<article>Angel investors take a lot of risk investing in early stages of a startup. Such risk usually holds the promise of high returns.</article>

Angel investors take a lot of risk investing in early stages of a startup. Such risk usually holds the promise of high returns.
But for many of them, the journey with a startup ends when venture funding arrives. To prevent too much dilution of shareholding, venture capital entry typically marks an exit for early backers or angels.
However, there are ways they can work together and stay invested through multiple rounds of VC investment.
For VCs, a lot depends on whether the entrepreneur would like to hold on to an angel. &#8220;Ideally we would like the entire angel group to be at less than 25 per cent. But if the founder wants some of the angels to stay because of the value addition they bring, then a VC would want to keep them to get to the next level,&#8221; said Shekhar Kirani, partner, Accel Partners India, which has backed companies like e-commerce major <a style="color: #000080;" href="http://www.flipkart.com/" target="_blank">Flipkart</a>, cab hailing service <a style="color: #000080;" href="https://www.olacabs.com/" target="_blank">Ola</a>, and ticketing platform <a style="color: #000080;" href="http://in.bookmyshow.com/" target="_blank">Bookmyshow</a>.
Kirani said that most VCs want enough equity for the leadership team. &#8220;If you have a $1 billion exit and the founders get something like 7 per cent, that&#8217;s not good. Those entrepreneurs won&#8217;t come back to that VC,&#8221; Kirani told DEALSTREETASIA at a <a style="color: #000080;" href="https://letsventure.com" target="_blank">LetsVenture</a> event in Bangalore. So angels are often asked to exit to prevent dilutions in stake, so that the founding team retains 20 per cent, and 10 per cent goes to employees, with investors getting the rest.
&#8220;Angels should try and bring at least one value-add to the startup they have invested in so that they can stay on,&#8221; said Mohit Saxena, co-founder and Chief Technology Officer, <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=InMobi" target="_blank">InMobi</a>. Saxena said that VCs can also enter at an angel stage, something that has happened over the past couple of years. Out of 525 investments at the angel or seed fund level last year, about half have been led by venture capital firms.
Having a clear lead among angel investors is also important. &#8220;I think having a diverse group of angels, with a clear leader among them, works,&#8221; said Sharad Sharma, founder and CEO of analytics provider <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=BrandSigma+Inc" target="_blank">BrandSigma</a>, and an active angel investor in companies such as <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=LetsVenture" target="_blank">LetsVenture</a>, <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Amigobulls" target="_blank">Amigobulls</a>, <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=SuperProfs" target="_blank">SuperProfs</a> and <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Wishberry" target="_blank">Wishberry</a>.
Deal discovery — or finding opportunities to invest — is an issue with angels, but not for VCs who have large teams. But VCs would seriously consider angel investors&#8217; advice to invest in a particular startup, if the angel has been an investor from the beginning and knows the founder well. &#8220;We value their advice a lot,&#8221; said Vikram Vaidyanathan, managing director, Matrix Partners. &#8220;Conversations with startups about common interests can become prolonged at times. Good angels help keep it shorter, and introductions from them can lead to VC investments.&#8221; he said. Matrix has invested in companies like <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Dailyhunt">Dailyhunt</a>,  <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Housejoy">Housejoy</a>, <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=LimeRoad">LimeRoad</a>, <a style="color: #000080;" href="http://mswipe.com" target="_blank">MSwipe</a>, Ola and <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Practo" target="_blank">Practo</a>.
&#8220;Leads and passive investors need to be separated out. The lead guys need to have expertise in some area,&#8221; said Sahil Barua, founder of hyperlocal logistics firm Delhivery. Barua is also an angel investor in companies like <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Qyk" target="_blank">Qyk</a> and <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Twigly" target="_blank">Twigly</a>.
Entrepreneurs should also try and keep the angel pool small, to prevent dilution of equity when VCs come in. That would also help some of the angels stay on. &#8220;Angels should be invested in the company they put their money in. It should not be one of 100 investments they make. The number of co-leads should not be more than 2-3, else company will be overwhelmed,&#8221; said Sharma.
Also read:
<a style="color: #ff0000;" title="India’s two top investors share 9 secrets to successful angel investing" href="http://www.dealstreetasia.com/stories/heres-what-2-of-indias-top-angel-vc-investors-33762/" rel="bookmark">India’s two top investors share 9 secrets to successful angel investing</a>
<a style="color: #ff0000;" title="LetsVenture launches new app for angel investors ahead of pitch sessions" href="http://www.dealstreetasia.com/stories/letsventure-launches-new-app-for-angel-investors-ahead-of-pitch-sessions-33830/" rel="bookmark">LetsVenture launches new app for angel investors ahead of pitch sessions</a>
<a style="color: #ff0000;" title="Downturn presents exciting opportunities for angels: Cherian Mathew, Firebolt Ventures" href="http://www.dealstreetasia.com/stories/33735-33735/" rel="bookmark">Downturn presents exciting opportunities for angels: Cherian Mathew, Firebolt Ventures</a>

There are ways they can work together and stay invested through multiple rounds of investment by VCs.

Can angel investors and VCs co-exist in startups? Absolutely.

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Can angel investors and VCs co-exist in startups? Absolutely.

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