09Nov / 2016
Over the last two years, startup activity and Angel investor activity in Tier 2 and Tier 3 cities such as Kanpur, Jaipur, Chandigarh and Pune have significantly grown. We’ve seen local angel networks sprout with angels actively looking for investment opportunities. In fact, about 13% of the investors on our platform are from tier-2 and tier-3 cities. Visiting Kanpur, as part of the LetsIgnite Roadshow, gave us a chance to interact with local angels and get first-hand insights of Kanpur’s angel ecosystem.
Kanpur Angel Network
For our angel workshop in the evening, we were a little nervous. Nervous; not because we weren’t prepared for an in-depth introduction to Angel investing fundamentals, evaluating startups, investment criteria, exit possibilities, term sheets and, returns expectations.
Nervous because, there was a big question that popped up first, “Why should I be an angel investor?”
Common question? Sure. Correct question? Maybe not. Angel investing is the highest risk asset class and to present this in a pragmatic way, without taking away the excitement is challenging. Angel investment as we know, is not similar to trading or private equity. It’s a more involved approach to being part of a growing business and, requires a stronger commitment. It is not about choosing winners - it is about identifying and building winners.
Earlier that day, when I chatted with Manoj Agarwal, founder of the Kanpur Angel Network, he mentioned, “High net worth individuals of Kanpur are missing out on Angel Investment opportunities and our biggest hurdle is communicating the value addition of Angel Investing to them. Typically the understanding of what angel investing is all about is difficult to explain because it’s not a typical brick and mortar business plan with a 5 year projected balance sheet. It doesn’t give you figures traditional businessmen are more comfortable with.”
To us, there was an elephant in the room and it had to be addressed. So, the very bold Vivek Khare, started by answering that very question. “I’m going to start by disagreeing with what the banner says. Angel investing is not an alternative asset class”. So in a room with a net worth of more than 12,000 crores, we embarked on a task of repositioning the perception of angel investing.
Here are some key takeaways from the workshop:
Angel Investing is not an asset class.
Angel investing, as echoed by many veterans, is an involved business activity. It's bigger than money and allows the angel to play the role of mentor, promoter and investor all at once.That’s work, so I asked Manoj, “Why start an angel network?” Without pause, like he had already wrestled with this, he explained that the Kanpur Angels was founded because Kanpur was missing out on startup action, the chance to invest in tomorrow’s technology and importantly, to engage with the local startup ecosystem.
Being a passive angel investor is a bad idea.
In theory, you could place your bets on 20 startups and make a killing with one successful bet. But in practice, the equation changes. It’s not a betting game, it's an active job and usually requires more than a capital investment. By being a passive seed investor, most investors feel that they can spread risk and expand portfolios but that might be a myth. What is not a myth is passive investors are not engaged enough in the business to add value, and this works against the title of being an angel.
Understand the game.
Data suggests that more than 50% of angel investors in India are new investors. A common hurdle in Tier 2 cities like Kanpur is that new investors are wary of angel investing and are not sure how to approach it or if it’s worth approaching at all. Many of the Kanpur angels come from a manufacturing background and a common question is, “How do you evaluate a potential investment?”. As a new investor, it’s important to have a strategy. A great way to build one is to recognise investors that are already active in the field and learn from them.
The evening came to a successful close with dinner and active discussion. When I asked Manoj about what he is hopeful for in the near future, he said “Within the network, our goal is to encourage more investors to participate and focus on startup hubs close to home like IIT. By holding events like tonight’s, we increase awareness about Angel Investing and once more angels come on board it will be interesting.” Earlier that day, Tie-Up Kanpur announced that it would include a mentoring program at the IIT incubator SIDBI as a means to increase engagement between Kanpur Angels and Local startups.
Special thanks to Manoj Agarwal, Vijay Parikh, Gopal H Sutwala, Sandeep Saraogi, Vipul Jain, Vinay Seth, R K Agarwal and other members of Kanpur Angel Network for their input.