Partnering Angel

Partnering Angel

My observation is that the entrepreneurial ecosystem in India is very new and quite a few entrepreneurs need more than mentoring and money.

I invested in Madhouse primarily because I have had the good fortune to benefit from being involved in building online payment site, PayPal and I wanted other entrepreneurs to succeed. I was willing to take calculated risks that may fail. I liked Sameer Guglani from Madhouse as a person for he demonstrated integrity, passion and the ability to execute.

He had also managed to get a good team around him and a lead investor for the round. He was raising money at a reasonable valuation so that the probability of getting a high return was there.

 His approach to DVD rental allowed customers to choose from a variety of platforms such as messaging, Internet or phone calls to order as he wanted to delight customers. I felt that to get critical mass in India an onlineonly play would not work and he was not trying to go all India but limiting himself to Chandigarh and the National Capital Region.

If he managed to get a traction, there were a few venture capital firms willing to provide him the next round of funding. What concerned me was piracy and whether customers would want new films only. Angel investing is in most cases an emotional and not a fully rational decision where you balance greed with fear and see whether the entrepreneur and the domain excite you.

Here are a few tips to entrepreneurs approaching angels: Do you need angels: If you can build enough value to justify around Rs 18 crore pre-money (investments from friends and family) valuation then you should go direct to venture capitalists (VCs) and raise around Rs 9 crore. When to approach angels: You should have a small team, incorporated a company, have detailed domain knowledge and got something built before you approach angels. Use your own, friends or family money to do this. The lead entrepreneur must be a full time, hands-on persons and not someone working elsewhere also.

How much money and what valuation: Raise the least amount of money you need to get VC funded in the next round. In most cases you should not need more than Rs 1 crore. Do not obsess on valuation. It is very unlikely that you will get angel money if your pre-money valuation is more than Rs 2-4 crore.

Which angels: You need to choose angels who can add value beyond just providing money. Their networks and domain knowledge are important.

Do your homework: It is amazing how many entrepreneurs do not use the web to read up on their domain and on approaching investors. Making a good first impression is important. Build a roadmap for your firm: This is normally done in an executive summary and lets investors know how realistic you are and what you aspire to build. It’s the entrepreneur and not the idea that separates the grain from the chaff. Most seasoned investors invest in the entrepreneur and not the idea.

My observation is that the entrepreneurial ecosystem in India is very new and quite a few entrepreneurs need more than mentoring and money. They need experienced people who are willing to roll up their sleeves and become part of their start-up.

(Bhargava, a member of BOA, is an angel investor in Madhouse Media)