GSF Angel Investing MasterClass - Mar'23

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Key Insights

The document covers the basics of angel investing from the perspective of an experienced tech entrepreneur.
It discusses the rationale for angel investing, the different types of angel investing decisions, and the journey of becoming an angel investor.
The document explores sectors of focus for angel investing, deal sourcing methods, deal constructs, and funding criteria.
It also addresses common pitfalls and mistakes in angel investing and offers suggestions for other angel investors.
Links to the author's Twitter and LinkedIn profiles are provided.

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2. Background • Tech entrepreneur (SlideShare → IndiaStack) • SuperAngel / Expert in angel investing?? Not really! - Learning a new skill by trial/error

3. Rationale for Angel Investing? • Startups have been life changing for me… pay it forward! • Learn vicariously from other smart, ambitious people • Money needs a more productive use than banks, MFs ✓Generate alpha over public markets (ROI expectancy)

4. Why Angel Invest – three types of decisions! • Return/IRR focused deals (80%) • “GuruDakshina” ― learn about new, upcoming sector ― think paying tuition fees for learning • “Be a Good Samaritan” or “Pay-It-Forward”

5. Angel Journey • Started 2015-16 • Angel investing is a side hustle, doing it part time (can’t devote a lot of time/attention) • Over 40 startups – 80% seed/angel, 20% Series A • Don’t lead (or take board seats), but available to founders as they want • 30% mortality, 20% at par returns, rest 50% in the game • Don’t actively track IRR based on MOIC (paper money!), but likely to beat public mkt returns

6. Sectors in Focus • Startup landscape is broad, you must aim for a “Circle of Competence” • Machines give mechanical advantage, Software gives leverage • Thumb Rule for software business ✓Marginal cost of production tends to zero (diminishing marginal cost) • SAAS, Consumer, Fintech, HealthTech, Edtech – where software plays pivotal role • Accept what you don’t know – e.g. lending startups

7. Angel Deal sourcing • 50% Direct deals • 50% Syndicates (or other pooled vehicles) Dynamics / Life Cycles of above two are very diff • Syndicates - remote, no touch, passive, non-engaging (almost like mutual funds investing, or index investing) • Direct deals - High touch, “get into the trenches” with founders, high emotional involvement

8. Deal Construct • Preferably 2-3 members founding team • Pedigree vs Raw talent ― “Pedigree excels at what they’re told to do, raw talent excels at what they were not told to do” • Approach - “Bottoms Up” v/s “Top Down” • Opportunity - “Blue Ocean” v/s “Red Ocean”

9. Funding Criterion Qualifying questions • Is the timing right (any inflexion points)? • Evidence of traction or momentum (Startups live/die by the shape of their growth curve!)? • Does team “get” distribution (their secret sauce)? • Is team stingy & capital efficient? • Are they hustlers & relentlessly resourceful? • Did the demo impress (can they actually build)? Team Market Product

10. Valuation Focus? “You succeed in venture capital by backing the right deals, not by haggling over valuation”

11. Pitfalls / Mistakes • Founders “circle of competence” is key success factor • Struggle to give founders behavioural / attitudinal feedback • Not leading deals sometimes is a disadvantage • Timing the exit?

12. Suggestions to other angels • Develop your area of competency – Be good at something that lies in critical path of startup success • Develop ability to independently evaluate people, business or technologies. Depending on network, social proof/signal isn’t always a good idea

13. Thanks https://twitter.com/amitranjan https://www.linkedin.com/in/amitranjanprofile/