June 30, 2022

Behaviour & Portfolios of Successful Global vs. Indian Angel Investors

Shifa Maqba

When we talk about angel investing in the start-up space, more often than not, the focus tends to be on entrepreneurs. What we, as angel investors, expect from them, how we screen them, their ideas, their fundamentals... you get the gist. But what if we tell you that the first step to achieving success in this ecosystem is emulating — rather — learning from the masters in this field.

Through this article, we aim to compare and contrast the behaviour, portfolios and exits of some of the most successful angel investors in India and across the globe.

Globally Renowned Angel Investors

Fabrice Grinda:

Not only is Fabrice Grinda a super-angel, but he also has a very important underdog story to share. From $100000 in debt to earning hundreds of millions in exits, he is undeniably one of the most experienced entrepreneurs and investors in the world today. Pocketing 250+ exits on 700 angel investments, this French entrepreneur boasts an impressive track record as an early investor in Alibaba, Coupang, Airbnb, Instacart, Flexport, Delivery Hero, Aucland, Vettery, and many more. He currently runs the start-up studio and venture fund, FJ Labs, co-founded with business partner Jose Marin.

An impressive journey warrants equally fitting insights, and that's what Fabrice bestowed everyone with at La Red Innova, a Spanish and Latin-American tech conference, held in Madrid. Here are some notes we can take from his investment behaviour and thought-process:

  • Fabrice typically invests in the US. The rationale behind this, in his words, is, "If we are going to take concept risk, we don’t want to take market risk." He suggests that even if an idea is incredibly niche, the large addressable market of the country might be enough to salvage the investment (ex. Getaround). In countries like Brazil, Russia and Germany where there is some market risk, he looks for proven models i.e., an original, profitable concept with at least $100 million in revenue or an idea with a clear path to profitability based on gross and potential net margins (ex. Viajanet.)
  • Although a super-angel, Fabrice dabbles in traditional small-scale angel investing. For up to 40 companies a year, he and his partner, Jose Marin, play a passive role in projects where the funding is led by VCs (Redpoint, General Catalyst, Bessemer, DN Capital) or other angels (Oleg Tscheltzoff, Team Europe, and Xavier Niel and Jeremie Berrebi of Kima Ventures.)
  • For up to 6 companies per year, Fabrice and Jose actively advise and accompany projects by taking up complete screening, assisting entrepreneurs in their presentations and raising the funds from their angel network. Active involvement from both lasts for about the first 12-24 months, till the start-up gets a VC on board.
  • As a sound governance practice, they don’t join the board of companies they invest in. Fabrice claims that his active involvement in the board of the companies he used to invest in during his early days was neither productive nor scalable owing to his day job as the co-CEO of OLX and his desire to devote limited time per week on angel investing.
  • Fabrice and Jose typically don’t do follow-ons, as, in his experience, the VC round usually takes place before the business model is proven and that too at an exorbitant price. Making investments after the initial round would shoot up the amount of capital (on a pro-rata basis) which does not correspond with their model. The only time follow-ons are done is when the company’s traction and terms of the fund raising are sufficiently lucrative.

We highly recommend checking out https://fabricegrinda.com/ to learn more about Fabrice, his investment journey, portfolio and FJ Labs.

Paul Buchheit:

The man, the myth, the legend. Paul Buchheit, the creator of the ubiquitous mailing service, Gmail, is also a managing partner at Y-Combinator and the co-founder of the social network aggregator, FriendFeed. As per Crunchbase, his portfolio consists of 166 individual investments in start-ups viz. Let's Do This (latest), dNovo Bio, Gotrade, Eclipse Foods, Nabis, among many others; 4 partner investments in Titan, Caelum Health, Bountiful and Segment; and 63 exits, the most notable being zPREDICTA, Zesty, and Zaarly.

An article from his self-titled blog, dated 3rd January 2011, provides ample insight into his investment journey and pearls of wisdom straight from the horse's mouth.

