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Angel Investing
Sharad Sharma & Shekhar Kirani
#LetsIgnite2016
@letsventurein
@letsventurein
Angel Investing: Simple, but not easy!
VC Investing Performance
• VC is riskier than PE
• 3% of firms generate 95% of returns
• Angel investments is a higher ris...
Angel Investment: Study
#LetsIgnite2016 @letsventurein
Angel Investment Study
• Kaufman Foundation Study
– Each investment as the “only one you ever do”
– 90% of returns are fro...
Angel Investing in India
Our Five Mantras for Success:
• Start with play money
• Not a momentum play
• Game of building no...
#LetsIgnite2016
@letsventurein
@letsventurein
Build your Investment Strategy
#LetsIgnite2016 @letsventurein
#LetsIgnite2016
@letsventurein
@letsventurein
● Diversified
● Thesis-based
● Combination of both
#LetsIgnite2016 @letsvent...
Investment Strategy: Diversified
• Law of large numbers in your favor
– Naval Ravikant, Ron Conway
• Invest behind high-qu...
Investment Strategy: Thesis-based
• Leverage market and/or technology
inflections that you understand deeply
• Leverage se...
Thesis Based Strategy - example
Thesis: Digital marketplaces for fragmented
and offline businesses
• LetsVenture
• Amigobu...
Thesis Based Strategy - example
Thesis: SMB market globally is ready for online
purchases (2009-now)
• Hotelogix
• FreshDe...
Thesis Based Strategy - example
Thesis: India is ready for online consumer e-
commerce (08-11)
• FlipKart
• Myntra
• LetsB...
#LetsIgnite2016
@letsventurein
@letsventurein
● Investment Strategy
○ Diversified
○ Thesis-based
● Exit Expectations
○ Com...
Competitive Markets
• Obvious categories: often easy to start,
difficult to scale and win
– Expect more companies to get f...
Differentiated Companies
• Many flavours:
– Activate and own a new segment (e.g. Redbus,
Stayzilla, Druva)
– Pioneer capit...
#LetsIgnite2016
@letsventurein
@letsventurein
● Building team with deep domain expertise that
could be acquired
○ Understa...
#LetsIgnite2016
@letsventurein
@letsventurein
● Investment Strategy
○ Diversified
○ Thesis-based
● Exit Expectations
○ Com...
#LetsIgnite2016
@letsventurein
@letsventurein
Place yourself in 2018-20, not 2016
India Story is still strong:
• India con...
#LetsIgnite2016
@letsventurein
@letsventurein
Pick out behaviour change
Example:
• Google taught users to Search & Email
•...
Crafting a Theme
Some questions to answer:
• Where will non-linear change happen and why?
• What will it disrupt?
• Which ...
Candidate Thesis
• Middle India Consumption Spend
• India SMB Market
• Messaging as a paradigm
• India Stack driven opport...
#LetsIgnite2016
@letsventurein
@letsventurein
Write Your Investment Strategy!
• What’s Your Investment Strategy?
– Diversi...
#LetsIgnite2016
@letsventurein
@letsventurein
One Big Challenge in Angel Investing is
Deal Flow
#LetsIgnite2016
@letsventurein
@letsventurein
Good News: LetsVenture
#LetsIgnite2016
@letsventurein
@letsventurein
How to Evaluate a Deal?
#LetsIgnite2016
@letsventurein
@letsventurein
Thesis Check
• Diversified
– Backers, team, and interest
– Diversity in mark...
#LetsIgnite2016
@letsventurein
@letsventurein
Company Stage
• Well formed team but early on idea
– E.g. Thiru@NinjaKart
• ...
#LetsIgnite2016
@letsventurein
@letsventurein
Funding Round Size
• Can we get enough users/customers?
– Engagement of user...
#LetsIgnite2016
@letsventurein
@letsventurein
Team, Team, and Team - what is
it?
• Deep passion and “not giving-up” type
–...
#LetsIgnite2016
@letsventurein
@letsventurein
Market Leader Hypothesis
• Category winner - what all have to happen?
– Moat...
#LetsIgnite2016
@letsventurein
@letsventurein
Getting the Mechanics Right
Mechanics
• Convertibles
• VC Seed Rounds
• Lead Incentive
#LetsIgnite2016 @letsventurein
Convertibles
• Should Angels do them?
– They work only if you are investing in follow-ons
• Implementation
– If the Angels...
VC Seed Rounds
Evaluate if they make sense for you:
• Good if angels are investing $200K in a $600K
deal (versus a $2m dea...
Lead Incentive
• LetsVenture lets Lead Angels pick Lead Incentive
• Two philosophies in play
– I must be compensated for m...
