Angel Investors – The new breed of Evangelists in the ‘holy’ Startup world

Warren Buffet once said, “Someone is sitting in the shade of a tree today because someone planted a tree a long time ago”. 

…..and someone decided to fund the expense of the seed, soil and water to plant that tree. 

It was Sanjay Mehta and many others who believed in Ritesh Agarwal and his dream in 2012, and the rest is not history. We all know what OYO is today and what it is going to become in the future. From a mere startup, to a coveted unicorn and soon to a public limited company. For Ritesh Agarwal, Sanjay (of course with others) was no less than an angel from heaven who believed in him and his story, gave him his first cheque, helped him to take the first baby steps and make OYO what it is today. 

That’s what Angel Investors do. They put in their money on a promising idea, a convincing story, a passionate entrepreneur, an enterprising team, etc. all of which, at a very nascent stage, in exchange of ownership equity in the venture. 

Angel Investors – The harbingers of wealth for embryonic startups 

Propitious business ideas often fail to flourish due to the dearth of funding. The angel investors are the ‘knight in shining armour’ with their financial support to give that extra push to such ideas to become potential startups. 

Angel investment is not just about wealth generation, it’s about value creation and shaping up the future of a company. Budding startups look for angel investors as their collaboration not only infuses capital in the business, but also for the mentorship, expertise, management support and contacts that can put their business on the trajectory of success.

Fundamentally, angel investors must have net tangible assets of at least INR 2 crore excluding the value of his/her principal residence to qualify as an angel or if the investor is a corporate body, then it must have a net worth of at least INR 10 crore. SEBI regulates angel funds under the umbrella regulations for Alternative Investments Funds (AIFs).

In India, angel investors can put in a minimum of INR 5 lakhs and go up to INR 2 crores. In the US, angel investment can go anywhere from USD 25,000 to USD 100,000 in a company, though in some cases the amount can go substantially higher as well. 

Angel Investment – Not a Rich man’s game any more

Earlier angel investing was an HNI (High Net Worth Individual), Institutional Investors or Venture Capitalists’ game. Today, when startups are reaching new horizons and we are seeing a unicorn coming up every 10^th day, you just need the passion and of course some money, to become an angel investor. Just need to find the right person who has the idea to create a unique and disruptive solution to a problem that can bring a change in the world. 

There has been a paradigm shift in the angel investor profile, where start-up employees redeeming ESOPs, wealthy stock market traders, bankers, lawyers, second-time founders, and even salaried employees from corporates are investing in the startup ecosystem. Today, even mid-level professionals and techies in their 30s are investing their hard-earned money in cash minting startups. 

The glamour quotient is being embellished by Bollywood and Sports celebrities entering the club. With names like Alia Bhatt, Priyanka Chopra, Katrina Kaif, Deepika Padukone, Amitabh Bachchan, Virat Kohli, Sachin Tendulkar, and many more; now it has become a star-studded affair. India’s start-up ecosystem has not only become an alternative class of investment choice, alongside existing traditional options, but a superlative avenue of wealth creation.

Not just metro cities, but investors from Tier 2 and Tier 3 cities in India are also venturing into angel investing. The investment ticket size, becoming low, is gaining a lot of momentum and attracting investors across the country. On the other hand, with digitalization and globalization, the geographical boundaries are shrinking and Indian startup space is becoming a hotspot for international funding. 

2021 – The year of funding frenzy, the year of Angel Investors  

The third quarter of 2021 alone witnessed more than USD 10 billion of start-up funding in India. In case of angel funding, already 427 deals have been signed off till Q3 2021, as compared to 341 for the whole year of 2020 (Source: Indian Venture and Alternate Capital Association aka IVCA). The largest funding deal was the USD 440 million investment in Unacademy, an Edtech startup, where OYO Founder & CEO Ritesh Agarwal and Zomato Co-founder & CEO Deepinder Goyal were the key participants. 

