I’ve just finished reading the Post More reasons to Go All Angel at GigaOm. It generally talks about “Why taking only the smaller investments from Angels for startups makes sense over VCs”. The views are shared by a serial Entrepreneur and an Angel Investor Ron Conway. The three points that he shares objectively are:
- Angels are not acting as a fiduciary to other investors.
- Angels are often Vertical Specialists.
- They’re only One-degree away from people in their professsional network.
All the points make lot of sense. Especially the second one (Vertical Specialist) caught my attention very strongly. I’ll be honest in saying that I myself have forgotten this in the past and seen at least many of the few Entrepreneurs in my own network, who haven’t valued the investor as a Vertical Specialist more than one with the capacity to sign the hundreds of thousands of dollar cheque. One of the fundamental arguments that these entrepreneurs (including me) have echoed in response are:
“All we need is monetary support and we’ll pull it off. Not to worry, we’ve enough potential ourselves”
Angel Investor Needed
As the experience grows, more are the chances that you’ll mellow down on the above statement.
But what could it actually mean to find a vertical specialist in Indian Scenario?
May be people in US are little better off to have so many success stories that have resulted in numerous vertical specialists they have around. Come to India, you’ll find yourself struggling to find success stories in the first place.
Looking at the fact that pulling off an IT product business hasn’t been easy, we haven’t had very many product successes in the past (owing to whatever reasons that we all know). And seldom have any product been a result of good research work. Would it be wrong to say that:
Most successful Entrepreneurs in India are not Vertical Experts.
We all know that India has seen Services millionaires in the recent past. Not to undermine their potential, however, I have mostly observed that
- They value direct monetization streams and struggle to even understand the indirect ones.
- Understanding Product Life cycle is a little different game for them.
- They are also little averse to the Volume game.
I may be wrong and there may be many against this generic statement. But do you think they are in majority? Not that we do not at all have successful product entrepreneurs around but they definitely are very few in number. Owing to this lacking support, a few interesting patterns that need to be observed are:
- These few successful entrepreneurs like Sanjeev Bhikchandani, Raman Roy etc. have now become the poster boys for the Indian Entrepreneurial industry. You can observe them almost omni-present, whether it be the Entrepreneurial platforms like TiE, Nasscom etc. or may be the discussions amongst the Entrepreneurs themsleves etc.
And as they say, “What you see is what you believe”. Most Entrepreneurs either think that they are the only guys in the industry around or having one of these names is all it takes to head towards a marvellous success.
V
ery recently I also met up a representative of a highly renowned Non-Profit Organization, present worldwide. They are aggressively trying to occupy a strong foothold on the Indian landscape and be the part of Indian startup ecosystem. This lady told me that she is talking to some of the industry leaders to be one among the Panel Experts. Believe it or not, the names she echoed were yet again the same. It keeps me wondering if they are really the masters of every domain? Aren’t there really any other experts around? - These Poster Investors are often the Angel Aggregators as well. Many not-so-known angel investors rather than trying to understand the space by themselves or trying to involve themselves with the startups of their interest, depend on these poster Angels for suggestions and advice or may be for complete analysis.
It is becoming extremely questionable whether the term “Angel” fits Indian Scenario in true sense?
It will be very interesting to learn about more of the Angel Investors, who invest in startups for sheer passion and may be the following reasons:
- Immense interest in a particular domain.
- Vertical Expertise.
- Who enjoys being an angel.
- One who has the appetite to take risks like he/she had while attempting their first startup.
- Who is driven by the intuitions and the gut feeling.
- Believe in the Idea, passion of the team.
- Who believes that monetization can always be built if we can deliver a supreme experience.
While most of the Angels may satisfy both the other two conditions that Conway shares, Expertise in a vertical is a clear gap. Talk about risk, you may not find even a single one as risky as Angels should by definition be.
I hope many of us have different perspectives and experiences on the same. It would be very good to learn more about them and in return build a better perspective on the subject.
The only ones real risky with their capital are the FFF(Friends,Fools,Family)
If an entrepreneur feels “All we need is monetary support and we’ll pull it off. Not to worry, we’ve enough potential ourselves” then I think it is cheaper for him/her to raise debt than look for an angel or vc.
I feel that is important for an entrepreneur to develop a vertical focussed network and since the ecosystem in India is still evolving most vertical focussed angels might not be proclaimed or advertised angels perhaps you can turn one ,with capital or access to capital, into an angel.
Perhaps exits of niche firms may drive up the vertical specialist angels available, with entrepreneur re-entering the ecosystem with capital and lesser involvement than another own venture.
Hi! Piyush
Interesting insights on Angel Investors in India vs US.
As Deva mentioned, vertical expertise will be built as ecosystem itself evolves over time or there is some reverse brain drain.
But coming to Risk..We can also argue that Angles don’t find enough good ideas or entrepreneurs to take the risk.
-Mahesh
Celebrating Life…
Hi Mahesh,
Most of the ideas that got funded have not had any rocket science in them. Just that good teams have shown great execution. Generally all the ideas are great, it again boils down to the vertical experts, who can look through how to execute them really.
Entrepreneur doesn’t become an Entrepreneur without the risk. Do you say there’s a lack of them?
Oops! there is ambiguity in my statement above. Lemme rephrase it: We can also argue that Angels are not finding good[*] entrepreneurs or ideas.
A Market is efficient when both Demand and Supply characteristics match. If we are making an argument against Supply, we should also pay attention to the Demand.
-Mahesh
Celebrating Life…
[*] Good as defined by the Angel investor
I believe, one should look for a mentor in an angel investor (other than F&F). Most entrepreneur lack knowledge and skills when it comes to financial, investment and marketing side of business. A specialist, been there done that, Angel always helps and improves your chances of success, as he brings in real insights into the business and can help you with practical solutions to execution and strategy problems.
In the Indian Angel scenario, I am sure exceptions are there. I had the privileged of meeting one such angel (in the true sense), who was ready to bet on us, when we were just at a prototype stage a year back. I have met many corporate leaders but no one impressed me as much as him. Unfortunately, due to some issues (on our side) we didn’t do the deal. Till date I am following some of the tips he gave me a year back and I will always be thankful to him for that.
You are definitely one of the lucky ones Sumeet.
i tend to agree with most content of this post.
the whole angel/other investor ecosystem depends on a select few to make their moves. Most in the ecosystem would say – if He does it, i will tag along. and He is as confused as ever, since He is putting His hands in 1000 other things, so the tag along investor is happy to swig easy at his drink, till He, or They move. Very rare instances of Vertical expertise – not because none exist, but most are happy to jump into generalist stuff sidelining the niche they used to be a part of. most dont have the risk appetite of a true angel investor, and the He who should have the appetite and grow others’ is confused where and what to munch?
in general, to save startups time, money and effort, these false angels should stop using Angel in their credentials.
@Deva – Agree to you.
@Mahesh – An Entrepreneur doesn’t become an entrepreneur without a risk, so by definition, I’m sure there’s no dearth of Entrepreneurs around.
Whether an idea is great or not is again very much the function of one’s vertical expertise, team executing it and the market opportunity. Given these conditions, we’re again in no dearth of good ideas.
@Sumeet – You’re perhaps one of the few lucky ones.
@Mahesh
You echo similar to what is mentioned in the post.
Idea(s) are generally good and bad relative to one’s understanding and capability to understand Ideas and that is what is termed as Vertical Expertise.
Hence, if Angels reject an idea terming it non-worth, there vertical expertise is something need to be looked with open eyes.
Good Idea = F(Vertical Expertise)