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September 06, 2015

Is Angel Investing Worth the Bother?

Haresh Chawla, an angel investor in Housing.com, has a list of do's and don'ts for fellow angel investors in Founding Fuel. Extracts:

2. Don’t do it for the money. Most angel portfolios won’t beat returns on Indian small-caps and mid-caps. Plus you’ll save a mighty load of your time. So learn to play the guitar if you are bored.
3. If you still persist, choose a style or a combination from here:
Spray and Pray: Put in Rs 5-25 lakh—do tens of deals. Eight angels in a start-up means you are hardly going to have a say, or the inclination to spend time. But sure you’ll meet interesting people, and be covered in business newspapers. Sometimes you’ll also be mentioned in the same breath as *trophy* investors.
Consortium: A new structure that has cropped up lately—everyone can be an Angel now! One guy fronts 20-30 of you investors. It works. Downside? The front is usually too busy monitoring than mentoring. Oh, and you’ll miss out on the PR as well.
The Real Deal: You’re ready to lose both your money and your time. If that is the case, what follows here is for you. The rest of you can go back to sipping your single-malts.  
16. Misalignments will happen. The next round investors will drive some of the misalignment—on rights, on size of the Employee Stock Ownership Plan (ESOP) pool, on secondary price etc. Founders will be torn—they will act only in the interest of the business and their stake holding and that’s only fair. You can get very sensitive, but don’t. In times like these, remember what I spoke of in Point #5. You’re in it for the ride.
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