Entrepreneurship Industry News

Top Things Angel Investors Look for in Startups before Investing

Not all startups are Investment ready & Not all investment ready Startups get Investment.

Some entrepreneurs get angel investment in their first few tries while taking ages for others.

With that said, We want to share with you the things what an angel investor in India look for in startups. 

Because once you understand what an investor look in a startup before investing, you will surely put everything together and will not appear naive in front of them.

With this Post, you will learn about:

  1. Understanding angel investor.
  2. Angel Investment landscape in India.
  3. What an Indian Angel Investor look in startups before Investing. ( Leading Investors  shared their views)
  4. List of 100+ Angel Investors in India you can approach for investing.
  5. Questions entrepreneurs should ask before taking Investment.

Let’s first understand an Angel Investor? 

Angel Investor is an individual who invests his or her own money in small startup and entrepreneurs.

The term “angel” was first introduced in the Broadway Theater, for affluent individuals who gave money for theatrical productions. The phrase “angel investor” was coined in 1978 by the University of New Hampshire’s William Wetzel and founder of its Center for Venture Research.

Angel investors can be professionals such as doctors and lawyers; business associates such as executives, suppliers and customers; and even other entrepreneurs.

The major difference between angels and VC’s is that angels are not only motivated by profits but also motivated by the idea and the joys of seeing the entrepreneur succeed.

Angel Investors usually invest in a startup which is in its initial stage, the accept risk and demand no or little control in return for a share in the company.

Many angels are successful entrepreneurs who have cashed out and now want to help others just starting out. While their expertise may be welcome, you need to ask yourself—especially if you’re used to being in control—whether you want someone looking over your shoulder and making decisions for your company.

Before we move further, I am sharing some of the stats about angel investment in India. According to a research done by Innovencapital shows Investments made by angel groups in India from 2012 to 2018. 

Sector-wise Investment trends by angel groups.

Demographics of startup Funded

Founders Demographics

Founders Demographics

To get a better idea of things which matter to Angel Investors, we requested some of leading angel investors in India to share their views.

Here is what they shared with team Bizztor:

Dr. Ritesh Malik

Dr. Ritesh Malik, Creator of Innov8 and CEO of Guerilla Ventures says that Product, Team Cohesiveness and Frugal Attitude of the founding team decides whether he would invest in a startup or not.

According to him, angel investor should only be approached when you have the unit economics ready.

Never ever raise capital if your unit economics & MVP (Minimum viable product) aren’t ready. Ritesh has invested in over 26 companies that include RHLvision, Wigzo, AddoDoc, Mashinga, and Flipmotion, among others.

A message he would like to give to entrepreneurs, who wish to pitch their startup Idea to him. Is “Create a product with massive levels of differentiation & unique brag worthy propositions, product supremacy is critical for me. Be the best, be different or be the first in your industry.

Integrate technology with whatever you do, even if you sell food, technology can be a great value add for customer experience building.”

Dr. Aniruddha Malpani

Aniruddha Malpani, Director and Co-Founder of Malpani Ventures which has invested in startups like P.E.A.S, Allizhealth and Plus91online, says, “While we like to think that investment decisions are logical, the truth is that they are often based on emotional reasons.

Typically, we fall in love with the founders, and then find reasons to back them!

When we analyze a pitch, we break down the variables into 3 buckets: stuff we know; stuff we don’t know; stuff we are willing to take a bet on.

We do our best to find reasons to say No, and allow the founders to answer our objections. If they are responsible and responsive, and it fits our investment thesis, we will go ahead and sign the cheque after doing our due diligence.”

He further emphasized that the right time to approach angel investor is after you have paying customers. This proves that you are capable of running a business, and investors will find you far more attractive. Raising funds is quite competitive, and you are up against lots of other equally passionate, intelligent and hard-working entrepreneurs.

Avelo Roy

Avelo Roy, Managing Director of Kolkata Venture, says that Team, Scalability and Market Understanding are the top three things he looks into a startup before investing.

Avelo believes that before approaching an angel investor the startup should be in a position to negotiate with the investor with what they have already accomplished and validated.

