About Me

 

Utilizing this digital window to share my understanding of the funder and founder relationships and….
several other things that intrigue me!

October 2020

Analysis, Investments, Opinion, Venture Capital

I have (for a very long time) said that angel networks in India are in a deadly spiral. I had not (yet) discovered "why" angel networks are no longer viable for investors or the founders of the angel networks. The issue

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I have (for a very long time) said that angel networks in India are in a deadly spiral. I had not (yet) discovered “why” angel networks are no longer viable for investors or the founders of the angel networks.

The issue lies in the fact that India’s angel networks no longer operate as networks. The significant shift took place almost 8 years ago when networks decided to become “for-profit.” An event that Anil spoke about it in DamaniTalks Episode XV:

Running a successful angel network or making profits while running an angel network is a paradox. In their purest sense, Angel networks get defined as a group of angel investors who have organized to invest collectively, operate more effectively, and provide mutual support.

The key phrase here is that the angel investors have organized to invest collectively, operate more effectively, and provide mutual support; therefore, the underlying expectation is that the network will not profit from its members’ investment activities. The angel network team is merely a facilitator serving its members. The team must not spend more than what its members are willing to add to their investment costs, and members must have a say in how their money gets spent.

Another expectation from an angel network is that the investors are known to each other. Therefore, an angel network’s value gets derived from its cohesiveness – not the number of people in that network.

When a 3rd party tries to bring people who are (mostly) unknown to each other into a single investment, the 3rd party does not substantially sum their money into these startups – they are a service provider or an investment platform but not an angel network.

The for-profit platform attempts to get its revenues through these means (some, if not all):

  • Annual membership fees to its members
  • Per-deal fee from members (usually 2-3% of the investment)
  • Success fee for startups (usually 2-3% of the investment)
  • Profit-sharing from investors (usually 20% and on a deal by deal basis)
  • Advisory equity from startups for facilitating the funding (usually 2-5% of the raised amount)

There is nothing networky about this model, as the costs add up quite quickly for investors, as I figured out below:

These costs do not include any deal-by-deal carry or the facilitation equity charged to startups, which boost the network’s promoters’ profits, but will yield lower realizations to investors. Here is a link to Fred Wilson’s spreadsheet explaining the difference in net returns for investors between fund carry and deal-by-deal carry.

Therefore, calling a spade, a spade, India’s current angel networks operate as a hardcore investment banking business.

A traditional network should remain non-profit for the investors and run by investors. That the angel investment business alienated superangels into setting up independent investment vehicles was captured well in Sriram’s article: There is a shake-up in angel investing, and legacy angel networks are struggling to adapt. (I got quoted in it too)

I am clear that there is absolutely nothing wrong with starting, operating, and managing startup investment platforms. These platforms organize much-needed capital from passive investors who may not have the resources (time, network, experience, or money) for making venture deals.

I have invested through such platforms and have discovered some fantastic companies through them. It is a sound business model, and super successful ventures as MicroVentures, EquityZen, OurCrowd, or iAngels founders will tell you.

However, these platforms are obvious in that they are for-profit models. They have obtained licenses to pool investments (as required in their countries of operation), and investors investing or startups raising from them know the exact costs they are paying.

As I have known them, the real angel networks are well and truly dead – at least in India.

Investments, My Funding Picks for Last Week, Venture Capital

Every Monday, I review the funding activity of the previous week and pick out three favourites. This week I picked an AItech, an e-commerce, an ARtech, and and HRMS platform as my favourites.

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Every Monday, I sit with my team to review the funding activity of the previous week. From that list, I pick out three companies that I would have loved to invest in or find founders doing similar things. Click here to know about my rationale behind this weekly exercise.

13 early-stage startups raised over $20 million last week, with the overall funding boosting up to $172 million, according to the YourStory article. I am optimistic that we will see a surge in deal-making as this calendar year ends.

This week, 13 deals were in the early-stage rounds (compared to 5 last week), which made the cut for my weekly analysis. After sifting through the news (aggregated from Tracxn, Inc42, and YourStory), I pick these three as my favorite funding news from last week!

Name: Tango Eye

Amount Raised: Undisclosed amount from Lenskart, RiSo Capital, and angel investor Gaurav Gulati

What does Tango Eye do?

Edited from Tracxn: Tango Eye provides AI-based video analytics solutions. It analyzes video surveillance using artificial intelligence technologies and captures actionable insights from the data. Other solutions include customer intelligence, customer data trends and patterns, data security, and cloud-based analytics solutions.

Why do I like Tango Eye?

We have looked at similar models to Tango Eye in the past that analyze footage from CCTVs to provide actionable insights. As teams get increasingly mobile and owners cannot visit every site, these platforms help them to manage from a distance. I believe that such platforms will be the need of the hour moving forward– my only concern would be on the invasion of privacy.

That is another conversation altogether!

