In the early stage space, an angel is not just someone who puts in the initial cheque but also someone who spots the earliest of trends and becomes an early believer in a particular company. As the company grows, the role of an Angel diminishes and eventually lesser angels sit on the cap table.
How is it that someone who helped the company grow from the very initial days become less important as the company grows and what role do VCs play here?
To get a perspective here, Shanti Mohan, CEO of LetsVenture had a discussion with Shailesh Lakhani, who is a principal at Sequoia Capital and has been involved in the early stage ecosystem with Sequoia for last 11 years.
We tried to understand from a VC how he feels the role of an Angel Investor is important in the time when we see more and more early-stage rounds being led by micro funds.
He shares that the role of startups in the economy has changed and there is more requirement and demand for early-stage funding and people try to organize themselves by forming small funds. But Angel Investors can still add a lot of value, particularly when they come with sector expertise and have seen their own companies grow. And when someone like that puts in their own money, it shows that the person is really believing in this idea.
There needs to be a balance when an exit takes place. Some of the Angels want to stay on and some prefer getting out. Shailesh feels that the bottom line is that we should respect and be thankful to those who make money for you. It could be an Angel Investor who has made money and now has give a part or even all of his/her holdings to enable the next round to happen. If an Angel Investor is thinking in the best interest of the company, things usually work out.
On how the role of an angel diminishes, Shailesh mentions that with a formal board, advisors, many customers and employees, it’s always best for the cap table to reflect the people who are actually contributing to the company today.
Angels spot the earliest of the trends and VCs often see it a little bit later. It’s the best if an angel who has a particularly nuanced view of an industry can spot these early trends and invest in them. If they spot an amazing team which they believe will figure it out eventually, it could be a good bet for them.
This conversation took place at LetsIgnite Angel Summit organized by LetsVenture in Bangalore on 7th July. Shailesh Lakhani was a speaker at the conference along with other prominent speakers like Binny Bansal, Subrata Mitra, Amit Gupta, Dev Khare and Anand Lunia.