#LetsIgnite2016
@letsventurein
@letsventurein
Termsheet
Termsheet topics
• Valuation
• Clawback
• Founder Vesting
• Drag along, Tag along, Liquidation Preference
• Information Ri...
Valuation
• Entry price is important
• But too much ownership is detrimental
#LetsIgnite2016 @letsventurein
Termsheet topics
• Valuation
• Clawback, Tranching
• Founder Vesting
• Drag along, Tag along, Liquidation Preference
• Inf...
#LetsIgnite2016
@letsventurein
@letsventurein
Post Investment
Post Investment
• Cadence
• Priorities
• Style
• Obligation to co-investors
• What not to do
#LetsIgnite2016 @letsventurein
Cadence, Priorities and Style
• Cadence
– Dumbbell - high, medium/low, high
– Push vs. Pull
• Priorities
– Prioritize Reve...
Obligation to Co-investors
• Quarterly updates
#LetsIgnite2016 @letsventurein
What Not to Do
• Don’t be a bottleneck
• Ignore chemistry issues amongst founders
• Hesitate to connect
• Be adversarial o...
#LetsIgnite2016
@letsventurein
@letsventurein
Keeping Score
Are you doing well as an Angel?
Build your own metrics
• The real test: Not the # of investments but what happens to
your ...
Need an Advanced Masterclass?
Let LetsVenture know!
#LetsIgnite2016 @letsventurein
Towards Angel Investing 3.0
Thank You
#LetsIgnite2016@letsventurein
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LetsIgnite: Primer on Angel Investing

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Two leading names in India’s angel investment and venture funding ecosystem today shared their secrets of successful investing at the LetsIgnite event organized by LetsVenture in Bangalore. They were frank and answered every question that aspiring angel investors and startups asked them. For three hours, the hall was packed, as the audience hung on to their words. Sharad Sharma, co-founder of iSPIRT (Indian Software Product Industry Round Table), is one of the best-known startup evangelists in the country. He has invested in more than two dozen companies and runs his own startup BrandSigma Inc that provides analytics for brands. His first venture, Teltier Technologies, was bought by Cisco way back in 2003. He was joined on stage by Shekhar Kirani, a former entrepreneur and angel investor, who is a partner with Accel Partners, that has invested in some of India’s hottest startups such as e-commerce market leader Flipkart, cab-hailing service Ola, and ticketing platform Bookmyshow. Then there are a couple of big enterprise software bets like Freshdesk and Mu Sigma.

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LetsIgnite: Primer on Angel Investing

  1. 1. Angel Investing Sharad Sharma & Shekhar Kirani
  2. 2. #LetsIgnite2016 @letsventurein @letsventurein Angel Investing: Simple, but not easy!
  3. 3. VC Investing Performance • VC is riskier than PE • 3% of firms generate 95% of returns • Angel investments is a higher risk asset class than VC #LetsIgnite2016 @letsventurein
  4. 4. Angel Investment: Study #LetsIgnite2016 @letsventurein
  5. 5. Angel Investment Study • Kaufman Foundation Study – Each investment as the “only one you ever do” – 90% of returns are from 10% of companies – 35% returned higher than 1X – Top quartile returns had 40 hours of DD – More active involvement - better returns • 3.7X where 1-2 interactions each month over 4 years #LetsIgnite2016 @letsventurein
  6. 6. Angel Investing in India Our Five Mantras for Success: • Start with play money • Not a momentum play • Game of building not picking winners • Plan your portfolio • Build your Investment Strategy #LetsIgnite2016 @letsventurein
  7. 7. #LetsIgnite2016 @letsventurein @letsventurein Build your Investment Strategy #LetsIgnite2016 @letsventurein
  8. 8. #LetsIgnite2016 @letsventurein @letsventurein ● Diversified ● Thesis-based ● Combination of both #LetsIgnite2016 @letsventurein Investment Strategy
  9. 9. Investment Strategy: Diversified • Law of large numbers in your favor – Naval Ravikant, Ron Conway • Invest behind high-quality Founders – E.g. Sameer Nigam (ex-Flipkart), Chandu Sohini (ex-NewsHunt) • Follow successful angel investors – E.g. Rajan Anandan, Anupam Mittal, Manav Garg – Build relationships #LetsIgnite2016 @letsventurein
  10. 10. Investment Strategy: Thesis-based • Leverage market and/or technology inflections that you understand deeply • Leverage sector or domain insights • Leverage passion and network • Build your “core beliefs” • Build your “investment thesis” #LetsIgnite2016 @letsventurein
  11. 11. Thesis Based Strategy - example Thesis: Digital marketplaces for fragmented and offline businesses • LetsVenture • Amigobulls • SuperProfs • Wishberry #LetsIgnite2016 @letsventurein
