We (my wife and I) have reviewed 57 start-up ideas by budding Indian entrepreneurs over the last six months who are looking for angel investment. While 35 per cent of them (the highest number) were related to education, 24 per cent were in services (marketing, IT, security) and 17 per cent were e-commerce ventures specific to India. The source of our deals was VCCircle events (11), NASSCOM regional meetings (9), Morpheus demo day (7) and the rest happened to be introductions from friends and other entrepreneurs. We ended up with five term sheets and two investments. The reason we invested in only two was a combination of our interests (we don't like services companies, have little knowledge about the education vertical and so on) and valuation concerns.
Before that we were LP's in Zodiac Ventures (USA) and another venture fund, which is now defunct.
However, here are some overall patterns and some pointers to entrepreneurs on how to obtain angel investment in India. These do not apply to all angel investors, though, but we think that these criteria are important.
Show The Short-Term Roadmap
We prefer to review 30/60/90-day business plans rather than five-year projections. Show us exactly how you are going to use the money to reach the milestone you have promised (whether it is shipping product, paying customer or hiring team).
Clarify Your USP
Think about what makes your business unique. Indian entrepreneurs spend very little time trying to be different. The theory I have heard multiple times is: The market is very large and I just have to fulfil the demand.
That you have a unique website name is not good enough differentiation. We reviewed four e-commerce companies that all showed the same 100 transactions per day at the end of the year, 1,300 per day at the end of the third year and over 10,000 at the end of the fifth year. They were all different e-commerce companies one is in the mom-baby space, another is in apparel and the third in in travel (hotels).
Will Angel Investors Help?
Ask if the angel investor would help syndicate your deal. Most companies we looked at were looking to raise between Rs 20 and Rs 40 lakh. We have no problem writing a quick (1-2 week) Rs 20 lakh cheque, but at Rs 40 lakh, the due diligence and legal processes become more arduous.
Get To Know Your Investors
It is mandatory before you take money from them. Much as you would like to get funded quickly, focus on execution and grow your business, it is important to get the right investors on board. Four companies that I know have suffered slow, painful growth because they have investors who were more interested in capital preservation and removing risk, rather than gunning for growth. I would recommend at least 3-4 meetings (most of these should last about 45 minutes) with your investors before you close the round.
This is more important in India than anywhere else, since investors tend to have multiple options for their money and most of these opportunities promise lucrative returns. But in case your investor has unrealistic return expectations, move on.
Follow up with personalised e-mail
We had three promising start-ups that we did not hear back from within the first week of meeting them. We did hear from them much later, but by that time, we had forgotten about them altogether. Sending a cut-and-paste generic e-mail cannot help one unless the communication is prompt and personalised.
Even if your e-mail follow-up boils down to 4-5 sentences with specific mention of the conversation with the investors, it is more valuable than a generic 4-5 paragraph message.