1. No one makes a living off angel investing. Only invest money you are willing to lose.
2. Don’t do it for the money. Most angel portfolios won’t beat returns on Indian small-caps and mid-caps. Plus you’ll save a mighty load of your time. So learn to play the guitar if you are bored.
3. If you still persist, choose a style or a combination from here:
- Spray and Pray: Put in Rs 5-25 lakh—do tens of deals. Eight angels in a start-up means you are hardly going to have a say, or the inclination to spend time. But sure you’ll meet interesting people, and be covered in business newspapers. Sometimes you’ll also be mentioned in the same breath as *trophy* investors.
- Consortium: A new structure that has cropped up lately—everyone can be an Angel now! One guy fronts 20-30 of you investors. It works. Downside? The front is usually too busy monitoring than mentoring. Oh, and you’ll miss out on the PR as well.
- The Real Deal: You’re ready to lose both your money and your time. If that is the case, what follows here is for you. The rest of you can go back to sipping your single-malts.
4. Never give money if you can't give time. It won't be satisfying.
5. You are in it for the ride. That is what matters. Plan to be seriously involved.
6. Trust me, it will build character. Now that all of us have a smartphone, we think we are geniuses that can help build mobile-first businesses. It’s humbling when you discover that most Indians don’t want to pay or transact with your angel-funded app.
7. Stop funding every kid that comes your way. You could be wasting his time. The youngster will probably spend two very vital years of his life on that idea. His time is more valuable than your money. Instead, help them decide whether to pursue the idea or not. If you miss the deal, don’t worry. There are many more start-ups yet to come, especially when the 35-year-olds enter this market. Bide your time.
8. At least 20 start-up teams are attacking every problem. If they aren’t yet, they will soon. Moral? You are placing your bets only on the founders’ talent and adaptability—and hope to God they make the right pivots.
9. You can be in it for the returns. But make sure the founders are not. Ask them if they want to be doing this for the next 10 years. It’s about what they’re willing to give up to make it happen. And if you look hard enough, you’ll see it in their eyes.
10. Check the founder dynamics. Are there too few founders or too many? Is there a clear leader? Have they settled their equations? Ask them uncomfortable questions. What they have given up individually is a big factor. This motley group will sooner or later need different maintenance salaries and deserve different levels of stakes. Have they had these tough conversations?
11. Don’t think of an exit. Don’t plan it. Don’t discuss it. Tell them to build a great business instead. The exit will follow. And don’t waste time negotiating rights—keep it simple. Trust the founders—if you don’t, it’s no fun anyway.
12. Whatever money you wish to invest, deploy it in half the investments you originally planned. Start-up costs in India are higher than anyplace else in the world. Infrastructure is expensive, hired talent expect dollar-denominated salaries while customers grudgingly pay in rupees. Commit enough to give the team a reasonable runway.
13. Always keep a sum handy to bridge. Even if your start-up is about to close a funding round, not losing momentum is important. Some venture capitalists (VCs) are smart to advance some money while some may be restricted from doing it. So have money on hand.
14. Prepare to be amazed. You will be shocked at how quickly these young founders learn. Soon they will be talking and you will be listening. At that point your role changes—you are the student now, with regular reminders on how slow you’ve become.
15. Be prepared to wait. You will want to jump and get out at series A or B funding stage and sometimes the smarter VCs will want you out. But if you can hold on, chances that you can make a higher return go up, since most VCs usually do more diligence on the space than you. And if they haven’t so far—rest assured, that changed two weeks ago!
16. Misalignments will happen. The next round investors will drive some of the misalignment—on rights, on size of the Employee Stock Ownership Plan (ESOP) pool, on secondary price etc. Founders will be torn—they will act only in the interest of the business and their stake holding and that’s only fair. You can get very sensitive, but don’t. In times like these, remember what I spoke of in Point #5. You’re in it for the ride.
17. Always, always back the founder. They are the ones who walked on the wild side. Remember you got into this to support the entrepreneur. So do that unflinchingly. Usually, by the time Series C and D kicks in, the equity founders hold gets diluted dramatically. Be prepared to support them, perhaps with some Management Stock Option Plans (MSOPs). Often founders need small issues sorted out. Some get married, have babies and need a higher sustenance pay. At others they simply can’t handle the board dynamics. Be there for them.
18. And sometimes it won't go well. The business will do badly or shut down. If it all comes to naught, don’t regret or hold it against the team. They took the biggest risks. They pinned their hopes and aspirations on an idea. You merely gave them the money. If the venture fails, they need even more moral support. Not less.
19. If things are going badly, help them take the painful decision to shut down fast. They’re probably better off trying their next trick. And no, they haven’t lost anything. They’ve gained experience and learnt. If they are honest, they’ll make it up to you. If they’re not, you’ll be a better judge the next time around.
20. Know that as time passes and the venture grows, most founders will drift away. Be happy about it. No one—no VC, no hedge fund, no one will recognize that you took the leap first—that you stepped in there and gave them the confidence. It doesn’t matter. You are probably the only person who has seen them struggle. Because of you they felt a little less lonely on their journey. You did a good thing. Be proud. Of them. Of yourself.