Source: IVCA 

The Big Shots in Angel investing – the TOP TEN in 2021

	Investor Name	Profile	Domain of Investment	Prominent Investments	No. of Deals
1	Rajan Anandam	MD, Sequoia Capital	Big Data, Analytics, Online Health Care, Mobile Commerce, Consumer Internet, Digital Media	Instamojo, Travelkhana, Explara, Social Cops, Letsventure, LBB, PopXo, PregBuddy, MissMalini.com, Mobilewalla,	80+
2	Anupam Mittal	Entrepreneur	Co Working Spaces, Real Estate, Healthcare, Technology, Consumer Internet, Mobile, SaaS	Ola Cabs, BigBasket, Druva, Pretty Secrets, LetsVenture, Truebil, Kae Capital, Café Zoe, Zepo, Peelworks, Sapience.	50+
3	Mohandas Pai	Ex-CFO at Infosys	Technology Startups, Consumer Internet, Media.	Zoomcar, YourStory, FairCent, Kaaryah, Verloop, ToneTag, Fabhotels.	30+
4	Girish Mathrubootham	Entrepreneur	Saas, Customer Support, Consumer Internet, Education, Enterprise Softwares,	Unacademy, Innov8, Whatfix, The Ken, GoBumpr, iService, InkMonk, Zarget, Flourish, Frilp, ChargeBee, ShieldSquare.	38+
5	Anand Chandrasekaran	Professional, EVP at Five9	Fintech, Saas Companies Having Practical Applications Of AI, Consumer Internet, B2C And P2p Marketplaces.	Fynd, Yulu Bikes, MoEngage, NoBroker, Innov8, ToneTag, Lucideus, Chatfuel, Gamezop, Rupeek, Sheroes, FreightTiger, Khatabook.	50+
6	Sunil Kalra	Entrepreneur	Technology, Health & Finance Sectors.	TargetingMantra, Instamojo, CultureAlley, AdPushup, Frrole, Mobilewalla, Viavya Labs, MyShaadi.in, Innovise, OrangeScape, SkoolSShop, etc.	100+
7	Sandeep Tandon	Entrepreneur	Healthcare, Information Technology, Fintech, Education, Media	Unacademy, Razorpay, Inc42, Ziploan, Pocket Aces, ShaadiSaga, Spinny, Progcap, BharatBazaar, Genius Teacher, Dukaan.	34
8	Anand Ladsariya	Professional, Entrepreneur	Consumer Products & Services, Edu-Tech, Healthcare, E- Commerce, Media & Advertising, Games	Oyo Rooms, Myntra, Asiatic, Clensta, Glam Studios, Confirmtkt, Morpheus, Mobiquest, Traffline, Dexl, Uniphore, Tonbo Imaging, Serial Innovation.	90+
9	Sanjay Mehta	Entrepreneur	Agritech, Automotive, Blockchain, Edtech, Government & Fintech, Enterprise B2B, Consumer Internet Sectors.	Oyo, InstaSafe, Blubirch, Box8, Repup, LogiNext, WowMomo, zippr, Saffron Stays, Blue Cargo, CSPA, Aurora, WorkClout, TAObotics, Radiate, vinovest, Orbit Fab, Memfault	137+
10	Ganesh Krishnan	Professional	Consumer Internet, Tech Companies, Healthcare & Education.	BigBakset, Portea Medical, Bluestone, HomeLane, HouseJoy, HungerBox, FreshMenu	30

What do you need to become an angel investor?

The must have qualities of an angel investor are commitment, passion and risk bearing appetite, strategic thinking, and most importantly, capital infusion and mentorship. He should have an in-depth knowledge of the start-up ecosystem and the new developments happening every day. 

Angel investors not just fuel the start-ups, they also add substantial value to the venture through their mentorship, experience and expertise. 

In the world of angel investing, the frequency of success is very low, but its magnitude is huge. With great risk comes greater rewards. The risk is that the chances of success are very small in startups. It\’s highly rewarding as returns multiply in a very short span of time. Sanjay Mehta exited OYO with 280x return in 2015. 

Angel Investors vs Venture Capitalists

Although both Angel investors and Venture Capitalists (VCs) facilitate funding to businesses, there is a stark difference between the two types of investors.

• Angel investors are generally independent affluent people who invest their own money in ventures, while VCs are generally companies, composed of a team of financial experts, that invest other people’s money. 
• The quantum of funds available for VCs is way more than angels. 
• Angel investors usually arrive at the seed stage of a budding company and have an early exit, while VCs participate in both early and mature business fundings. 
• VCs pay more attention to due diligence, which is undertaken by a specialized team. In case of angel investors, the initial screening is more on gut, experience and convincing skills of the startup founder. 
• Angel investors participate more actively in their invested venture, while VCs play more of a strategic role in the company. 

The emergence of ‘Syndicates’

With the startup ecosystem growing at a humongous pace in India, ‘Syndicates’ have become quite popular. They are accredited investing portals, pooling in several investors to create a fund to make a single investment. They are investment firms which manage a large number of angels and strategically organize their funds for wealth generation. They bridge the gap between investors and startups, keep the investors informed and provide a platform for startups to pitch in their ideas. 

Since all types of investors are part of the investment pool, it’s a win – win situation for both new and experienced investors. The amateur ones get to invest alongside the experienced ones, while the veterans get more spending potential. 

Angel networks such as Venture Catalysts, Inflection Point Ventures, LetsVenture, etc. are thriving these days, deploying more cash than ever before. 

Look before you leap: the Golden rules

It is probably one of the best times to turn into an angel in the investment world, with the massive success of the tech-startup industry, yielding 3 unicorns every month. Everyone wants to be in the mad race and wants a unicorn in their investment kitty. But detecting them at an early stage is a difficult task. However, prudent investors always explore and investigate all the risk factors before putting their hard-earned money into something. 

• Know your risk appetite – Investing in startups is a risky business. Majority of them fail within a few years of their existence or struggle to survive. Revenue generation and profitability is a far-sighted scene for most of them. Hence, an angel investor should have the appetite to take high risks and should be willing to even write off their entire investment in the worst-case scenario. A Hero comes out of a thousand zeros. 
• Build a portfolio to mitigate risk. Don’t lay all your eggs in one basket. Manage risk by spreading out investments over 5-6 companies or even sectors, rather than focusing just on one company.
• Do the necessary due diligence: Identify the key risks involved in the venture and their addressal, and how much is acceptable. 
• Invest on a passionate founder with a defined vision 
• Look out for a committed management team
• Market opportunity and the level of competition 
• Attractive valuations and believable financial projections
• Exit opportunities
• Hire professionals like Omnifin to do it all for you. 

How can we help you?

An informed investor should always be updated with the latest trends and happenings in the market and learn about financial risk management and investment analysis before delving into the angel investment space. 

The best way is to hire professional firms like Omnifin, who can conduct proper due diligence and assess the company’s value before investing. They should assess the value every year to ensure their investments are intact.

As Peter Drucker rightly said, “Whenever you see a successful business, someone once made a courageous decision” and a right one as well. 

Be selective in your battles…but fight them diligently.