Bengaluru: Start-up funding may be slowing, but this is the right time to make angel investments, since companies being built now will mature when the market becomes favourable again, seasoned investors at a conference for angel investors said.
“When we used to do workshops, we would start the workshop saying, at the end of it, 50% of the people would not want to be angel investors, which is okay. So, the idea is not to grow the numbers, the idea is to get those who get angel investment to enable them to become investors and to make people understand that this is a high risk asset,” said Shanti Mohan, co-founder of LetsVenture, an online platform for start-ups and angel investors that organized the LetsIgnite conference.
India has about 4,000 start-ups, the third largest concentration of start-ups in the world, according to software industry body Nasscom. Many people who want to get a piece of this pie start with angel investments—small amounts for companies beginning to build their businesses. This capital is crucial for start-ups, but what’s also crucial is for the first-time investors to understand that angel investment is about more than putting in some money in a company.
According to Sharad Sharma, a well-known angel investor and Shekhar Kirani, partner at Accel Partners, who jointly conducted a workshop for angel investors at the event, if there is momentum in a specific sector, and if it is being billed as “hot”, then it is too late to invest in it.
“You have to be at least 18 months ahead of the market and think about what’s going to happen at that point,” said Kirani, who was an angel investor in Filpkart Ltd, before his venture capital firm itself invested in the company.
Angel investors should ideally help start-ups by leveraging their own domain expertise, guide them in customer acquisition and become quasi-entrepreneurs themselves and assist in scaling the business.
Both Sharma and Kirani advised first-time investors to start off as passive angel investors and learn from other experienced investors, then become co-leads on a couple of deals and only then become lead angel investors on a deal.
“It is very tempting to fast-forward this, because in India, there is an acute gap in the amount of capital that entrepreneurs want and in the amount of capital that is available, but self-knowledge for an investor is important to realise that it takes time to become an expert angel investor from a novice investor,” said Sharma, who is an angel investor in companies like Druva, Ezetap and Frrole, among others.
Sanat Rao, partner, IDG Ventures, said angel investment will continue despite the overall slowdown.
“While there may be an overall slowdown in the quantum of angel investment if the market itself slows down, angel investment will continue because people who did well at well-funded companies, founders and those below them, are investing themselves now, and all these guys get the best deal flow as entrepreneurs know each other. This is here to stay. It is not going to disappear tomorrow,” said Rao, who made seven angel investments before he became a venture capitalist.