The Rise of the New Angel Investor

Who is the new angel investor and how does he decide which startup to invest in.

Late 2012 was a time when entrepreneurship was continuing to see a surge in India – a lot more entrepreneurs were emerging who were willing to take the less privileged, high-risk path to build products and startups from India. However fund raising continued to be a challenge. I personally know of friends who had spent seven months raising their angel round, had met with 61 investors face-to-face before they closed their funding round at a valuation that was less desirable.

My survey with entrepreneurs on the top three challenges of being a founder was ‘Fund Raise, Fund Raise and Fund Raise”! Connecting to investors and raising funds continued to be an offline, full time sales process for founders. With a vibrant startup ecosystem in India, it was surprising that investing had not gone online and continued to be a linear, offline process.

In the last 2 years, LetsVenture has emerged as the largest online platform for startup funding. LetsVenture, is an online marketplace that connects startups looking to fund raise to investors globally.  In its first year, LetsVenture closed 22 deals on the platform, saw 6.5m$ being committed online. The very interesting statistic to note is that of the 170 angels who invested online, 40% of them were new angel investors, making their first investment through LetsVenture.

“With startups creating new jobs, creating new opportunities for the economy, the new angel investor will now start to emerge as a powerful enabler to the funding ecosystem.”

What makes a new angel investor? Who are they and what drives them to make a decision? With startups creating new jobs, creating new opportunities for the economy, the new angel investor will now start to emerge as a powerful enabler to the funding ecosystem.

As the founder of LetsVenture and as a new angel investor myself, some of my key takeaways have been the following:

a) Who is the New Angel investor? At LetsVenture, we have seen 4 categories of new investors emerge:

  1. Senior executives in MNC/corporates who have enough play money to start to invest in startups. We call this ‘smart capital’ – along with money, such investors bring in customer connects and domain knowledge in their areas of expertise.
  1. Second Generation of family businesses where the globally educated Indian seeks to be the pseudo entrepreneur. Brings in a lot of fresh thinking along with a high risk appetite. Being in the family business, they also have a high degree of business acumen.
  1. The Global Indian – well established, and successful and who is now keen to begin to invest in Indian startups! They want an easy way to discover, connect and invest in startups remotely.  They also help startups by helping them access to new geographies.
  1. Serial Entrepreneur – This category does not need introduction. The entrepreneurs who have been through the pains of building a startup, hold empathy for the process and have lived the journey are now starting to engage with new startups. The most desired category among the new angel investors.

b) How does a new angel investor decide which startup to invest in?

At LetsVenture, we have noticed the following investing behavior of new angel investors:

  1. When a syndicate opens up on the platform, a credible lead investor or a credible participating investor does instill confidence for a new angel investor. As a new investor, the first few investments is about following some of the successful investors and writing small cheques to begin to test the waters.
  1. Entrepreneurs who have been there, done that are faster to decide. We also see them leading them deals on the platform. Most of such investors already mentor / advice startups and at the time of fund raise, come in to lead the round.

However as someone who has sat in countless pitch meetings and heard investor-startup interactions, for a new angel investor before they write their first cheque, I recommend you meet a lot of startups – listen to startup pitches along with other experienced investors. Meet the founding teams in an informal setting and try and understand the product better. Even for an experienced investor it is hard to decide which startup to invest in. There is no magic formula – there is no fixed formula while evaluating startups, or understanding team dynamics or deciding on which startup could be the next ‘billion dollar baby’.  As a new investor you could ‘follow’ the leaders but remember – if the leaders knew where the jackpot lay, would they not be starting up instead? Create your own rulebook and take the risk and be prepared to write off all the investments as bad decisions! That’s why world over all angel investors are reminded of the theory of probability when it comes to investing.

Find this post on LiveMint here.

Find this post on Wadhwani Foundation’s blog here.