How to get Angel funding for a startup
Saturday, 01 December 2007 00:00
It is unlikely that not too many have heard of Angel investing. For starters, the monies involved are nowhere near as large as in VC or PE investing. Nor are the companies themselves large. And most Angels are individual entrepreneurs themselves who have made it good. Some are senior executives in large organizations. For an entrepreneur starting a business, an Angel is the second port of call, after you have used up your own and family funds (what they call friends, family and fools funding) and before you approach a VC. Typically, Angel investments are in the region of one to two million dollars and an Angel offers much more than funds – they offer you expertise and access to their networks and are also more involved in your day to day operations than VCs and PE funds. Projects that are refused by VCs as being too small for their portfolio would be better off getting Angel funding and reaching the right size to approach a VC. There are also cases of more than one Angel investor getting together to invest in a company. The Indian Angel Network is perhaps the first organization of Angels in the country. We spoke to Padmaja Ruparel, Vice President of the network to understand how Angel investing works.
Could you give us a brief idea about the Indian Angel Network; what it does? Indian Angel Network is the first and largest Angel network in India. IAN brings together successful entrepreneurs and CEOs who would like to invest in early stage companies and create disproportionate value for all the stakeholders. The members make financial investments, but also provide strategic thinking and leverage their networks for the investee companies.
What are the network’s activities? Our activities revolve around investing. We source and vet deals and prepare them for presentation to the angels. The entrepreneur gets value from each interaction with the Network be it the Secretariat or members. The vetting of propositions and reviewing the business model and strategy is done by the investor members themselves. This is invaluable as members, who are domain leaders, provide direct feedback and suggestions to entrepreneurs during the vetting process. IAN then hand holds entrepreneurs right through the investment process as well as any other help that the entrepreneur may want, post investment. How does one become an Angel? Is it just by giving money to some entrepreneur? The members of the Network have had prior entrepreneurial and/or strong operational experience that they wish to bring to early stage businesses. They share a passion to enable more early stage businesses to create scale and value. The Network believes that early stage businesses require more than just money to succeed. They require close mentoring and inputs on strategy as well as execution. The success rate of early stage businesses can significantly be enhanced if such guidance is available on a constant basis. Hence the network members collectively commit not just money, but also their time and expertise to investee companies. New members are proposed by existing members and membership is by invitation. How does an entrepreneur identify an Angel to approach? What would the Angel need to know before investing? An entrepreneur can approach the Indian Angel Network which connects him to this leading group of Angels. IAN members would need to know have a complete understanding of the business proposition, the potential and scalability of the product and service, the entrepreneurial team, the market targeting, client acquisition and retention strategies, delivery model, risks and how they would get mitigated and the overall business model. What returns are typically expected from Angel investment? Angels expect far higher returns than other investment options that are available in the market. As this is high risk - high gain investment for the Angels, they will expect a return which is much higher than other investment instruments (like real estate, mutual funds, public equity, etc) What is the normal investment period? What are the exit options? Usually Angels remain invested for about 3 to 5 years. Angel invested companies usually go in for a second round of funding or get merged with larger companies, which is when angels exit.