  12. 12. Thesis Based Strategy - example Thesis: SMB market globally is ready for online purchases (2009-now) • Hotelogix • FreshDesk • ChargeBee • Zenoti #LetsIgnite2016 @letsventurein
  13. 13. Thesis Based Strategy - example Thesis: India is ready for online consumer e- commerce (08-11) • FlipKart • Myntra • LetsBuy • UrbanTouch • Exclusively • BabyOye #LetsIgnite2016 @letsventurein
  14. 14. #LetsIgnite2016 @letsventurein @letsventurein ● Investment Strategy ○ Diversified ○ Thesis-based ● Exit Expectations ○ Competitive Markets ○ Differentiated Companies ○ Building to Flip #LetsIgnite2016 @letsventurein Investment Strategy
  15. 15. Competitive Markets • Obvious categories: often easy to start, difficult to scale and win – Expect more companies to get funded – Support for 3 players vs leader take all – Money plays a big role • Extreme reward and high risk • Example: e-commerce, taxi, food, O2O #LetsIgnite2016 @letsventurein
  16. 16. Differentiated Companies • Many flavours: – Activate and own a new segment (e.g. Redbus, Stayzilla, Druva) – Pioneer capital efficiency in customer acquisition (e.g. PrettySecrets vs Zivame) • Depth in idea, technology and execution • Time is an advantage – E.g. Hotelogix • May need long gestation periods #LetsIgnite2016 @letsventurein
  17. 17. #LetsIgnite2016 @letsventurein @letsventurein ● Building team with deep domain expertise that could be acquired ○ Understand product/technology roadmap of potential acquirers to appreciate their build/buy challenges ○ Data analytics/Machine Learning/ Big Data skills ● Aim for inbound interest ● Examples: Algo, Little Eye Labs Building to Flip
  18. 18. #LetsIgnite2016 @letsventurein @letsventurein ● Investment Strategy ○ Diversified ○ Thesis-based ● Exit Expectations ○ Competitive Markets ○ Differentiated Companies ○ Building to Flip ● Investing around a theme #LetsIgnite2016 @letsventurein Investment Strategy
  19. 19. #LetsIgnite2016 @letsventurein @letsventurein Place yourself in 2018-20, not 2016 India Story is still strong: • India consumption drivers are favourable • “Sunshine” Sectors • Sectors on the decline
  20. 20. #LetsIgnite2016 @letsventurein @letsventurein Pick out behaviour change Example: • Google taught users to Search & Email • FB taught power of social, sharing & liking • Train/Airline booking: Power of transaction • Flipkart leveraged this for online buying Exercise: What comes after WhatsApp?
  21. 21. Crafting a Theme Some questions to answer: • Where will non-linear change happen and why? • What will it disrupt? • Which white spaces will it fill out? • Is your worldview distinctive? If you can’t predict what will take off in the future, follow early.
  22. 22. Candidate Thesis • Middle India Consumption Spend • India SMB Market • Messaging as a paradigm • India Stack driven opportunities • Other ideas in the room? #LetsIgnite2016 @letsventurein
  23. 23. #LetsIgnite2016 @letsventurein @letsventurein Write Your Investment Strategy! • What’s Your Investment Strategy? – Diversified – Thesis-based • What are Your Exit Expectations? – Competitive Markets – Differentiated Companies – Building to Flip • What’s Your Investment theme? – Where will non-linear change happen and why? What will it disrupt? Which white spaces will it fill out? Is your worldview distinctive?
  24. 24. #LetsIgnite2016 @letsventurein @letsventurein One Big Challenge in Angel Investing is Deal Flow
  25. 25. #LetsIgnite2016 @letsventurein @letsventurein Good News: LetsVenture
  26. 26. #LetsIgnite2016 @letsventurein @letsventurein How to Evaluate a Deal?
  27. 27. #LetsIgnite2016 @letsventurein @letsventurein Thesis Check • Diversified – Backers, team, and interest – Diversity in market, # of deals • Thematic – Check against your beliefs. Eg. Wishberry – Deeper learning opportunity. Eg. Deeksha • Talking to Experts
  28. 28. #LetsIgnite2016 @letsventurein @letsventurein Company Stage • Well formed team but early on idea – E.g. Thiru@NinjaKart • “No credential” team, but, great idea. – E.g. Krish@ChargeBee • No product, no customers, and no revenue to showcase – Look at past products • Is revenue important? – A lot of decisions are made. Unwinding takes time • “Opportunity” is important
  29. 29. #LetsIgnite2016 @letsventurein @letsventurein Funding Round Size • Can we get enough users/customers? – Engagement of users – Small number of paid acquisition of customers • Is there enough money for product-market fit? – Primary reason for startups to shut-down – Pivoting too early • Is entry price right for Angels?
