I just finished reading “The Dhandho Investor” by Mohnish Pabrai ( the man behind Dakshana). I enjoyed it and it stimulated some new thinking.
I also looked at my investing in India over the last two years. On a portfolio with 85% exposure to equities I managed a 45% CAGR(cumulative annual growth rate). I guess that may be just about okay. ( this is all in just a few boring stocks)
Will my angel investing give me anywhere close to that. I doubt it. This is what makes angel/seed investing tough in India. I hope to by investing both time and money improve my odds. I have abandoned the “spray and pray” approach where you put small amounts if you like the idea or team and trust the entrepreneur. This approach also relies on if xyz and pqr are also investing then I feel good about investing.
An excerpt from a quote from Kahlil Gibran ( full quote in book)… “You give little when you give of your possessions. It is when you give of yourself you truly give”
The full quote is more about giving selflessly to the needy ( I am atleast ten years away from that phase if I ever get there) but the first few lines lead me to think more of a heavy involvement model and not a “spray and pray” model.
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I think the stellar performance of your market portfolio is due to this “secular bull run” that gets quoted often….. am not sure the market will be able to deliver those kind of returns unless you become the enterprising investor like Graham says and spend a lot of time managing your protfolio. I still think you will be able to manage this kind of returns on your angel portfolio in the longer run….In the last three years most people i know, seem to have made about 30% CAGR even if they were into only mutual funds…..I would really like to see these guys clock this over a 10 year period…..
I think i agree with deepak shenoy when he says about the short term nature of the stock market returns….The problem in India that you will face is that the team will never be able to ramp up without someone from the outside pulling them to see the bigger picture….. this where i think a person like you can add value….
I agree with Sanjay that Angel investing based on who else is doing so is not the wisest way to invest. At the Angel stage there are several reasons to rule out a potential investment but its a lot harder to rule one in.
In my view the key and perhaps the key (if not only) reason to decide on angel investing in a company is the entrepreneur. (Often there is not much else you can go with in any case).
Entrepreneur’s themselves are driven differently, some by a quest for wealth, others by a desire to control their work and lifestyle and some are driven by a dream that want to realize. Each will have different benchmark for success and a different time horizon (in general it increases as you go down the list).
If one sets about joining these men and women in their journey’s its important to know your own expectations and tune in with the the type you resonate the most.
Another key aspect is to know what value you bring to the venture, if your only value is money you would be best advised to stick to other investment avenues (in everyone’s interest!). While there mayy be functional and domain values you bring owing to your past work, there is one inherent value most financially successful people (if you are Angel investing I would assume you belong to this breed) have.
As an entrepreneur I know the passion and love that blinds one to the fact that the RoCE is just not happening and then like an addict one extends the time frame by yet another quarter/year. And perhaps the best value an Angel investor can bring to the venture is to facilitate that the venture and its key leaders develop the discipline to respect measurable value creation in agreed time-lines (in the first place perhaps temper typical start-up exuberance in setting unrealistic expectations)
Finally, its the ability to walk the fine balance between being a disinvolved investor (Financial Investor as they are often called) and becoming the entrepreneur yourself.
Whether you invest and how much you spread yourself is really a factor of what kind of entrepreneurs you pick and the value you bring to the table, rather than a simple do or don’t rule.
Why do we keep comparing investment at seed-level in companies with other investments? Numbers matter in the sense that the entrepreneurs, the angels and the investors must agree that profit and ROI are important; but surely they are not everything…
Somebody might feel more at peace if he gets 30% CAGR from his own company than a larger share from the stock market. The peace would come from having created something bigger than himself, valued by society, creating employment and most importantly, doing **what one likes**…
This dilemma results often when you feel stuck between the optimal return expectations and the urge to cut loose from the stranglehold of the *Safety* step in the Maslow need hierarchy. You naturally want to ramp it up – from Safety to Esteem to Self Actualization, the reason why you start looking around. You are no longer content in just being a provider to your family (or just a passive investor in a company that is managed by mediocres ; “I know I can’t take them on like Carl Icahn does to Ed Zander of Motorola, but I can surely try competing through a nimble startup”, your words). You want to take control of things, to let people know you from Adam. You begin sensing the unmistakable signals your ego emits, that forms your core and wouldn’t leave you alone. Eventually you give in. Cognitive needs get masked as higher risk appetite and take precedence over return expectations – and an angel evolves.
At the top, you don’t conform.
Deepak,
You are right that the lines between entrepreneur and investor get blurred in the heavy involvement model. At heart I am more an entrepreneur than an investor and I have no problem in wearing multiple hats so I am not to concerned.