The investor needs you as much as you need the investor. But being fully dependent on Investor to build your business opens you up for unfair valuation. It also means you didn’t put your skin in the game and that you don’t fully believe in your idea.

So first gain some traction and then reach out to investors to quickly gain market share. Your investor would feel a lot better knowing that their money is being used for customer acquisition rather than experimentation.

The best way to pitch your idea to him is to make it crystal clear how you will grow his money and give him an exit substantiated by data. Show him what you have achieved so far with your skin in the game and how his help (financial, network, brand and marketing skills) will help you grow at jet speed.

Currently, Avelo Roy runs the largest startup incubator in East India (Kolkata Ventures) with 350+ startups. Out of which 273 are generating revenue. He has been listed as 40 Must-Follow People In Indian Startup Ecosystem by Bizztor

Abhijeet Kumar

Abhijeet Kumar, Co-Founder of Ah! Ventures believe that Team, Business Model and Traction are the three major points which determine the future of a startup.

Abhijeet is also the co-founder of Pronto Infotech (A technology company with about 50 employees and offices in Mumbai, Delhi and UK).

He says that Money should be ideally only raised for expansion and not for supporting current operations cost. The right time to approach and angel investor is when you need money to expand.

He would like to invest in a company, where he is confident of seeing the same founders 3 years down the line and focus of the company is on robust product development with strong processes and customer service in long run.

Anil Chhikara

Anil Chhikara, Chairman of Startup India Foundation asks himself the following three questions before investing in any startup;

  1. Will customers pay for the product or service? How inconvenient will it be for customers if it’s no longer available once they have started using the service or product?
  2. Why are the founders best suited to exploit the opportunity?
  3. How defensible is the startup biz from new players that may come in? Is there anything else except money that makes it defensible?

According to him the right time to raise angel investment is when the idea has been properly researched and validated and there is proof that money can be made from it profitably.

First mover advantage is overrated. If anyone can start the same biz that you have if they have the money then you will end up creating the demand and others will benefit from it.

Anil Chhikara was also anchor judge for Haywards 5000 Haunslay ki Udaan, India’s First Startup Reality TV Show and the official startup coach for The Vault Show, Where he judged over 600 startups.

A message he would like to give to entrepreneurs, who wish to pitch their startup Idea to him. Is “First mover advantage is overrated. If anyone can start the same biz that you have if they have the money then you will end up creating the demand and others will benefit from it.

Hope you have a better idea now about what you must complete before approaching an Angel Investor.

3 T’s Of A Successful Startup

  1. Traction- You could have the most innovative idea for a startup in the world. You could even have the best team .But, if you don’t have traction, you’re not going anywhere. Traction means having a measurable set of customers or users that serves to prove to a potential investor that your startup is worth investing in. The most difficult part is actually gaining that traction and knowing when you have enough to approach potential investors.
  2. Team- The next important part of building a startup is the team. It doesn’t matter how great your idea is if your team cannot perform. From the initiation of the idea and its conversion into a commercial product, a team is what pulls it through. An inefficient team can make you disappear from the ecosystem in no time.
  3. Target Market Size– An investor would obviously be interested in future of the product or idea in terms of profit and revenue generation. The revenue generation is largely dependent on the size of the target market. If the idea is appealing to a large number of populations and is a solution to masses then the investor would be more interested in investing.

Can the investor afford to lose the money if the startup goes under? An entrepreneur should affirm that their reputation won’t be in jeopardy if the startup fails.

Few Questions you should ask before taking the investment from the Angel Investors.

  1. How available is the investor to offer advice? How much time will they commit?
  2. How much capital are they willing to put in now? How much do they keep in reserve?
  3. Beyond the funding, where’s the value ad? How entrepreneur-friendly are they? Will they be supportive and offer advice along the way?
  4. How easy will the process be for the investor to cut the cheque? (According to Paul Graham, Y Combinator’s founder, will often advise startups to go with whoever will write a cheque with the least hassle.)
  5. Which of their investments has failed? Will these entrepreneurs be willing to provide a reference?

Getting funding from angel investors isn’t easy, but it can be done if you take the right approach and are a good match with their interests.

And the benefits can beyond the money for your business, but their expertise in both business operations and your industry niche.

Read More: Bizztor