  30. 30. #LetsIgnite2016 @letsventurein @letsventurein Team, Team, and Team - what is it? • Deep passion and “not giving-up” type – Eg. Forus Health • One v/s Two v/s Three v/s Four founders • Ingenious, Resourceful v/s Strategists – Eg. Collectabillia • Skill-diversity in Founding team • Age diversity in Founding team • Presence and Ability to tell a story • Background checks - Quirks, Bads, and Brilliances
  31. 31. #LetsIgnite2016 @letsventurein @letsventurein Market Leader Hypothesis • Category winner - what all have to happen? – Moats, Relationships, Regulation, network effect, etc. • Domain experts as angel investors • Right set of co-leads who can contribute to success • Strategic Influencers as “trust” branding • What will it take to win?
  32. 32. #LetsIgnite2016 @letsventurein @letsventurein Getting the Mechanics Right
  33. 33. Mechanics • Convertibles • VC Seed Rounds • Lead Incentive #LetsIgnite2016 @letsventurein
  34. 34. Convertibles • Should Angels do them? – They work only if you are investing in follow-ons • Implementation – If the Angels all Indian citizens, Convertible is straight- forward. If there are FDI funds, Convertibles need a different structure – Let LetsVenture manage this complexity for you #LetsIgnite2016 @letsventurein
  35. 35. VC Seed Rounds Evaluate if they make sense for you: • Good if angels are investing $200K in a $600K deal (versus a $2m deal) • Good if it’s a potential high velocity company that will need quick follow-on capital #LetsIgnite2016 @letsventurein
  36. 36. Lead Incentive • LetsVenture lets Lead Angels pick Lead Incentive • Two philosophies in play – I must be compensated for my heavy lifting as a Lead Angel – I’ll pay forward #LetsIgnite2016 @letsventurein
  37. 37. #LetsIgnite2016 @letsventurein @letsventurein Termsheet
  38. 38. Termsheet topics • Valuation • Clawback • Founder Vesting • Drag along, Tag along, Liquidation Preference • Information Rights • Economic Rights • Veto matters #LetsIgnite2016 @letsventurein
  39. 39. Valuation • Entry price is important • But too much ownership is detrimental #LetsIgnite2016 @letsventurein
  40. 40. Termsheet topics • Valuation • Clawback, Tranching • Founder Vesting • Drag along, Tag along, Liquidation Preference • Information Rights • Economic Rights • Veto matters #LetsIgnite2016 @letsventurein
  41. 41. #LetsIgnite2016 @letsventurein @letsventurein Post Investment
  42. 42. Post Investment • Cadence • Priorities • Style • Obligation to co-investors • What not to do #LetsIgnite2016 @letsventurein
  43. 43. Cadence, Priorities and Style • Cadence – Dumbbell - high, medium/low, high – Push vs. Pull • Priorities – Prioritize Revenues, Product-market fit, Customers, Hiring over, say, Compliance • Style – Are you a Coach or a Senior player – watching from the sidelines? #LetsIgnite2016 @letsventurein
  44. 44. Obligation to Co-investors • Quarterly updates #LetsIgnite2016 @letsventurein
  45. 45. What Not to Do • Don’t be a bottleneck • Ignore chemistry issues amongst founders • Hesitate to connect • Be adversarial or high handed esp. when you have no startup experience yourself • Ask for irrelevant information • Don’t prescribe answers - this will sure kill #LetsIgnite2016 @letsventurein
  46. 46. #LetsIgnite2016 @letsventurein @letsventurein Keeping Score
  47. 47. Are you doing well as an Angel? Build your own metrics • The real test: Not the # of investments but what happens to your investments. How many winners are you able to create? Reference YC stats • # cos funded by YC so far: 940 • # YC cos worth more than $1 bn: 8 • # YC cos worth over $100 mn: >40 • Total valuation of all YC cos: >$65 bn • Total money raised by all YC cos: >$7 bn • # YC funded cos that have dissolved: 177 #LetsIgnite2016 @letsventurein
  48. 48. Need an Advanced Masterclass? Let LetsVenture know! #LetsIgnite2016 @letsventurein
  49. 49. Towards Angel Investing 3.0 Thank You #LetsIgnite2016@letsventurein

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