Getting into minds of Angel investors

Canaan hosted a breakfast discussion with around 30 angel investors late december on sidelines of TiE Entrepreneurial Summit. It was a great discussion, and personally I learnt a fair bit from fellow investors. The interesting part were the linkages that are developing in biases that exist between venture and angel funding, and as a result the validity of some of the stereotypes we so hard try and counter!

It was also interesting to see some of the biases and stereotypes that are emerging in the process. I have heard many entrepreneurs complain about things like IIT/IIM graduates having a better shot at raising financing – however, it is interesting that there seems to be rationale to this – largely around the fact that positioning the company is a key role of founders, and hence a criteria in decision making.

Here is a brief summary.

3 Responses to “Getting into minds of Angel investors”

  1. Tarun says:

    Thanks Alok,

    This was a good information source – I really appreciate the fact that angels are looking for good operational and domain experience as a key in an entrepreneur than the usuals like passion.

    Having bootstrapped a company (for last couple of years) in an absolutely new domain has taught me so many things that no business school/engineering college degree or any amount of passion would have done.

    Keep these nuggets of info gems coming in.


  2. Alok Mittal says:

    Deepak – there are signs of success at angel investing. Within the group we had, one of the large angel groups reported compelling returns on an exit. I have met some individuals who have made good returns. Partly (like the ESOP wealth creation we discussed earlier at venturewoods), many people do not like to disclose what they have made at angel investing. But these stories need to be brought out to motivate other people to part with their money.

    I do think there is a lot to be done in angel investing, apart from the money. For one, I dont think the right range of structures of investing exist, in a templatized form where people can easily use them. There is also a strong need to take angel investing local – so some sort of process formalization and training on that end can be useful. I am not sure creating “angel fund managers” is equally impactful though.

  3. 1) Have any angels seen good exits yet? Would be inspiring to hear of them. For ex. WallStrip was angel-ed by Howard Lindzon with $500K, and he exited at a valuation of $5m. Even with esops that should be a 5-8x return in a year. Not great for VCs with the amount being that small, but awesome for an angel one might think. (I know this was suggested, but asking of the group here)

    2) Have angels seen any serious deal flow? That would also be useful to have, even anecdotal. What I heard recently was of a startup that got acquired; by the company that was headed by it’s angel investor, and at a small loss to the angel investor (who subscribed as convertible debt). That’s not all that inspiring, but i’m sure there are better stories out there.

    3) Pedigree is strange, because if you look at the biggest wealth creators in India they are as likely to be from the best business schools or from a relatively unknown source. It’s true of the tech sector abroad as well. But the old-boys network runs strong with people who have had the education, and only top pedigreed people get jobs at VCs, one thinks? (Which can explain why future financing is easier, and therefore angels look to protect, etc.) In any case, that will not change easily – the perception that pedigree is important is a larger problem to India per se; the angel investing community is only a small part.

    4) Is there a way to participate and help solve some of these problems without having the capital to be an early stage investor? There are enough people passionate enough to help, I’m sure, and they can sit between the angel and the company in terms of getting stuff done (from deliberating mgmt structure to office space to Accounting to what not, stuff startups and perhaps angels spend way too much time on).

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