Start-ups in India: How to seek and approach the right early-stage investor

Individual angels invest anywhere from Rs 2 - 20 lakh in their personal capacity, but a group of 10-15 angels could invest from Rs 50 lakh - 2 crore, says Gagan Goyal, partner at venture capital firm India Quotient

Getting an angel to back a start-up is challenging as it is not merely about the money. Representational Image, source: Reuters

Entrepreneurs need angels to give wings to their dreams. But finding an “angel’’ is easier said than done.

Angel investor Sidharth Rao, co-founder and CEO, Dentsu Webchutney, says most entrepreneurs at an early stage look towards building their company and are either at the pre revenue stage, or are trying to find a product market fit. “That is when angels come into picture. Good angel investors can add value with their experience, network, etc.”

Entrepreneurs typically start seeking investors when they have a story to narrate and an early stage product to back it. “A compelling story that shares the inspiration behind the product, their own investment (effort and capital), experience of early adopters and growth potential of the product will get angel investors to consider the start-up seriously. It won’t work in one’s favour to seek investments before there is a prototype or early stage traction, as no one wants to invest in just a mere idea,” says Sachin Parikh, co-founder and CEO, Easy Roads Technologies, a travel tech start-up.

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Getting an angel to back a start-up is challenging as it is not merely about the money. Chitransh Sahai, co-founder and director of logistics start-up GoComet, says the real challenge lies in getting marquee investors who understand the business and associating with them to add tremendous value to the business.

“Entrepreneurs need angels who are the perfect match for what they are building. Running a start-up is often like taking a road trip with no map of where you are headed. Being the founder, you have a team of young, energetic people looking up to you for answers. At such junctions, having an investor who brings in greater industry experience and believes in your vision is crucial. The real challenge is finding angels who add value beyond just funds to run a venture,” adds Parikh.

Individual angels invest anywhere from Rs 2 - 20 lakh in their personal capacity, but a group of 10-15 angels could invest from Rs 50 lakh - 2 crore, says Gagan Goyal, partner at venture capital firm India Quotient. “However, entrepreneurs need to be cautious about the fact that angels are individuals (unlike institutional seed VC firms) and they can get misguided by their personal views and preferences,” adds Goyal.

A tricky question for emerging entrepreneurs is how to seek out and approach the right angel.

Rao says entrepreneurs can first approach someone in their immediate social/business network who has access to angels. “Some of the most active angels get pitched by multiple start-ups every day. You need to first target those who have made investments in your vertical.”

According to Parikh, cold emails to prospective angels with a well-researched pitch can work wonders.

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Leo Mavely, founder and CEO of healthcare start-up Axio Bio Solutions, says entrepreneurs should be “well-prepared’’ before approaching any angel. “When you are asked difficult questions, the more answers you provide help increase investor confidence in your company. When an investor looks at a company, they look at whether the business is profitable, scalable and sustainable. You need to convince the investor that you have a good management team and a detailed business plan to achieve this,” says Mavely. Moreover, you need to engage with other entrepreneurs in the same vertical as they can connect you with the right people, adds Parikh.

Source: DNA Money

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