Don Dodge covers the Angel Capital report from Center for Venture Research for the US Angel space. Some quick stats:
- 258,200 active angels invested $26b in 57,120 companies in 2007. VCs invested $29.4b in 3,813 companies. The ratios are revealing in the kind of pipeline it takes for a vibrant ecosystem, and proportionate amount of dollars invested by each constituent.
- Average angel group invests $2M per year in 8 companies ($250K per investment). One thing I have always maintained is that there are too few angel groups in India – some of them being Indian Angel Network, Mumbai Angels and TiE Chennai Fund. At IAN, our average deal size has been similar, though intuitively it might seem that seed stage in India might take lesser money.
- Annual returns for angel exits are 27.7% – that number is low! For the risk and time investment that angels make, I would reckon the expectations are higher, especially since 2007 was a reasonably good year from exits perspective
I believe that angel investment is not just a function of putting money, but about deep understanding of specific sectors, and hence the ability to value-add in those kinds of investments. The formation of angel groups is another enabler, as it provides diversification, with the same money and time commitment. I would love to get the group’s views on what can be done to encourage and facilitate more angel investments in India.
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Actually Alok, I would love to hear the problems Angels are facing. I’m sure there are more than enough deals to analyze. And a number of deals will be those you throw away but still become gems later. That’s still not a problem – because that’s what makes it all interesting. What would be lousy is that angels are looking but not getting enough coming their way.
But if the angel process is anywhere like the hiring process, you are probably getting way too many proposals. In which case, there may be a need to pre-filter thoroughly, which brings in requirements like SWOT analysis, a term that to most engineers means different ways to kill mosquitoes.
So maybe this filtration process needs to be worked on. Some common theme? Some more networking? Maybe we need an angel investor/entrepreneur conference of sorts. (given the horrendous traffic situation in most of our cities, this is near impossible) Or a site focussed on pitches and angel level investing.
But what else are the problems? Valuation? I will justify, with data, that my company is worth either of 10 bucks or 10 million bucks today; so when someone asks me about what kind of stake we would part with, I have this very disturbing blank expression on my face. I’m sure I’m just the village idiot here – is valuation a roadblock for angel investors? Too much entrepreneur hangup? Or that angels want a fixed stake? (which calls for a fixed valuation, so either fighting time or blank expression) Possible for both parties to accept a 15% debt note and leave valuation for later?
Is it lack of management expertise? Or too much management expertise? (too much architecture and too little code does not a good program make types)
Would it simply need people to say “let’s cut the red tape and get this going. We’ll argue the finer points later, now here’s the money (or I’ll take this money) go do something with it”. It’s incredibly difficult to do this, from the entrepreneur side also.
I think what the system needs is one big break, the one huge success story that will put angel investing as the stepping stone to success. (I would have announced my candidature for the post of big-success-poster-boy but the existing queue is just too long. Gotta gatecrash)
See Alok, you provided your own data …
http://sramanamitra.com/2008/04/04/forbes-column-searching-for-the-real-vcs/
Regards, Sramana
>I would love to get the group’s views on what can be done
>to encourage and facilitate more angel investments in India.
>
personally I believe that USA is a land built on deals; while things are different in the rest of the world– India; but even in much of Europe, Central Asia, Arab world.
In these ‘not build on deals’ parts of the world (including even Germany/Spain/Italy/Netherlands perhaps); either you need a flow-driven business/sector like construction/banking/retail– where there is a clear distinction between the control of resources and execution of business.
So, outside of silicon valley/tech-hubs of US if one is doing PE investment in construction/real-estate/retailing etc… one can have a clear path to returns— and a clear exit.
With IT/Hi-Tech in India, one has to be prepared to either ride along the highs and lows OR be a family controlled Moser-Bayer or Bajaj or Essar…
Just a opinion….
I have personally been involved in some angel investing even though I do not hold so called “Tier 1” position at corporate level and I think there is argument to expand the groupings to include professionals (with expertise in particular industry) or middle management.
Today many software engineers/project managers having saving capacity to invest $10-20k per startup/per year. We don’t need millionaires/CEOs etc. but people with passion to do something with startups either financially or domain wise.
The problem with Angel groups such as Indian Angel Network, Mumbai Angels and TiE Chennai Fund is that all these groups are basically concentrated by Very high level CEO level executives or Private Equity/Venture Capital Professionals who are just doing deal sourcing through this medium.
Generally following problems are encountered:
– Many a times these guys are already preoccupied with other deals given the large flow of deals (including crap ones)
– Angels not interested simply because their priorities (or priorities of VC fund they are representing) lie in other sectors.
– Did not hear about the deal from others!!!
Almost 80-90% of deals are ending up with same group of 100-200 odd so called PE/VC professionals/Angels in a country of billion people and with $1 trillion dollar economy.
The grouping should be expanded to increase its scope and breadth of activities as well as membership.
Lack of complementary and simultaneous presence of strategic and financial bandwidth in the same individual sometimes discourage many a potential angel investment. I suggest a two tier structure – let angel groups have a financial stream and a strategic stream. Let’s say X has surplus money and a lot of faith in strategic skills of Y in a given domain, ideas in that domain can get funded by X with Y at the helm. X may not have the time, but if Y could oversee the venture affairs, X is happy to invest.