Knocking the Right Angel Investor
In my previous post, I promised to write about finding the right angel investor this time. “Known devil is better than an unknown angel” is a line familiar to all. [I have often wondered whether devils and investment go hand in hand much like angels! More about that another time, though]. The principle of that is very simple. Somebody who is familiar is any day preferable to somebody who is unknown, howsoever a good Samaritan the person might be.
We can apply the same formula for angel investing as well. It is always better to approach first those whom you know and can also invest. Needless to say, the familiarity should be mutual. [To take an example, everybody migh not know Rajinikanth, but not vice versa!]. But why is familiarity important? To answer that question, we should also know the basis on which investors invest.
And to understand the basis, we should also be aware of the overall profile of angel investors in India. I used the Angels product at YNOS, the largest collection of angel investors investing in Indian startups to get my findings.
Out of a total of 7,766 angels, only 372 have made 5 or more investments, which is less than 5% of all the angel investors
This shows that the number of seasoned or professional business startup investors accounts for only a small percentage of angel investors. The decision-making of frequent angel investors is very different from those of occasional angels.
Given the large numbers of occasional angel investors for startups in india, I will first discuss about them here. The main basis of investment for the occasional angels is TRUST. They are fully aware of their lack of expertise or knowledge in startup investing as compared to the frequent angels. Therefore, they choose to identify startups on the basis of trustworthy founders. Indian investors often comment that they don’t invest in businesses that they do not understand. On the other hand, occasional business investors invest in founders whom they can understand and believe. They are aware that while the startups can easily pivot based on market response, the founders of the company cannot be changed.
While it may be possible to fall in love at first sight, earning TRUST is much harder. It might take years of knowing each other or working together for two people to trust each other. Thus, familiarity is an important prerequisite to kindling trust. However, it is not always possible for entrepreneurs to have personally known the investors before approaching them. Getting connected on social media does not give the kind of familiarity needed to generate trust.
In the absence of personal familiarity, the next best is to look for interfaces that both the investor and entrepreneur would be familiar with. Aren’t we all comfortable when we know that the other person grew up in the same locality as we did? Attended the same school? Were alma maters of the same college? What I am saying is this: As you go look for accredited investors, the chances of meeting occasional angels are higher because there are more of them. Since the occasional investors tend to lean on the familiarity of founders rather than the familiarity of the business, identify investors who would share common interfaces and interests with you. Platforms like www.ynos.in would be helpful to identify such investors.
Not able to find a suitable investors for business? I have a suggestion – Search Harder! Still not able to find one? I have a suggestion based on a statement taken from a different context. It is said that “A mother is born when a child is born.” Similarly, if you are not able to find an investor, create an investor. Find a person who is familiar with you and would have the wherewithal to make small investments – your family doctor or lawyer, street corner supermarket owner, and so on. Pitch your idea to them and request them to invest. Even if they have never invested previously in a startup, does not matter. Make them believe in you and invest in your startup. Create an investor from an individual.