Paul started his angel investment journey in 2006. Within the first 2 years, he made investments amounting to $1.21 million in 32 different companies, half of which are now either acquired by other bigger companies or defunct. In 2011, his acquisitions totalled about $1.34 million with a roughly 10% gain, and his most promising investments included: Meraki, Weebly, and Wufoo.

Unfortunately, only two small-sized investments, Heroku and Mint, yielded a greater than 10x return. Additionally, there were also a couple of medium-sized acquisitions in the mix (AppJet/Etherpad and 280North) and several smaller but decent (2x-3x) exits: Auctomatic, Parakey, and Zenter.

Angel investing for newcomers is no cakewalk, and Paul's journey during his early days as an investor only cements this. But after gleaning years' worth of experience in this tumultuous ecosystem, he does have some sage advice to impart. Note that even though these bits of advice were penned in 2011, they still hold up pretty well:

"1) Assume you'll lose your money and 2) Plan on investing in a large number of companies... I think my experience so far validates this advice. It's important that investors have the right motivations (helping out start-ups and learning how to be a better investor) and the right expectations. Anyone doing it with the idea that they can simply find the next Google, invest a bunch of money, and then get super-rich is going to be very disappointed. That said, finding the next Google and buying a 1% stake is my current billion dollar plan."

Naval Ravikant:

As a nascent angel investor, who better to emulate than California-based Naval Ravikant, the co-founder, chairman and former CEO of AngelList? The creator of the very lifeline of all angel investors, his portfolio, as per Crunchbase, boasts a whopping 221 individual investments in start-ups like Spacedrive (latest), Fashinza, TipTop, Bubbles, Logseq, among others.; 7 partner investments in Upstash, Nova Benefits, Prologue, Capsule Social, Pipe, Iron Fish and Wanelo; and 60 exits, the most notable being Zaarly, Wish, and Vurb.

Given Naval's vast expertise, there's a lot to learn from his angel investing journey. A precise combination of both diligence and luck, his biggest successes came in the form of early investments in Twitter, Uber, Thumbtack, Wanelo, Flipagram and Postmates when they were just in their infancy. The fund he ran is on track to return 10-20x the capital the start-ups raised.

Naval has an optimistic approach to angel investing. He claims, "Angel bets and venture bets are great because they have nonlinear outcomes in the positive, but on the downside, you can only lose 1x (where x is your investment). On the upside, you can make 10,000x." To enhance his chances of getting high returns, this is how he "rigs" the game:

  • Out of the 10,000+ start-ups he inspects, he selects 500 that have a shot of being huge. Then, with meticulous analysis and diligence (and of course luck), he narrows his search down to the top 5 start-ups.
  • According to him, fundraising for good businesses is slowly but surely getting easier. However, picking good businesses is a different ballgame altogether. What this boils down to is sheer luck, especially in tech. The right place, right time, market forces, regulations — there are a lot of external, uncontrollable factors that come into play.
  • As a seasoned angel investor, Naval scrutinizes founders using the following parameters: intelligence (the level of awareness and understanding of the business; the insights or the specific knowledge they possess; their ability to scrutinize problems and generate appropriate solutions); energy and integrity.
  • He advises against investing in companies that won’t have access to venture capital in the near future, as investing at venture valuations in angel-stage companies tends to generate negative returns.

Renowned Indian Angel Investors

India has the third largest start-up ecosystem after the USA and China. With the 100th unicorn declared in May, the country's emerging start-up space is lucrative, however it is still plagued with major and minor issues viz. the dearth of expertise, taxation issues, a mismatch in valuations, and a lack of follow-ons, to name a few. In this regard, the following Indian angel investors have overcome these peculiar challenges and are thriving despite the volatility:

Sanjay Mehta:

Sanjay Mehta has found abundant success in his decade-long investing career. Having invested in 150+ global start-ups, he is the only Indian angel to have 4 unicorns under his belt: OYO, CoinDCX, Block.One and AXIOM Space. His most notable success was the 280x return he generated upon exiting OYO. As evidenced by his portfolio, Sanjay has pocketed 103% internal RoR on all funded start-ups as opposed to the industry average of around 30%. Even though he has drifted away from individual investing after establishing the Mumbai-based 100X.VC, the first Venture Capital firm to invest in early stage start-ups using founder-friendly SAFE Notes, his 'Eight-Point Formula' to evaluating start-ups, an approach that has more or less been constant in his angel investing journey, offers valuable lessons to budding angels.