Name: Dukaan

Amount Raised: $6 million from Lightspeed Venture Partners, Matrix Partners India, Venture Catalysts, Appyhigh, Weekend Fund, and angels Kunal Shah & Haresh Chawla.

What does Dukaan do?

Edited from Tracxn: Dukaan is a provider of eCommerce solutions to create an online store. Its tools offerings include product listing, order management, multi-language, customer chat support, managing delivery fees, social media sharing, and more.

Why do I like Dukaan?

I have written about the massive growth spurt in the digital economy. Therefore, any platform that helps people get online will do well – in the short term.

Whether they sustain these COVID time revenues and add incremental products or services to increase per store revenues will be a key to long term success. How they maintain these COVID time revenues and whether they could offer a viable Shopify.

Name: Renewate

Amount Raised: ₹2 crores from Better Capital

What does Renewate do?

Edited from Tracxn: Renewate is a platform to find services to renovate houses and offices. Users can work out the estimate and choose among listed service providers. Services include electricals, ceiling, windows, plumbing, painting, etc. They also provide Renewate AR (based on Google Tango) to visualize the planned renovation.

Why do I like Renewate?

Since we are considering renovating our offices, I was surprised to find out that there was no single platform for that what Renewate promises to do. We have not used the service yet, but it looks promising. Many offices would also be looking to redo their spaces for the post-COVID world, and Renewate aims to make it more seamless!

Special Mention:

I have purposefully excluded Kredily’s investment round led by Artha India Ventures, with other co-investors like The Collective I, Fosun RZ Capital, Rainmatter, LendenClub founder, Bhavin Patel, and other angels.

You can find out about; why we invested in Kredily?

Uncategorized

An employee should take skills & experience from their current employer to the new one. Not infomration. Never the information.

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A team member leaving and finding a role someplace else is part and parcel of running a company – not just in India but globally. According to a 2019 Bureau of Labor Statistics survey of baby boomers, the average number of job changes is 12. The number of job changes goes up as the survey gets into millennials joining the workforce, i.e., the younger you are, the more job changes you make. In a rapidly evolving business world consistently disrupted by technology, job changes are bound to happen. We, as founders or workers, must be flexible and accommodating for people changing jobs.  

I look at my team members as having lent me time from their lives; therefore, they should utilize it to learn or sharpen their skill, becoming valuable assets for Artha or a new employer – if they must leave Artha. Consequently, I thrust a lot of responsibility on my team as soon as possible, and if they fail (as they sometimes do), utilize that opportunity to train them. It is an approach that brings a lot of heartburn from my father when he sees well-trained people leave – but it gets me personal satisfaction to witness their journey.

I guess that is also why I love working with early-stage startups. Witnessing their transformation and then watching them soar is a feeling as satisfying as a parent watching their child stand up on their own for the first time (physically or in life). However, there are two things with which you must not get creative.

First is your integrity, and second are your ethics.

These are immortal and nonnegotiable characteristics regardless of you classifying yourself as a Baby Boomer or as Generation Alpha. When you start to tinker with the threads of trust to further your career, you cast aspersions on the millions of hopefuls in a similar position at different companies throughout the length and breadth of India. Therefore, if one knowingly drives a spear into their current employer hoping to win favor with a new one – they must not get forgiven – at least not easily.

Remember: What they will do to a founder today, they will do to another one tomorrow.

This episode played out at Artha in the past 2 weeks. An employee working in my chambers and given a role to get groomed for bigger things at Artha took advantage of the access he had, intending to drive away hard-earned business that Artha won due to its consistently high body of work. What did he gain out of it?

A few lakhs more than what he got paid for at Artha.

He selfishly forgot that while people worried about their jobs or took salary cuts during the lockdown, he (like every single employee at Artha) got his entire salary, every month – without a day’s delay. Artha gave him a bonus even when we did not know if it could make the next payroll. We were close to the brink, but we did not break our promises.

However, when I discovered his betrayal, I did not want to sit and curse my luck. I tried to set an example for other team members, the existing ones, or those joining us. Spitting on the trust that I placed in them would have profound implications – professional and personal.

Therefore I hired the best legal professionals that I knew. A team that places as much value to trust and loyalty as I do, and I have gone full throttle in putting a stop to the evil designs of, an analyst that worked in my office (and not Artha Venture Fund as he claims).

He utilized his access to give out deal-specific information to a competitor fund who acted on that information to backdoor their way into a deal that my team and I had worked for months. When he joined the new fund, he may have hoped to work together as co-investors.

But giving out specific terms that we negotiated with the founder to his current employer did not leave me much choice but to take him to task after his stunt. His action directly affects 10 salaries and indirectly another 10 – many places where this salary is the sole source of income. If someone messes with their families – they are messing with the entire Artha family.

He should have taken the skills he learnt from his stint with Artha – but he wanted to take the information.

Well, the lawyers put his face in the papers on Sunday to inform all of you to beware.

What he has done to my company today – he could very well repeat with yours tomorrow.