(5 votes, average: 3.8 out of 5)
Loading ...Don Dodge covers the Angel Capital report from Center for Venture Research for the US Angel space. Some quick stats:
- 258,200 active angels invested $26b in 57,120 companies in 2007. VCs invested $29.4b in 3,813 companies. The ratios are revealing in the kind of pipeline it takes for a vibrant ecosystem, and proportionate amount of dollars invested by each constituent.
- Average angel group invests $2M per year in 8 companies ($250K per investment). One thing I have always maintained is that there are too few angel groups in India - some of them being Indian Angel Network, Mumbai Angels and TiE Chennai Fund. At IAN, our average deal size has been similar, though intuitively it might seem that seed stage in India might take lesser money.
- Annual returns for angel exits are 27.7% - that number is low! For the risk and time investment that angels make, I would reckon the expectations are higher, especially since 2007 was a reasonably good year from exits perspective
I believe that angel investment is not just a function of putting money, but about deep understanding of specific sectors, and hence the ability to value-add in those kinds of investments. The formation of angel groups is another enabler, as it provides diversification, with the same money and time commitment. I would love to get the group’s views on what can be done to encourage and facilitate more angel investments in India.
Lack of complementary and simultaneous presence of strategic and financial bandwidth in the same individual sometimes discourage many a potential angel investment. I suggest a two tier structure – let angel groups have a financial stream and a strategic stream. Let’s say X has surplus money and a lot of faith in strategic skills of Y in a given domain, ideas in that domain can get funded by X with Y at the helm. X may not have the time, but if Y could oversee the venture affairs, X is happy to invest.
I have personally been involved in some angel investing even though I do not hold so called “Tier 1″ position at corporate level and I think there is argument to expand the groupings to include professionals (with expertise in particular industry) or middle management.
Today many software engineers/project managers having saving capacity to invest $10-20k per startup/per year. We don’t need millionaires/CEOs etc. but people with passion to do something with startups either financially or domain wise.
The problem with Angel groups such as Indian Angel Network, Mumbai Angels and TiE Chennai Fund is that all these groups are basically concentrated by Very high level CEO level executives or Private Equity/Venture Capital Professionals who are just doing deal sourcing through this medium.
Generally following problems are encountered:
- Many a times these guys are already preoccupied with other deals given the large flow of deals (including crap ones)
- Angels not interested simply because their priorities (or priorities of VC fund they are representing) lie in other sectors.
- Did not hear about the deal from others!!!
Almost 80-90% of deals are ending up with same group of 100-200 odd so called PE/VC professionals/Angels in a country of billion people and with $1 trillion dollar economy.
The grouping should be expanded to increase its scope and breadth of activities as well as membership.
>I would love to get the group’s views on what can be done
>to encourage and facilitate more angel investments in India.
>
personally I believe that USA is a land built on deals; while things are different in the rest of the world– India; but even in much of Europe, Central Asia, Arab world.
In these ‘not build on deals’ parts of the world (including even Germany/Spain/Italy/Netherlands perhaps); either you need a flow-driven business/sector like construction/banking/retail– where there is a clear distinction between the control of resources and execution of business.
So, outside of silicon valley/tech-hubs of US if one is doing PE investment in construction/real-estate/retailing etc… one can have a clear path to returns— and a clear exit.
With IT/Hi-Tech in India, one has to be prepared to either ride along the highs and lows OR be a family controlled Moser-Bayer or Bajaj or Essar…
Just a opinion….
See Alok, you provided your own data …
http://sramanamitra.com/2008/04/04/forbes-column-searching-for-the-real-vcs/
Regards, Sramana
Actually Alok, I would love to hear the problems Angels are facing. I’m sure there are more than enough deals to analyze. And a number of deals will be those you throw away but still become gems later. That’s still not a problem - because that’s what makes it all interesting. What would be lousy is that angels are looking but not getting enough coming their way.
But if the angel process is anywhere like the hiring process, you are probably getting way too many proposals. In which case, there may be a need to pre-filter thoroughly, which brings in requirements like SWOT analysis, a term that to most engineers means different ways to kill mosquitoes.
So maybe this filtration process needs to be worked on. Some common theme? Some more networking? Maybe we need an angel investor/entrepreneur conference of sorts. (given the horrendous traffic situation in most of our cities, this is near impossible) Or a site focussed on pitches and angel level investing.