In a conversation with Inc42, he listed The Eight-Point Formula to evaluating start-ups which entails asking the following questions:

  1. What is the reason for the company's existence?
  2. Why are you building this company?
  3. Why do people want your product more than any others - is it a painkiller?
  4. Why is this the right time to build the company?
  5. What is the team like and are there any competency gaps?
  6. What is the capital requirement? Where will it be used?
  7. Why isn't everyone working on it, if it is such a big problem? Does this start-up have any unfair advantage?
  8. Why will they do better than the established incumbents?

Besides these pertinent questions, he also lays emphasis on the importance of a solid investment thesis as a guiding principle. The tripartite framework of the thesis, i.e., the investment horizon, risk appetite and sectoral knowledge, gives any investment a clear direction and structure. He also encourages exploring new sectors by finding other seasoned angel investors and piggybacking on their expertise. Sanjay believes that even though these basic questions may help investors arrive at their thesis, it would take at least 6-12 months to get definitive answers. However, by the end of the first year, one needs to have a bankable investment thesis. Hence, he calls the first few deals a "spray-and-pray" approach.

Rajan Anandan:

Bengaluru-based Rajan Anandan has donned several hats throughout his finance and investing journey. The co-founder of Blue Ocean Ventures in Sri Lanka cum ex-VP of Google cum current Managing Director of Sequoia Capital, he has emerged as one of the most active angel investors in the Indian start-up ecosystem given his successful investments in 80+ start-ups, viz. Druva, Insta Mojo, TravelKhana, Quench, Miss Malini, Burrp, among others. As per Crunchbase, his portfolio comprises 16 successful exits, the most notable being Zenatix, Threadsol and simsim. Ranjan tends to have a keen eye for budding companies across big data, cloud computing, SaaS, analytics, consumer internet, digital media, online healthcare, mobile commerce, and social games sectors.

As documented in an article from 'The Economic Times', dated 3rd April 2015, Rajan gave a brief on the distinct, almost unconventional approach he adopts when making his investment decisions.

  • He prefers having one fruitful meeting with ample groundwork to ensure a high quality discussion with concrete outcomes rather than devoting his time to recurring unproductive meetings with start-up founders. In his words, "I never have a second meeting with an entrepreneur — one is enough to know whether the star-tup team and idea is good to build a business."
  • Rajan endorses referrals above all else, preferably a reference from his portfolio of companies. He believes that a reference from the founders of any of the start-ups he has invested in makes things easier for both parties. Further, to learn more about the start-up he plans to invest in, he prefers a well-written synopsis or a paragraph that encapsulates the vision and mission clearly to a typical PowerPoint presentation. Moreover, if it's an app or a website, it is subjected to scrutiny by him or someone from his team.
  • Rajan is all about concrete evidence. He only invests in start-ups that have the ability and intention to present metrics (revenue, finance, growth outlook) and a roadmap. He agrees to a face-to-face meeting with the founders only after he is satisfied with references, business plan, links to site and metrics. He bets on the team and concept, and usually co-invests with other angels.
  • As a proactive angel investor, he takes up monthly follow-ups to gauge the progress of his investments. Finally, after start-ups achieve some scale and are ready for Series A or B funding, depending on the outcome, it's either an exit or a write-off.

This comprehensive article can be interpreted in myriad ways: a case-study of renowned angel investors in India and across the globe (the title basically), an angel investing guide of sorts, an endorsement of this dynamic ecosystem, or perhaps, a cautionary tale of how quickly and easily uncontrollable variables can sky-rocket or tank your investments. Whatever it is, one thing's for certain, you can adopt multiple approaches along the way, and none of them would be wrong. All you have to do is dare to dream big and carve your own path.

Credits: Tarun Singh for illustrations