Creating phenomenal returns as an Angel Investor: Memoirs after 75+ investments & 7 years

I started when NO 1 thought angel investment was sexy! Back 2014 with a mission to back founders with LOSB (Lots of Small Bets) - Not to earn money but to be a part of the thrill of their journeys

The reason I started investing 2014 was the fact that after doing my first startup I realised that there are so many mistakes that I made which were truly avoidable had I taken inputs & had a couple of sounding boards in my entrepreneurial journey. I spent sometime in the Bay Area then & realised that 1 critical difference between India & the US startup ecosystem was the fact that founders would be angel investors, but back in 2014, in India very few founders had liquidity to invest into startups. Also founders are always hard pressed with time, until they’re vested with a founders success as an angel investor they would seldom give time for mentorship etc. That made me realise the value of founders backing founders. Though I didn’t have a lot of money to invest back then, but started investing in areas I believed in without seeing TAM, founder background etc. My focus was to invest in first time founders who truly needed help. That led me to visit Startup Village in Kochi where I found my first investment in Rohildev (Fin Robotics). Since then depending on liquidity in my life I have been investing in founders (never as a lead) but just to support their entrepreneurial dreams, & be a part of the journey. A couple of learning’s after doing > 75 investments:

Concept of Burnt Capital:

As an angel I always recommend people to not invest until you understand the concept of burnt capital. Once you invest in a startup, you never expect a financial gain on your investment. Don’t have a horizon for return. If it comes back you’re lucky if it doesn’t, doest matter. Once you invest like a poker player, the chances of you winning are high. If you dont consider your investment as burnt capital, you;; continuously make founders life hell in following up with the status. The fundamental principle of investing is in truly believing in the founder & the industry she / he is trying to disrupt with our expectation for any return. That’s what an Angel means right?

Never take a loan / raise public capital for seed / angel round:

Angel investments (irrespective of the news of success by a few) are the most riskiest investment classes. They’re not liquid, they’re not safe at all. The chances you’ll see your money back are extremely slim. That was 1 of the reasons till date I’ve never created a syndicate, advised anyone or raised external fund capital (inspite of 100’s of interests), I know that this asset class requires patience, founder goodwill & massive massive amounts of ability to burn your capital in front of your eyes. Only invest the amount of capital that you can let forego off.

It’s a game of numbers:

A lot of people concentrate bets in startups, my learning has been to distribute & hedge your bets over at least 25 startups for 3-4 years, investing in 2 & expecting 1 will make wonders is fallacious. Invest in a lot of startups, early on. This will give you learning experience, & then with time when you know what you’re doing start increasing your cheque sizes & decreasing your portfolio number & start concentrating your bets.

Valuations dont matter (Unless its bizarre):

Petty valuation differences wont matter if your gut says this will do well, invest. If a startup does well, valuations dont matter, if it doesn’t, then also valuations dont matter! Take the example of OYO, when Mr. Munjal’s family office invested, everyone was commenting that he has entered at a very high valuation, today that seems to be a decent investment.

Don’t follow the Mimetic Theory:

Unicorn Founders are investing in a startup that must be good, let me also invest. Never do that, Develop your own thesis & research. Before investing in the startup world read a lot of papers & create a thesis in which industries do you want to invest, what kind of founder DNA cohort do you want to be a part of, what customer TG’s do you want to focus etc. That’ll help you eliminate the choices in front of you. Usually people who’re able to impress upon amazing founders for small cheques may / may not create value.

Team Matters:

While judging a particular deal, the critical factor for success is NOT the TAM / industry but the quality of founders. It’s hard to evaluate founders & people who build matrix for this have the highest return. Also, see the critical skill sets required by the business, & see if the founders possess those skill sets. Also ambition of the founders is a massive +.

Invest in businesses that can exponentially scale with technology:

Because of my lack of technology understanding in the former phase of my career I had bet on startups in the non tech space, I realised with time that my returns were capped at 25-40X because of that, I could have made 300X returns if I had invested in technology platforms than products which just technology for distribution.

Continuously write down your startup investing experiences:

Brutally analyse the mistakes, the let downs & the learning’s of startup investing. Also dont stop just because your first 7 company’s didn’t do well. The game here is extremely long term & ensuring that you strive hard & keep investing until the golden number of 25 is met is critical. Critical mass must be achieved for being a successful angel.

Founder Goodwill will fetch you DEALFLOW you CANNOT Imagine:

Focus on being truly founder friendly, in ways unimaginable. Don’t be an a__. Focus on delivering value, in fact as an angel you’re a product, your dealflow will depend on the level of community you can build as an investor & how much you can contribute to someone in their journey.

Early Exit:

My thesis of investing in startups is extremely long term, I would want to continue to write cheques till I die, in bold & ambitious founders changing the status quo. I usually DONT exit, I’ve received a lot of exit options, but I try to postpone by exit, as I feel that my job is to be on founders side until she / he specifically requests me to exit. I truly believe that being founder first matters a lot.

True KRA:

As an investor my KRA is not building personal wealth by investing into founders, but increasing the personal wealth of the startup founders I back. A testament to that is that founders in which I invest start investing alongside in a few quarters with me. I’m always on the side of increasing founder salary’s so that they can save & invest & give back to the startup ecosystem. Also, I try & ensure founders dont dilute unecessarily & if they do, try & help them claw back, do secondary’s etc.

Be ahead of the curve:

Research on ways you can help founders, Eg. Create papers for founder knowledge. If you have enough disposable money to invest in startups, you must be doing something you’re good at, eg. sales / marketing etc. Whatever you’re good at build a community knowledge pool around that & feed your community.

Community! Community! Community:

When it comes to angel investments, you always are in the business of building sustainable communities, which are supportive & nurture growth for all. Build a robust community of like minded, ambitious founders.

Background Checks:

I’m a massive believer in checking background of founders in whom I’m investing 1 cr INR +, how a person behaves in his past, is a testament to how he might behave in the future. Skill / attitude can be learnt, values & fundamentals are ingrained & hard to change. If someone has duped their partners, employees, vendors in the past, chances of them doing the same are extremely high. Back highly ethical, extremely grounded founders, who’re bold with their vision & aren’t afraid to work their a__ off.

Luck:

Luck plays a serious role in being a successful angel investor. But I have a formula for LUCK = COMMUNITY X BOLDNESS X TRUST. Community means the ecosystem, the more the number of people / dealflow that you interact with, the better would be your choices. Boldness encompasses your risk taking ability & finally TRUST helps you build GOODWILL & in turn will fetch you inbound deals at the best valuations.

Happy Investing!