But what else are the problems? Valuation? I will justify, with data, that my company is worth either of 10 bucks or 10 million bucks today; so when someone asks me about what kind of stake we would part with, I have this very disturbing blank expression on my face. I’m sure I’m just the village idiot here - is valuation a roadblock for angel investors? Too much entrepreneur hangup? Or that angels want a fixed stake? (which calls for a fixed valuation, so either fighting time or blank expression) Possible for both parties to accept a 15% debt note and leave valuation for later?
Is it lack of management expertise? Or too much management expertise? (too much architecture and too little code does not a good program make types)
Would it simply need people to say “let’s cut the red tape and get this going. We’ll argue the finer points later, now here’s the money (or I’ll take this money) go do something with it”. It’s incredibly difficult to do this, from the entrepreneur side also.
I think what the system needs is one big break, the one huge success story that will put angel investing as the stepping stone to success. (I would have announced my candidature for the post of big-success-poster-boy but the existing queue is just too long. Gotta gatecrash)
I think the core to this issue is accessibility. I think the angel model necessarily should work in a close proximity model where access from both sides allows for more informal and more frequent interactions as against a regular VC route, the reason being that especially in India the lack of awareness of what is expected to get the right valuation/model is much deeper and requires a lot more mentoring. Is there enough mentoring available is also a question and also an issue that we will have to deal with as well.
To promote entrepreneurship I think right now it is important to push for angel groups. Angel Groups for India won’t the the same as they are in US since we don’t have much sophisticated angels (having money as well as startup / technology experience). So we need to think of new models for angel group which will work in India.
There are two types of people in India who needs to partner before investing in startups
* “rich” angels in India who will be interested in investing. They might have business experience but no idea about technology.
* “technology” / “mentor” angels who will be interested in helping startups / mentoring startups but don’t have enough money to invest.
What is happening now with startups in India is they are trying to get in touch with these two type of people which is right. But, as the “rich” angels and “technology” mentors are not so connected to each other very few startups are been helpful. Once we network these two different people in angel group things would be good in terms of investing for startups. Also experience will help these people explore more and more startups. But, the key thing here is how to model this partnership - just plain networking is not enough - appropriate return to each person is important and this is what each angel group should learn, formulate and decide for their group
In 2006-2007, I worked for one of the angel groups that was part of this survey. The Alliance of Angels (AoA) covers the Pacific Northwest U.S. and has had banner years in terms of numbers. 150+ companies per year, 30+ funded and $5m+ invested. AoA has been around since the late 90s, so survived the bust.
Granted, these may not work in Indian context, but here are three things that AoA does well…
1) Stakeholders. AoA is registered as not-for-profit. This is an advantage because AoA can position itself as an ecosystem partner for regional entrepreneurship, so nobody views it as a threat to more traditional sources of funding. Moreover, the model ensures that staffing is kept minimal (only 3-4 part/full head count), spending is focused and transparent, and the cost to the entrepreneur is nominal. Funding comes from tiered sponsorships (VCs, Banks, Law Firms, Service Providers), wealthy donors, and government grants. It works because AoA has people (executive council, director, board and managers) who want to engage the whole community.
2) Process. For each yearly cycle, AoA hires two masters level students (usually MBA with 5+ years experience) who are interested in startups and early stage investing. These program managers are tasked with meeting 20+ qualified companies each month. They spend 90 minutes covering the basic checklist, asking questions, and providing a good 20-30 minutes of feedback on pitch/business. Companies who are turned away were often invited (charges waived) to a “pitch clinic” that was held bi-monthly in order to educate investors/entrepreneurs on the fund raising process. Those who make it through the first round (6-7 each month) pitch to a screening committee (made up of VCs and successful entrepreneurs) who narrow the group to the final 3-4 companies. These teams then present at a full membership luncheon.
3) Events. AoA holds ten luncheons per year at the Seattle Tennis Club (location/food quality is important). Held monthly (nothing in AUG/DEC), these are invite-only events for accredited investors to hear the finally selected 3-4 businesses. The audience is 50-75 people for each 3-hour luncheon. In addition to the pitch clinics mentioned earlier, AoA runs quarterly forums where experts speak on current trends.
…Repeat process (engage players, screen deal flow, offer regular networking opportunities).
Regular real platform for interaction (pre/post investment for angels vs entrepreneurs). Iterative error correction may be key for good investments.