I write this piece as an angel-turned-institutional VC . After our respective careers in industry and working with startups, both Karthik and I got our first taste as early Mumbai Angels members. This post is aimed at founders looking for seed capital from the ever-expanding angel community.
At the outset, let me say that not only are angels necessary, they’re often also critical to a startup’s early stage growth. This follows a Silicon Valley pattern, where most startups are angel-funded before raising institutional money.
In 2014-15 however, the only surge rivaling the increased number of entrepreneurs was the rapid rise of angels. In some cases, it has even become fashionable to be an angel – exactly like it has become to be an entrepreneur. Unlike in Silicon Valley where angels have to be accredited, there are fewer or no regulations per se to become an angel (noting that VC & PE funds have stringent regulations).
Lets dive deeper into distinct categories that can make or break a startup’s early development – I’d suggest there are three broad types of angels
- Smart angels (corresponds to smart capital)
- Silent angels (capital and nothing else; without any disrespect – dumb capital)
- “Not sure if we should take their money” angels (have money, but questionable value)
The attractiveness of smart angels is a no brainer – beyond capital, startups need most help in hiring, customer introductions, and product dev (coming out with the MVP, pilots etc). Angels with specific domain expertise and/or strong industry linkages are valued by founders. Their investing philosophy is centered around “how can I help you so we can grow the overall pie bigger”
The second, silent angels (or dumb capital) is just that – pure capital infusion at the critical time its needed, nothing more and nothing less. Just capital, no time.
The third and last, “? angels” are usually centered around “How can YOU help me”? The approach here is angel-centric, rather than founder-centric. One would hope this category has the fewest subscribers.
So, as you go about raising angel capital, a few points worth considering –
1) Investing and operating philosophy win/win – or ? We came across a situation where the founders had diluted as much as 35% for a 1 cr INR round. Regardless of the angels’ intent, such a starting cap table construct can be almost near-fatal. Good angel investors will plan ahead, always ensuring the founders retain a majority stake in the early successive rounds. Both the angel and entrepreneur have to feel the transaction was fair. If angels demand more than their fair share, be wary
2) Ask how the angels will help you (and not vice versa) – we’ve seen the most sought after areas of help are fund raising (its always painful, arduous, and constant!), customer and partner intros, and hiring. The best angels (and this is reflected in Blume’s philosophy too) are open to starting helping even before a term sheet finds its way to the table. Remember, we (as angels/investors) are here to help you create and capture exponential value in your company.
3) Don’t confuse advice with money – this shouldn’t be underestimated. We had a case where a 2 cr angel investor while well intentioned drove home his feedback for a different go to market strategy and recommended ad hoc team additions, without any real domain expertise, or entrepreneurial / operations experience. On the other hand, a small angel contributing 10 lakhs INR may add tremendous value.
4) Visualize their interactions with your future investors / stakeholders – any kind of investing is a long term game. Again, please don’t underestimate and necessarily trust that all angels will act in the interest of your startup (though most will). A large VC I recently met with mentioned before they buy into an equity round, they ask all existing angels to sign a Power of Attorney (PoA) to represent the group as a whole. Good transactions have sometimes been blocked. Your early angels (assuming deal terms are fair, broadly speaking) should able to “play game” with your future investors
5) Dumb capital is sometimes – absolutely fine ! – this has been a revelation somewhat. The value of smart money is well understood, but often ALL you want – is just capital, as the blueprint for growth is well mapped out. Silent capital can provide the needed push without interfering with advice and suggestions.
There are angels in our midst, indeed.
Spend time, figure them out, and ensure you partner with the ‘best-fit’ ones.