Investment and Finance in India

Note: Angel investment generally refers to any small investment (may be up to Rs. 2-3 Cr.) in an early stage (pre-revenue) company. The people making these investments are called “Angel Investors”.

Yes. You can ask them questions. Angel investors are not doing any charity or favor to you. They are investing in your business with the expectations of high returns and you have all the rights to ask them questions. In fact, if you ask them right questions, it can save you lots of time, energy and resources.

Please ask the following four questions to them before you start discussing your idea. If they are reluctant in answering these questions, then it is advisable to stay away from them.

1. Have they made any investment in last 12/18/24 months? An angel investor is a person who has made any investment in an early stage company in return for equity. An angel investor is NOT someone who is claiming that he would make an investment in a company. Any one can make this claim. Please ask the person what investments he has made in last 12/18/24 months and if he has not made any investment at all then what are your chances of getting investment from that person? It is highly unlikely that yours would be the first company that he liked and felt confident enough to put his money into it. May be he is disguising himself as an angel investor for some other ulterior motive. So, please ask this question and, if the answer is “ZERO” or “I am evaluating a few proposals” or “any other vague answer” then you should stay away from these investors.
2. What are his specific investment criteria? You should ask this question in the beginning and if you get a very vague answer, you should be very cautious. A very common way for any investor to get himself out of the deal, once he has acquired all information/research/knowledge/money he wanted, is to ask for significant majority or put up some irrational conditions in front of entrepreneurs. If you ask this question early, you can save yourself lot of time in educating the investor and avoid any frustration at the end of this process. Ask for his investment criteria especially about the stage of business. At what stage he is going to invest – Idea, Product Prototype, Stable Product, First Trial Customer or First Paying Customer. If your requirements do not match with his criteria then you should not spend any time on this.
3. Are they charging money for listening to your pitch? If the answer happens to be YES, please stay away. Simple. The investor who can not even afford the expenses to listen to entrepreneurs’ pitch, what are the chances that he can afford to make any investment in the business?!
4. Do they have any other business? Yeah, while it is understood that most angel investors will have some other business but entrepreneurs should be wary of these two kinds of angel investors’ businesses:
• In India, many “investment bankers” are disguising themselves as “angel investors”. Their main intent is to get these entrepreneurs as clients for their investment banking business. They have absolutely no intent or desire to invest in your business. This is a marketing exercise for them to create pipeline for their business. You should clearly stay away from any angel investor who has investment banking as his other business.
• Also, many technology business owners portray themselves as angel investors to keep a check on technology happenings in the market. In some cases, they do invest in other businesses especially if they see some synergy with their own business. While there is nothing wrong with it but if any such angel investor has not made any investment in recent past, then he may only be interested in listening to ideas and getting it implemented by his team. I would not recommend you to stay away from them but you should definitely be cautious in sharing information with them.