Sunday, July 09, 2006

Good news entrepreneurs: Angels have landed

Agnus my good friend today asked me how she could get a "good investor" to help scale her beauty business. She hadn't been able to reach out to any investors who would invest Rs. 1 crore at this early stage. She was quite frustrated and was further concerned that because shes a woman if anyone would take her seriously.

This has been the story for long in India. There has been no organized way of reaching early stage investors. So the only ones who could grow were those with family money or those who had something to mortgage to raise debt. Or you could start a business like Agnus has, but you couldn't scale it. There are millions of such stories, resulting in massive frustration amongst Indian entrepreneurs.

Some time back TIE came with promise of helping entrepreneurs in this critical phase, but in reality has done precious little in India. I myself was so frustrated that I have been planning to set-up a network of early stage investors. Now I'm glad someone has beaten me to it...

Band of Angels India is an organization of investors who invest anywhere between Rs. 25lacs to Rs. 5 cr (approx $50,000 to $1 million) in your company if they like you, like your team and like your idea. Not only do they invest, they tend to play an important role in guiding you and helping through their contacts and resources.

If you want to win the patronage of an Angel, you need to submit a short note about yourself and your idea. Try and pick an investor who has interest in your sector and is from your city (historically it is found that Angels usually invest in companies founded out of their own city because its convenient for them to keep and eye and play a role).

In the event you receive an investment, make sure you keep everything clean, above board, and report every week to your investor what you are doing.

Why does the Angel invest? Typically, Angel investors are looking to grow their money 10 times in your company within a period of 3 - 4 years. So if they put in $100,000, they would like $1 million back in 3 years. No this is not a loan so you don't have to pay it back by selling off your house. What you need is have a high growth plan that in 3 years time will require a much larger investment by a Venture Capitalist ($3 million upwards), and the VC will buy out the Angel's equity in your company, thus enabling the Angel to get his money out and make a good return on it. Ofcourse this is not always the case and there are many models, but this is generally the model.

I also suggest you do lots of research before you contact the Angels, so that you thoroughly understand the entrepreneur investor relationship; and you understand what investors want. Research through Google and Google Blog Search.

Good luck and here is wishing both you and BOA India tons of success. If you have any questions feel free to ask through the comments section of this post.


alok said...

Just a clarification -- we are not necessarily looking at first round VCs to buy us out. We are open to waiting for the final exit (acquisition/IPO) to happen. Also, in most cases, we might expect the first round VCs to come within 12-18 months of our investment -- 3 years is too long a time for that to happen in a typical case.

Idea, Execution, Profit! said...

Interesting coverage on Angels in India and BoA.

But what happened to Agnus your good friend?
Did she get her beauty operation scaled up?

RYK said...

she is still looking. I'm helping on the biz plan...