At a time when angel investment is on a steep rise, Asia’s largest angel investor network Indian Angel Network, completes a decade of existence with investments in over 100 companies based in seven countries across 15 sectors. Backed by 350 investors across 10 countries, Indian Angel Network goes through over 4,000 investment opportunities a year. Started in April 2006, the Indian Angel Network in addition to money, provides constant access to high quality mentoring, vast networks and inputs on strategy as well as execution.
Saurabh Srivastava, Co Founder and Director of the Indian Angel Network, talks to DEALSTREETASIA about the growing ecosystem of angel investors and how startups should prepare before pitching to the angel network. Edited excerpts:
How do you view the influx of a huge number of angel investors?
I think its welcome that more and more people want to be angel investors. Of course there are people who get into angel investing and don’t understand what their risks are. Some of them will lose money.
Do you see that there is a slowdown in investment coming?
The slowdown has nothing to do with angel investment. Globally there might be a slowdown but in India it’s not. The slowdown or tightness in funding is happening due to the global issues. It is happening where the large PE funds or VCs , that are overseas based, are investing because they are already stressed on their investments in China, US and Europe.
When it comes to angel investing there is no stress, because in a country the size of India, there is a very small amount of angel investment being done. We are not under stress because there is scarcity of people and money. We need more investors, and it is very welcome that more people are wanting to be investors. But if angel investing risks are not well understood then there will be people who will burn their fingers, it happens everywhere, it is a necessary part of growing up.
Indian Angel Network also has investments overseas, how do you see that panning out in context of the global economic situation? Do you see a slowdown there?
Our investments are angel investments, that have nothing to do with the public markets. And if there is a slowdown, its better for us, because the valuations go down. Overseas investment for Indian Angel Network is growing, it’s a small part of our activity, and will remain so. Our main focus is India.
Which geographies do you see growth in?
We invest everywhere, in the US, Canada, France, Colombo, but most of our investments are in India. US is always interesting, and within Europe, UK is most interesting.
How do you mentor your overseas investments?
We have members there. We only invest if we have someone local there, who is willing to invest.
Would IAN also be interested in an online platform for angel investment?
Our model is very different. We are not just a platform for buyers and sellers to connect and then do what they feel like. We have a model, where we have committed investors. We have a very big secretariat, we see 4,000 deals and we sift them, shortlist them, there is due diligence and then we present deals to our members for investment. From 4,000 deals we invest in less than 1 per cent.
The things with platforms is that it is a lot like crowdsourcing. There isn’t the same kind of diligence, analysis, robust process. We also mentor and handhold the entrepreneur after the investment, we help them raise the next round of money, get exits.
Many smaller angel groups have also come up, how do view them?
If you look at it globally, then angel groups tend to local, informal clubs. The problem with such local angel groups is, that if it is too small then there is not enough capital among members, it becomes a challenge. Also, they will only see local deals, so the deal flow is not rich.
When you do only one or two deals is that you are not managing your risk well, so you’re likely to lose, because it’s not spread out.
I think the model what we have had at IAN has been working well. Our IRR (internal rate of return) over the last 8-odd years has been very high at 40 per cent. And less than 10 per cent of our companies fail, because of the size and scale and rigour of the selection process.
Do you see the ticket size for angel investment increasing?
Not really. As economies don’t do well abroad and funds getting tighter, then you will not see valuations going up. So I don’t see that changing significantly. Globally angel investors are the same size around $500,000, which is what we do.
How has 2016 been so far, and how do you see this going forward?
We’re on a roll, we are just inundated with companies. Startup ecosystem is booming, there is no recession in India as far as the startup ecosystem is concerned.
What would be your advice to startups when they come to pitch to you?
They should look at their pitch from the point of view of the investor, if they were investing their money, what would they want to know. Most importantly I want to assess the entrepreneur, what have they done, how passionate are they. If its a team, then see if they have the attributes which a management team should have, sales, technology, finance, a reasonably complete team. A lot of attention goes into the team. They also need to be very clear as to the market they are addressing, how large is that market and their offering, product of service needs to have a clear definition.
They need to tell us very sharply who is their customer, who is the competitor, why are they better than competitors, why would they win and what is their big differentiation.
Do you also invest in Series A level?
Not really, our investments generally under a million dollars. We have invested up to Rs 10 crore, but we don’t do Rs25-30 crore.
Do you plan to get into the Series A level?
We will see, but as an angel group people tend to do in the million dollar range. Its not an opportunity for angels, but more of an opportunity for early stage funds usuall. We might think of it, but as an angel group we’ll be in the million dollar range.