With a young population and a new way of thinking, the temperature of entrepreneurial climate in India is rising at a rapid pace. Today India needs young entrepreneurs to break free and invest their minds in something radical and innovative. However, it is also crucial to understand the angel phenomenon, without which these ideas on the drawing board may never get the desired impetus.

Looking at an angel as a mere investor can be the single-biggest mistake a young entrepreneur can make. The infinite inputs that an entrepreneur can seek from these angles at various stages of the business can add new dimensions to their business. As Basil Peters, a respected ‘exit coach’ and angel investor aptly said, “Angels often want to contribute more than money to a young company. Angels have the experience, and inclination, to be great mentors and valuable directors.”

The important question to ask is what are the angels looking for? What is the criteria they assess when they choose which companies to invest in? Being an active part of the India Angel Network (IAN), I am in a uniquely suitable place to answer these questions. Here are the main aspects that I look at before deciding on a young company to invest in -

Novelty of the Idea: For an angel investor an idea is the core of any journey, therefore, judging the freshness of the idea is very crucial for me before investing. The crispness of the concept, the uniqueness compared to other concepts in the same field, price competitiveness, scalability and the ability to create a new niche industry are all things I observe closely.

Passionate and Mentorable team: The other key aspect I assess before investing is the people involved. People make or break an organization. Despite having a fantastic idea it will simply not work if the people behind it are not passionate about the project. Besides passion, hunger in the belly, a strong technical foundation and strong business acumen is what I expect to see in the team behind the venture.

I also want to see what each member of the team brings to the table and whether their skill-set complements the rest of the group. Lastly, while assessing the team, it is crucial for me to feel that the team is “mentorable” – i.e. they are willing to take advice and feedback and implement it effectively in their plan.

Solid return on investment: Angels invest with a clear expectation of getting a good return on their investment (ROI) from the young and vibrant entrepreneurs they take or consider to invest. Most angels invest their own capital, directly or through angel groups like India Angel Network (IAN) where several investors come together to invest more. In India, they typically invest around 1.5 to 2.5 crores in groups of 25-30 businessmen and invest in the initial stage of a company and thus valuation of the company is based on the perceived value of the idea on the table and the quality of the team.

Predictably, angels prefer to invest in those industries in which they have experience. While most angel investors from IAN come from a technology background, the other notable trends for them to invest in India are those sectors, which have strong potential for growth i.e. mobile, internet, education, the consumer sector etc.

A strong business pitch: I also want to add that the skill of making a business pitch is critical for the success of these young ventures. The team of entrepreneurs looking for investments has to have a good, clear and believable pitch to make. As in most cases, you only get one shot – so the ability to communicate clearly and professionally is key. In my experience, the best pitches are the ones that consist of the idea, the market potential, the competition, the go-to-market strategy, team composition, a financial plan including very importantly the cash flow and what the money is needed for.

Well-defined exit strategy: Before investing in any business, what every angel investor expects to see is a viable exit strategy. Most investors look to set a clear time-frame for exit, that is usually around three to four years post investment, which could be through a sale to a bigger company or to venture capitalists.

Lastly, with most angel investors being successful entrepreneurs themselves they come on board for the joy of helping build and create thriving enterprises. They even look to take positions in the company and an opportunity to actively mentor and aid the success of the invested venture thereby contributing to the success of these young, new business thinkers.

(The author is Co-founder, HCL, and a member of the Indian Angel Network.)

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