done on the nuts and bolts of angel investing and hence it is better to get started in the syndicate deals.
4. In a syndicate deal, one can invest around 5 to 10 Lakhs INR (10K to 20K USD) per startup.
5. Hence, to get started as an angel, one must plan for a minimum corpus of 40 to 75 Lakhs INR (65K to 125K USD) to be invested in 8-10 startups over a period of 2-3 years. In addition a Net worth of 2 to 3 Cr INR (350K to 500K USD) or an annual income in excess of 60 Lakhs to 1 Cr INR (100K to 175K USD) is a must-have to start on this journey.
Recommended Reads:
Economic sentiments down, but angel investors most active in 2013
Rich Indians warming up to angel investing
Note: If you have a legal framework for angel investing for your country, please refer to it. This paper is for guidance around angel investing and is not to be substituted for legal advice.
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