In the third article in his series on entrepreneurship, Ajai Chowdhry, Founder, HCL, says Angel Investors are an oft-misunderstood phenomenon in India but contribute immensely to the startup ecosystem.
By Ajai Chowdhry
THE NOMENCLATURE ITSELF SUGGESTS that these investors are entirely selfless entities, hovering around zealous young thinkers—eager to provide financial assistance to help a fledgling company grow. Yet, as Basil Peters, a respected ‘exit coach’ and angel investor aptly said, “Angels also often want to contribute more than money to a young company. Angels have the experience and inclination to be great mentors and valuable directors.”
ROI, THE GOAL
Angels, at the end of the day, are businessmen and are looking to gain the maximum Return On Investment (ROI) from the young entrepreneurs they take under their wing. Predictably, angels prefer to invest in industries they have experience in; most angel investors from Indian Angel Network (IAN) come from a technology background.
Other trends in India for investing are based on sectors that have more growth potential like internet, education and the consumer sector.
Angel investors in India typically invest around Rs 1.5 crore to Rs 2.5 crore and do so in groups of 25-30 businessmen. They assume positions on the board of the company and proceed to provide mentorship to aid in the success of the entrepreneurial venture. They tend to invest in the nascent stages of a company’s growth and so the valuation of the company is often based on the perceived value of the idea on the table and of the quality of the team.
There is clearly much that young intellects can gain from angel investors. Yet, an important question to ask is, What are the angels looking for? What are the criteria they bring to the table when they choose what companies to invest in?
Being an active part of the IAN, I am in a uniquely suitable place to answer these questions.
- There are two main criteria I look for when I assess a young company—the quality of the founding team and the novelty of the idea. An idea is the beginning of every journey.
- As an angel investor, I want to judge the freshness of the idea placed in front of me. The crispness of the concept, the uniqueness compared to other concepts in the same field, the price competitiveness, the scalability and the ability to create a new niche industry are all things I observe closely.
- People make or break an organization. No matter how fantastic an idea is, it can only be brought to fruition by a passionate team that knows what it is doing.
- When I assess a potential investment, I look closely at the team behind the company. I want to see a hunger for success, a strong technical foundation and strong business acumen. I also want to see what each member of the team brings to the table and whether their skill-set complements the rest of the group.
- Lastly, it is crucial for me to feel that the team is ‘mentorable’, i.e. they are willing to take advice and feedback and implement it effectively in their plan.
The ability of the team in question to make a good, clear and believable pitch is a crucial skill for entrepreneurs. In most cases, you only get one shot, so the ability to communicate clearly and professionally is the key.
In my experience, the best pitches are the ones that consist of the idea, the market potential, the competition, the go-to-market strategy, team composition, a financial plan including, very importantly, the cash flow and what the money is needed for. Also of great importance is a well- defined exit strategy, as angels look for an exit in three to four years post-investment, which could be through a sale to a bigger company or to VCs.
As India forges ahead, entrepreneurs will become an increasingly crucial component in the story of our growth.
Angel investors are an exciting and dependable way to ensure the greatest amount of success for the highest number of these young, new business thinkers.
Ajai Chowdhry, is Founder of the $6 Billion IT conglomerate HCL. As founder of one of India’s first true-blue start-ups, he has written the book on entrepreneurship in India. Ajai is Chairman of the Board of Governors at Indian Institute of Technology (IIT) Patna & Chairman of Confederation of Indian Industries’ (CII) National Committee on Technology. In 2011, the Government of India awarded Ajai Chowdhry with the Padma Bhushan, the third-highest civilian award, recognizing his consistent contribution to the Indian IT industry.
The article first appeared in Entrepreneur magazine and has been republished with the consent of Mr. Ajai Chowdhry