By now you must have framed up your mind on whether to invest in startups or not. Now, let’s try to understand how you can frame your investment strategy. There’s no 1 winning strategy per say, but we’ve created some rules of thumb to help you make up your mind:
Do you have any domain or functional expertise?
Answering this question will help you to understand which sectors you should explore for investing.
Domain expertise translates into Hard Knowledge, i.e. knowing in-depth about a specific field of business. For eg. Consider you’ve been successfully running a food & beverage company for decades because of which you’ve developed a deep expertise of managing and growing consumer brands. In that case, you’re in a great position to add value to B2C startups. Take for e.g., Jitendra Gupta (Ex-PayU, founder of Jupiter- neo bank and Citrus payment solutions) has invested in 75 rounds out of which 44% have been in the Fintech domain.
Functional expertise translates into Soft Knowledge, i.e. the capability to manage the business. For eg. Consider that you’ve been in the helm of affairs of several companies as their marketing head and CMO. In that case, you can guide startups with their marketing efforts. You’ll relate this with Aman Gupta, co-founder and CMO of BoAt Lifestyle and one of the renowned sharks at Shark Tank India. Most of his investment pursuits at the show revolve around opportunities where he can provide marketing mentorship to promising consumer brands.
Will you be doing your own evaluations?
Answering this question will help you to zero in on the sectors that you should explore for investing. A thorough evaluation and due diligence of the opportunities mitigates a lot of risks associated with startup investments. However, for in-depth evaluation, you need to have good understanding of the underlying sector, market trends, consumer preferences, policy support, and so on. Of course, a lot of this can be outsourced to experts like us, still the ultimate hunch will be yours. Therefore, many Angels restrict their investments to industries in which they are familiar as this enables them to make more informed judgments about the venture’s potential.
How much time do you have available to make contributions?
Answering this question will help you understand whether you would like to be a passive or an active investor, or a combination of those. Some Angel investors make multitude of bets, like Kunal Shah has made 200+ investments in Indian startups, but this does not mean that he spends all his time to groom them. He may like to have a more passive approach. While there are some who like to have a more hands on approach, and therefore make less but more strategic bets, where they can spend time and add value.
Will you be investing alone or with other Angels?
Answering this question will help you answer the size of your investments as well as understand how actively you’ll be involved in the venture’s management. Like in case of a startup that you are very bullish about, and which falls in your area of expertise, you might like to play the lead role and also become a director. Whereas, in some cases you might want to share the role by acting along with other Angels, and therefore, not take up a position at the board. The size of your investment will be bigger in cases where you take a board role and smaller in the case of passive investments. Take for e.g. Kunal Bahl and Rohit Bansal- both are founders of Snapdeal and have together invested in more than 40 startups.
Will you be sourcing your own deals?
Finally, answering this question will help you decide if you must join an Angel network that does the sourcing for you OR join hands with experts like us, who curate lucrative and relevant deals for your OR you would like to source deals by yourself. If you choose to do it by yourself, then you must determine if you have enough contacts to generate a stream of possible ventures seeking Angel funding.
Find answers to other questions relating to Angel investing in India:
This article is a part of the Jun'24 edition of our Startup Newsletter. Here's the complete publication:
