What comes to your mind when you say ‘Startup’? Let me improvise the question a bit. Whose image comes to your mind when you hear the word Angel Investors?

This is one big reason why Angel Investing is the new hot topic of the day. Today, India has more than 108 unicorns &amp; around 650 companies are such that have achieved the Soonicorn status i.e it is close to reaching Unicorns status.

In the past 1 year, Angel Investors have incurred heavy losses to the tune of around 5.7 Bn$ or roughly ₹47,000 crores which show issues in either strategy, methodology, or fundamentals. Many people have FOMO or Fear Of Missing Out because of which they start investing in stocks they have no idea about. Let me explain this with the help of a real-life example.
 
 Someone in my distant relatives was very keen on investing in the stock market ever since he saw a boom in Unicorns. His confidence increased manifold when he saw me earn handsome returns in the Startups &amp; Pre-IPO. Not to brag, but i have been an avid investor since the very beginning and I have been fairly successful at it. So my relative thought that if I can, why can't he &amp; I feel there was always a fear of missing out at the back of his mind. The thought wasn’t bad either. After all, that's what we have been taught that nothing is impossible.
 
 He decided to invest a portion of his savings in Startups &amp; Pre-IPO, in the hope to earn excellent returns. Although his journey, unfortunately, didn’t turn out as rosy. The reason was that he invested in stocks which he had very less idea about. He invested in brands he had heard about but didn’t check their background, the financial status of the company, the experience that the management possessed, etc. Turned out that the company my relative was investing in didn’t wasn’t performing as well as its reputation &amp; thus had a negative cash flow to the extent that they had to take debts to meet their day-to-day work. Eventually, my relative ended up in heavy losses. Infact this is not a one-off story. We met thousands of investors who are willing to invest but lack strategy and knowledge and end up in losses just because of it. 
 
 This is just one example of poor strategy but not the only example in the market. One can find thousands of such investors who invested only out of fear of missing out. Infact, if you are thinking that these are ordinary people who invested in the wrong business, allow me to give you examples of top businessmen who made wrong investment decisions.
 
 Although, It's not common to find stories on unsuccessful Indian angel investors as they don't tend to be widely publicized. However, here are a few examples:<ol><li>Vijay Shekhar Sharma: Vijay Shekhar Sharma is the founder and CEO of Paytm, one of the largest digital payment platforms in India. While Sharma has had great success with Paytm, he has also experienced some failures as an angel investor. In 2016, Sharma invested in the hyperlocal services provider, Zimmber, which later shut down due to financial troubles.</li><li>Anand Ladsariya: Anand Ladsariya is the founder and CEO of Everest Flavours, a leading food ingredient company in India. However, his investments in startups haven't always been successful. In 2017, Ladsariya invested in the health-tech startup, Medidaili, which later shut down due to a lack of funds.</li><li>Bhavin Turakhia: Bhavin Turakhia is the co-founder of Directi, a leading technology company in India. He is also a prolific angel investor who has invested in several startups such as Haptik and Unacademy. However, his investment in the grocery delivery startup, Peppertap, was unsuccessful. Peppertap shut down in 2016 due to a lack of funds.</li></ol>It's important to note that angel investing is a risky and unpredictable endeavor. Even experienced investors can make unsuccessful investments due to various factors such as market conditions, management issues, or unexpected competition. It's crucial for angel investors to conduct thorough due diligence and have a diversified investment portfolio to mitigate risks. Now, as we can clearly see, some high-profile names invested in the Angel Investment market &amp; yet they faced significant losses initially. Many reasons can be attributed to the same. For instance, Poor strategy can be one of the reasons. Poor understanding of the background or methodologies could also be one of the potential reasons behind their generating losses. Another reason could be the unrealistic expectation of generating quick returns which is rarely the case with Angel Investing.
 
 This is exactly what we aim to cover in this article of our Angel Investing Masterclass. We’ll speak on why should one not do Angel Investing.
 
 While angel investing in startups can be a potentially lucrative investment strategy, it's important to consider the risks and drawbacks before making any investments. Here are some reasons why you might want to think twice before investing in startups:<ol><li>Risk of Losing Money: Investing in early-stage startups is inherently risky. Many startups fail within their first few years, and as an angel investor, you may lose some or all of your investment if the startup you invest in does not succeed. It's important to have a diversified portfolio of angel investments to minimize the risk of losing money. If you’re someone who feels that all your investment should be successful or should generate handsome returns, then investing in the Stock market is not the right choice, instead, try investing in much safer options like Debt Funding Market, get Fixed Deposits in banks where you’ll get small regular returns.</li><li>Lack of Liquidity: Angel investments are typically illiquid, meaning it can be difficult to sell your shares or exit your investment. Early-stage startups often have no secondary market for their shares, and it may take several years before the startup is acquired or goes public. This means that angel investing is a long-term investment, and you should be prepared to hold your investment for several years.</li><li>Time and Effort: Angel investing can be a time-consuming and active process. As an angel investor, you'll need to do your due diligence on potential investments, monitor your portfolio, and actively work with your portfolio companies to help them succeed. This can be challenging if you have a full-time job or other commitments.</li><li>Limited Control: As an angel investor, you typically have limited control over the operations and decision-making of the startup you invest in. You may have the ability to provide advice and guidance, but ultimately the founders and management team will make the decisions that impact the success of the company.</li><li>Valuation Challenges: Valuing early-stage startups can be difficult, as there is often limited financial data available. As an angel investor, you'll need to carefully evaluate the potential of the startup and negotiate a fair valuation before investing. This can be challenging and may require the assistance of a professional advisor or consultant.</li><li>Opportunity Cost: Investing in startups requires a significant amount of capital, which may be better used for other investment opportunities. Depending on your financial situation and investment goals, you may be better off investing in more established companies or other asset classes.</li></ol>In conclusion, while angel investing in startups can be a potentially lucrative investment strategy, it's important to carefully consider the risks and drawbacks before investing. As with any investment, there is the potential for significant returns, but also the risk of losing your investment. It's important to have a diversified portfolio of investments and to carefully evaluate each opportunity before investing.

In the past 1 year, Angel Investors have incurred heavy losses to the tune of around 5.7 Bn$ or roughly ₹47,000 crores which show issues in either strategy, methodology, or fundamentals.

In the last article, where we covered why not to do Angel Investing, we spoke about how many investors had lost money due to a lack of understanding. Infact many top Angel Investors also suffered heavy losses. All this might have presented a gloomy picture in your mind. We need to understand that every coin has two sides. While many top angel investors failed initially, there was a side where many Angel Investors also succeeded in making heavy profits.
 
 Now a question would arise in your mind. What is it that certain Angel Investors were doing correctly that others didn’t? Were they just more realistic or were the loss-generating a bit too ambitious?
 
 We took the examples of famous Angel Investors like Anupam Mittal who had 25% of his investments sunk as companies shut down early
 
 Anupam Mittal: Anupam Mittal is the founder and CEO of People Group, a leading online matrimonial service in India. He is also a prolific angel investor who has invested in several successful startups such as Druva, Capillary Technologies, and Ola. His investment in Druva was particularly successful, as the cloud data protection company is now valued at over $2 billion.
 
 Jason Calcanis: It isn’t possible to skip the name of Jason Calcanis if we are talking about Angel Investments. Jason Calcanis started his career in the 1990s as a reporter covering the Internet Industry in New York. He then started his own venture with the name ‘Rising Tide Studios’, a media company that was involved in publishing print &amp; online publications. In 2009, Calcanis founded the ‘Open Angel Forum’, a platform that connects early-age startups with Angel Investor. Some of the exceptional achievements of Calcanis include converting 1,00,000$ which translates to ₹80 Lacs ko ₹800 crore. Some of the marquee companies he invested in include Uber, Robinhood, Datastax &amp; Super Human. 
 
 In this article, we help you understand what can expect from Angel Investing. We start by taking a look at some stories of successful angel investors in India:
 
 Kunal Bahl: Kunal Bahl is the co-founder and CEO of Snapdeal, one of the largest e-commerce companies in India. However, before founding Snapdeal, Bahl was an angel investor who invested in several successful startups such as FreeCharge and TinyOwl. His investment in FreeCharge was particularly successful, as the company was later acquired by Snapdeal for $400 million. 
 
 Rajan Anandan: Rajan Anandan is the former managing director of Google India and a prolific angel investor. He has invested in several successful startups such as Druva, Capillary Technologies, and Innovaccer. His investment in Druva was particularly successful, as the cloud data protection company is now valued at over $2 billion.
 
 Rehan Yar Khan: Rehan Yar Khan is the founder and managing partner of Orios Venture Partners, a leading early-stage investment firm in India. He has invested in several successful startups such as Ola, Druva, and PrettySecrets. His investment in Ola was particularly successful, as the ride-hailing company is now valued at over $10 billion.
 
 Sanjay Swamy: Sanjay Swamy is the founder and managing partner of Prime Venture Partners, a leading early-stage investment firm in India. He has invested in several successful startups such as ZipDial, Ezetap, and HackerRank. His investment in ZipDial was particularly successful, as the mobile engagement platform was later acquired by Twitter.
 
 Alia Bhatt: Alia Bhatt, a renowned actress in Indian Film Industry has been an angel investing in startups for a few years now. Infact one of her most successful investments was in the popular beauty &amp; wellness brand Nykaa. Nykaa has been founded by Falguni Nayar. Nykaa launched its IPO in October 2021 which attracted 82x subscriptions in 3 days, worth around 32.53 Bn$. Today Nykaa is valued at 1.3 Bn US$. 
 
 Shilpa Shetty: Shilpa Shetty, another renowned actress in the Indian Film industry is also an avid Angel Investor. Her famous investment into popular Indian skincare startup Mamaearth went viral. Mamearth became a Unicorn in January 2022 by raising 52 Mn$ at a valuation of over 1.2 Bn$. Mamaearth launched its IPO at a whopping valuation of 3 Bn$ which in Indian currency translates to around ₹24,000 crores.
 
 These are just a few examples of successful angel investors in India who have made smart investments in promising startups. Their success stories demonstrate the potential for high returns when investing in Indian startups, and highlight the importance of conducting thorough due diligence before making any investment decisions.
 
 Angel investing is a type of investment where individuals provide capital to early-stage startups in exchange for ownership equity or convertible debt. Angel investors typically invest in startups that are not yet profitable but have high growth potential. Here's what you can expect from angel investing:
 
 Functional Benefit - High Potential Returns: Angel investing has the potential to generate high returns, with some successful startups yielding returns as high as 100% or more. 
 
 However, it's important to keep in mind that investing in early-stage startups is a high risk, and many startups do not succeed. As an angel investor, you should be prepared to lose some or all of your investment in a startup.
 
 For eg. An Indian investor investing in a high-potential returns startup is Ratan Tata's investment in Ola. Ratan Tata, the renowned industrialist and former Chairman of Tata Sons, made a personal investment in Ola, an Indian ride-hailing company, in early 2015. At that time, Ola was competing with global ride-hailing giant Uber in the Indian market. Ratan Tata's investment not only provided a significant infusion of capital but also lent credibility and support to Ola's mission of transforming urban transportation in India. Today, OLA’s net worth is US$ 6.5 Bn.
 
 Emotional Benefit - Support, Groom &amp; Cultivate what you care about: Angel Investing provides investors with the perfect opportunity of investing in startups, choose the next idea to be supported &amp; make a difference in the world. 
 
 It is an opportunity to support innovation, to support talented people who have the potential to positively impact millions of people around the world.
 
 For instance, TATA, with its long-standing legacy of innovation and social responsibility, embodies a sense of purpose and commitment to making a positive impact. By supporting Goodfellows, TATA provides not only financial backing but also mentorship, guidance, and access to its extensive network. 
 
 
 Economic Benefit - Access qualified Deal flow: Angel Investing provides investors with not only an opportunity to support budding entrepreneurs but also helps minimize the risk of their investment through diversifying their investments.
 
 At Planify, you can find vetted Startups at cheap prices &amp; generate very handsome returns. Infact Planify has a rich experience of providing annual 50% returns on an average investment in its backed startups. 
 
 More importantly Planify charges 0% subscription &amp; transaction fee to help enable ease of investments for Investors.
 
 Self-Expressive Benefit - Opportunities to Learn and Network: Angel investing can be a great way to learn about new industries and technologies and to meet and network with other investors and entrepreneurs. 
 
 By investing in startups, you'll gain insights into the entrepreneurial process and may even have the opportunity to mentor or advise the founders of the companies you invest in.
 
 For eg. One real example of an Indian investor investing to gain opportunities to learn and network is the TiE (The Indus Entrepreneurs) is a global organization that fosters entrepreneurship and supports startups through mentoring, networking, and educational initiatives. While TiE itself does not directly make investments, it provides a platform for entrepreneurs to connect with investors and access funding opportunities. One of the notable investments has been in Druva which is a data protection and management company that offers cloud-based solutions. The startup received investments from TiE Charter Members, which are successful entrepreneurs and investors associated with TiE.
 
 Society &amp; Environmental Benefits - Earn an opportunity to shape the future economy: Angel Investment provides investors with an opportunity to shape the future economy of the country. Investing in startups that have the potential to impact the lives of millions of people can transform a particular industry. 
 
 More importantly, today, Startups are a huge source of employment generation &amp; provide entrepreneurs also with a chance to return back to their entrepreneurial community by supporting their fellow entrepreneurs. Infact many startups today are playing a role in both shaping the economy as well as conserving the environment by investing in Green technology.
 
 For eg. Take for instance Renew Solar in which Goldman Sachs, the global investment banking firm has made significant investments. They have been one of the early investors in the company and continue to support its growth. ReNew Power is one of the leading renewable energy companies in India. It was founded in 2011 by Sumant Sinha, a former CEO of Suzlon Energy. The company is dedicated to transforming India's energy landscape by generating clean and sustainable power from renewable sources.
 
 In conclusion, angel investing can be a high-risk, high-reward investment opportunity that requires active involvement and a long-term investment horizon. While there is the potential for high returns, it's important to understand the risks and drawbacks before investing and to have a diversified portfolio of angel investments to minimize the risk of losing money.

What is it that certain Angel Investors were doing correctly that others didn’t? Were they just more realistic or were the loss-generating a bit too ambitious?

In the last article, the success stories of investments highlighted the importance of conducting thorough due diligence before making any important investment decision. Through the above stories, we also highlighted the expectations that Angel Investors can keep while investing their hard-earned money into upcoming startups. 
 
 In this article, we take a look at ‘Understanding what is better: Investing in India or Outside’. Like with any investment decision, whether to engage in angel investing in India or outside of India depends on several factors that can influence the potential returns and risks associated with the investment. Let's understand this with the help of an example. Infact I would like to start by asking you all a question. Would you, if given a chance, invest in Pakistan? No? If your answer is no then why so? Why do companies prefer India over Pakistan?
 
 Some of the reasons that can be stated are as below: 
 
 1. Currency risk: We ask our previous question again: Would any investor like to invest in Pakistan &amp; if not then why so? Could Macroeconomic conditions also have played a role in shaping the decision? Pakistan’s economy is on the brink of a complete collapse and its currency is by far the worst-performing currency at least in Asia.
 
 
 2. Geopolitical Instability: Another reason why many investors would hesitate to invest in a particular region would be because of Law &amp; order issues or is it because of archaic regulations and stringent laws. From multiple wars that the region has seen to terrorism to narcotics etc. 
 
 
 Let's take a look at an investor who invested outside India &amp; failed: 
 WeWork: WeWork, a co-working space provider, was once valued at $47 billion. However, the company's IPO failed in 2019, and its valuation plummeted. SoftBank, which had invested heavily in WeWork, suffered significant losses.
 
 
 This is an example of investors who have suffered losses from their investments outside India. It is essential to conduct thorough research and due diligence before making any investment. 
 
 
 Enough sorry stories for the day? Don’t worry we won’t give you more. Infact we will now talk about companies and investors who are investing in India &amp; doing well.
 
 
 I am sure everyone would have heard of Apple Inc. Now, Apple Inc. has been in a lot of news recently. They, through their contract manufacturers, are investing billions of dollars into India, setting up world-class factories but do you know that they had asked the Indian government to first bring Ease of Doing Business climate which included relaxing certain regulations, easing labour laws, providing trunk infrastructure, etc.
 
 Infact let me now give an example of a domestic company: Airtel. Are all of you aware of the fact that Airtel has a company in Africa that is valued at 3.67 Bn$? The question is how is Airtel, an Indian company able to build such a big empire in Africa? Many companies tried &amp; failed miserably but Airtel not only survived but thrived. How?
 
 The answer is pretty simple. Airtel has the wherewithal to get things done as per its requirements. It has the financial power &amp; legal backing to sit down with bureaucrats of African nations and get things approved. Any company would like to invest in another country only if it is assured of Ease of Doing Business.
 
 Now, we read about Apple, we read Airtel, and the question that arises is whether these are big conglomerates that have the requisite financial &amp; legal backing but individual investors don’t have such backing to get things done their way. More importantly, most of them don’t even have knowledge about legal procedures in a third country so what would they prefer: Investing in India or Outside India? 
 
 Let's understand this with the help of an example of a Domestic Investor like Anupam Mittal who would rather invest in India instead of other regions. The first reason could be different laws being followed by different regions which act as a deterrent to investors. Another reason is that today India is the largest market that attracts business owners to set up their shop in India and invest in Indian startups. 
 
 
 Now the question arises if you can’t go through Angel Investors, then investors have a chance to go through VCs but VCs are themselves bullish on India. Infact India is the only country today that has a 0% chance of recession so why would investors not like to invest in India. 
 
 
 As a matter of fact, Only 4500 startups have got investment out of which only 100 have been unicorns &amp; India’s startup ecosystem has over 90,000 startups showing the immense potential &amp; scope of investments. Here are some points to consider when making a decision to invest in India:
 
 
 Growing Startup Ecosystem: India has witnessed rapid growth in its startup ecosystem over the past decade. The country is home to a vibrant entrepreneurial culture with a significant number of innovative startups emerging across various sectors. This presents angel investors with a wide range of investment opportunities and the potential to back the next big success story.
 
 Large Consumer Market: India boasts a massive consumer market with a population of over 1.3 billion people. The rising middle class and increasing disposable incomes have fueled the demand for products and services, creating ample market opportunities for startups. By investing in Indian startups, angel investors can tap into this vast consumer base and potentially benefit from significant growth potential.
 
 Technology and Innovation Hub: India has emerged as a global technology and innovation hub, with thriving sectors such as software development, artificial intelligence, e-commerce, fintech, health tech, and more. The country is known for its pool of talented engineers, entrepreneurs, and tech professionals who are driving innovation and disruption. Investing in Indian startups allows angel investors to be part of this tech-driven revolution and capitalize on the transformative potential of these sectors.
 
 Government Initiatives and Support: The Indian government has launched various initiatives and policies to foster the startup ecosystem and encourage angel investment. Initiatives like Startup India, Make in India, and Digital India aims to create a conducive environment for startups to thrive, providing incentives, tax benefits, and streamlined regulatory frameworks. This support from the government further enhances the investment landscape and reduces barriers for angel investors.
 
 Access to Diverse Sectors: India offers a diverse range of sectors and industries for investment. From technology and e-commerce to healthcare, renewable energy, and agriculture, there are numerous sectors with untapped potential. This diversification allows angel investors to build a well-rounded portfolio and spread their risk across different sectors, maximizing their chances of success.
 
 Cost Advantage: Compared to other global startup hubs, India offers a cost advantage in terms of talent acquisition, operational expenses, and overall business setup. The lower cost of living and wages relative to developed countries make it an attractive destination for startups to establish their operations. This cost advantage can lead to higher profitability and returns for angel investors supporting Indian startups.
 
 Collaborative and Supportive Community: The Indian startup ecosystem is known for its collaborative and supportive nature. There are numerous incubators, accelerators, and networking platforms that connect entrepreneurs, investors, and mentors. This ecosystem provides a nurturing environment for startups to thrive and offers opportunities for angel investors to actively engage with the startup community, provide guidance, and leverage their expertise.
 
 Ultimately, whether to engage in angel investing in India or outside of India depends on your investment objectives, risk tolerance, and investment horizon. It is important to do your research, seek professional advice, and diversify your portfolio to manage risk.
 
 Based on some popular news reports, there are over 26,000 Angel Investors in India. Planify is one such organization that is supporting over 10,000 accredited investors &amp; family offices and have given them average annual returns of 50%.
 
 
 According to the PwC India report titled ‘Startup Deals Tracker- CY22’, total funding last year dropped 33% to 24 Bn US$ owing to the Funding Winter phenomenon but still remained at least 50% higher than pre-covid years. Infact, India last year became only the third country to have reached the milestone of 100 unicorns after the US &amp; China. The numbers are set to rise rapidly as many startups enter the Soonicorn status &amp; infact new divisions called Minicorns have been created to signify the early-stage startups which are showing immense potential.
 
 
 Across both 2021 &amp; 2022, early-stage deals took the lion share of total deals averaging at around 60-62% of the total funding. The category remained a hot favorite among investors contributing 12% in value as compared to 7% last year.
 
 In conclusion, we feel India presents a compelling case for angel investors looking for promising investment opportunities. The growing startup ecosystem, large consumer market, technological advancements, government support, diverse sectors, cost advantage, and collaborative community make India an attractive destination for angel investment. However, it is essential for investors to conduct thorough due diligence, evaluate potential risks, and seek professional advice before making any investment decisions.

We take a look at ‘Understanding what is better: Investing in India or Outside’. Like with any investment decision, whether to engage in angel investing in India or outside of India depends on several factors that can influence the potential returns and risks associated with the investment.

We’ll discuss the Angel Investing Opportunities present in India. India offers a range of investment opportunities across various asset classes, sectors, and geographies.

In the previous article, we read about Angel Investing Opportunities in India where we closely read about how India offers a range of investment opportunities across various asset classes, sectors, and geographies. We also explained through popular global &amp; Indian examples what successful angel investments can lead to. We took the example of Facebook, Google, and popular Indian startups like Flipkart &amp; Ola to help explain the significance of Angel Investment.
 
 Lastly, we listed out popular angel investment opportunities in India:
 Healthtech
 Fintech
 Edtech
 Agritech
 Clean Energy
 
 In this article, we take a look at what we mean by accredited investors &amp; how these accredited investors are playing a crucial role in supporting the startup ecosystem in India &amp; fostering innovation.
 
 Like always, we’ll try to explain the definition in the form of a story to help readers get a comprehensive understanding of the subject.
 
 Once upon a time, in the bustling city of Bengaluru, a selected group of individuals held a key to a mysterious realm known as "Accredited Investors." These individuals were not your ordinary denizens of the financial kingdom; they were the chosen few, whispered about in hushed tones by those seeking entry into exclusive opportunities.
 
 The gates to the world of Accredited Investors were guarded by the Securities and Exchange Board of India (SEBI), standing tall and vigilant. To enter, one needed the magic key—a specific financial status that set them apart from the common folk.
 
 Accredited Investors, adorned with financial insignia, possessed a net worth that soared high above the clouds or an income stream that rivaled the mightiest rivers. These fortunate souls had crossed the thresholds set by the SEBI, unlocking access to a realm where private offerings and exclusive investment opportunities awaited.
 
 According to SEBI guidelines, an Accredited Investor is a business entity or institution that wishes to start its AIF Fund to invest in startups. While individual investors are required to have a net worth of ₹2 Crores to be considered as an Angel Fund, a Corporate investor is required to have a net worth of ₹ 10 Cr. 
 
 The SEBI has also prescribed certain rules &amp; regulations regarding the amount of funds that can be raised from investors via AIF. For AIF Category 1, Category 2 &amp; Category 3 respectively, the minimum investment is ₹ 1 Cr. The minimum commitment required for investment in VentureX Fund is ₹ 1 Cr.
 
 Tales of Accredited Investors' prowess spread far and wide. They were the patrons of private equity, venture capital, and hedge funds—investments shrouded in secrecy and privilege. The kingdom recognized them as the risk-takers, the visionaries. They were considered as the chosen ones who dared to dance where others feared to tread.
 
 We take a look at some examples of successful startups that have benefited from the support of accredited investors:
 
 1. Uber: Uber is a ride-hailing platform that has revolutionized the transportation industry. In its early days, Uber received funding from a group of accredited investors, including Benchmark, TPG, and Google Ventures. This early funding helped Uber to expand its operations and develop new products and services.
 
 2. Airbnb: Airbnb is an online marketplace that connects travelers with hosts who have spare rooms or homes to rent. In its early days, Airbnb received funding from a group of accredited investors, including Sequoia Capital and Greylock Partners. This early funding helped Airbnb to scale its operations and expand into new markets.
 
 There have been many successful Indian startups that have benefited from the support of accredited investors. Here are some examples:
 
 1. Byju's: Byju's is an ed-tech company that offers online learning and educational products. In its early days, Byju received funding from a group of accredited investors, including Sequoia Capital and the Chan Zuckerberg Initiative. This early funding helped Byju's to expand its operations and develop new products.
 
 2. Oyo: Oyo is a hotel booking platform that has become one of India's most successful startups. Oyo received funding from a group of accredited investors, including SoftBank, Sequoia Capital, and Lightspeed Venture Partners. This early funding helped Oyo to expand its operations and develop new products and services.
 
 3. OLA: Ola, an initiative by ANI Technologies, emerged as a beacon of convenience, redefining how people traverse the ever-expanding cities. With just a tap on a smartphone, Ola empowered millions to summon a ride, making daily commutes more efficient and enjoyable. What began as a local solution for urban transport soon expanded its wings globally. Ola ventured into international markets, bringing its user-friendly platform and innovative solutions to new corners of the world, contributing to the evolution of the global ride-hailing ecosystem. 
 
 Now that OLA is foraying into the emerging Electric Vehicle and Lithium Ion Batteries space, this is an opportune time to talk about the investors who understood &amp; trusted its potential at a very young age &amp; gave it funds to fuel growth. These accredited investors included Softbank Group, Sequoia Capital, and famous Shark Tank judge Anupam Mittal among others.
 
 These examples demonstrate the crucial role that accredited investors play in supporting Indian startups. Accredited investors bring not only financial resources but also expertise, mentorship, and networking opportunities to help startups grow and thrive. Without the early-stage funding and resources provided by these investors, many startups would struggle to get off the ground and achieve success in India's competitive startup ecosystem.
 
 Planify is proud to state that it has a set of 10,000 accredited investors who have been actively investing in over 300 vetted startups on our platform &amp; Planify has helped facilitate over ₹250 cr. worth secondary investments, earning them a minimum annual return of 50%. Planify has also facilitated over 31 successful exits where a cumulative investment of Rs. 3.1 Cr. (Rs. 10 Lakh per company) is presently valued at Rs. 17 Cr., providing absolute returns of ~450% and CAGR returns of a whopping 117% every year.

In the previous article, we read about Angel Investing Opportunities in India where we closely read about how India offers a range of investment opportunities across various asset classes, sectors, and geographies.

In the first unit of our series, we covered in-depth Angel Investing, the need for angel investing, what to expect of it and why should one not do angel investing. Now, we introduce you all to the second unit of our Masterclass covering Financial Concepts and Terminologies. We have divided this module into two parts. In the first part, we plan to cover Concepts and terminologies related to Markets and users which are crucial to understanding before any investor starts investing in a particular company. In the second article, we’ll cover the Financial Concepts &amp; terminologies related to a business: Like always, we’ll try to explain the concepts to all of you with the help of a story and examples to help you grab the information better. So tighten your seatbelts as we go on a rollercoaster ride to understand the various financial concepts &amp; terminologies related to Angel Investing. In the olden times in Bharata, where money moved through markets like rivers and piles of information were like quiet guards, there was a magical cloth called the "Tapestry of Financial Concepts." This special cloth was made with words and mysterious signs, and it had the secrets to riches, risks, and doing well in life. One day, an investor who was interested in supporting the entrepreneurial spirit of the society &amp; making exceptional returns was sitting alone in the local ground, watching children play games. He called a few kids &amp; offered them candies provided they answered his question. The question was very simple, What did the kids aspire to become? One of them replied Pilot, another kid replied that she wanted to serve in the Armed Forces, and another kid replied they wanted to represent the country in Cricket. There was one kid standing behind all the others, maybe too shy to give a reply. Upon insistence, the kid replied he wanted to start a business. This kid caught the eye of aspiring investors. For far too long, the investor had been hearing about stories of successful entrepreneurs &amp; how Angel Investors were making a living for even their future generations just by investing in these early-age startups. Here, was a kid in front of him, barely 15 years of age, having an idea with potential &amp; a vision to contribute something to the development of society. The question was how to groom him into a successful entrepreneur so that his success would have spillover effects. After thinking for a while, the investor believed that the only way he could meet both objectives was if he got access to the renowned, much-talked-about special cloth because that special cloth had the recipe for success. So the investor set out on a path to explore the secrets of the special cloth. Upon finding that special cloth, the investor carefully opened the cloth &amp; it had a few terms written on it as if they were some codewords. What were those codewords? Let’s explore those Codewords together: TAM/SAM/SOM: We’ll start by explaining each one of them briefly. TAM: TAM stands for Total Addressable Market. As we promised earlier, explaining with the help of an example, if an Investor wants to invest in startups that are into electric vehicle manufacturing, the first thing they would look at is what is the demand for electric vehicles across segments in the market &amp; who has a dominant position in the market. It is to be noted that Electric Vehicles are divided into different segments, from 2-wheelers to 3-wheelers to 4-wheelers to even Trucks and buses. SAM: SAM stands for Serviceable Addressable Market. In other words, if we have an investor, let's say his name is Ram, before investing in a particular electric vehicle startup, he would like to know the size of the market the company is trying to address with its products. For eg. OLA &amp; Ather are into 2-wheeler electric manufacturing while TATA, Tesla, and Mahindra are into 4-wheeler electric vehicle manufacturing. There’s even a segment of Electric Buses in which the players consist of Olectra, Ashok Leyland, etc. The larger the Serviceable Addressable Market, the better prospects the company has. SOM: SOM stands for Serviceable Obtainable Market. It looks at what portion of the Serviceable Addressable Market, the company can realistically capture shortly (3-5 years). In other words, let’s say Ram finds an attraction to invest in the 2 Wheeler market but before investing he would like to understand how much market size the company, let’s say OLA, plans to capture till 2025 &amp; how much share its competitors plan to capture. This will help Ram plan his investments accordingly. With this, we have completed our first sub-unit of this module. Coming to the second sub-unit of this module, we plan to cover: CAC &amp; LTV: In this sub-unit, we’ll talk about two very important terminologies that every investor should know before they start investing. CAC: CAC stands for Customer Acquisition Cost. Many companies resort to targeted online marketing campaigns to attract their customers. So the cost that the company pays to attract customers is known as Customer Acquisition Cost. Fintech Companies like Paytm &amp; Policy Bazaar spend sizable sums of money on acquiring a customer. It’s possibly one of the major reasons behind them having a sizable customer base. For eg. the Average monthly users today transacting via Paytm is over 90 Million. LTV: LTV stands for Lifetime Value of Customers. LTV estimates the average revenue the company is expected to generate in the lifetime of the customer’s association with the company. LTV &amp; CAC are interlinked. A company needs to back the increasing customer base by retaining those customers which is only possible if they provide better products and services. The more customers get retained, the more would be the LTV value earned by the company. For instance, Take the example of BSNL. Over the past decade, BSNL fell from having the second largest consumer base after Airtel to now at the last position among big players because while on the one hand, CAC increased after the entry of players like JIO, on the other hand, due to poor delivery of service, LTV also decreased as many customers purchased services from private players. MRR &amp; ARR: In the third sub-unit we plan to cover MRR &amp; ARR. So let's dive straight into our 3rd sub-unit: MRR: MRR stands for Monthly Recurring Revenue. MRR is an indication of the health of your business. It signifies the growth potential of your business. ARR: ARR stands for Annual Recurring Revenue. ARR is the value of the recurring revenue of a business’s term subscriptions normalized for a single calendar year. Most companies, especially companies dealing in Software as a Service (SaaS) lay special emphasis on improving their MRR &amp; ARR. Recently a SaaS-based company Whatfix hit 50 Million US$ ARR. COGS: COGS stands for Cost of Goods Sold. It is the sum of all direct costs associated with making a product. It includes money mainly spent on Raw materials &amp; labour. Companies like Apple have impressive profitability because just in the FY 2023-24, Apple’s COGS, also known as cost of revenue represented 56% of its entire cost base. The lean P&amp;L further strengthens Apple’s robust business model. Of late, Apple has been pursuing to improve gross margins via supplier dominance &amp; in-house chip development. AOV &amp; ARPU: In this subunit, we’ll cover AOV &amp; ARPU. AOV &amp; ARPU are two important indicators of how your business is performing, and how much revenue on average is the business able to generate per order value &amp; user. AOV: AOV, also known as Average Order Value is a key performance metric that underlines the the customer purchasing habits. Its of great help to e-commerce companies like Amazon, Flipkart &amp; now the newly launched ONDC as it will help them prepare a database of the average amount of spending per order. ARPU: ARPU or Average Revenue Per User, on the other hand, as the name suggests how much money you’re earning from each user in a given timeframe. ARPU indicator is used by companies across the world. It helps companies plan better strategies to attract more revenues from their users by offering enhanced products and services. For eg. Recently Telecom companies like Airtel &amp; VI have been asking for a hike in the tariff rates to attract more revenue per user, automatically improving their ARPU. DAU &amp; MAU: In the 6th sub-unit, we would cover the Daily Active Users (DAU) and Monthly Active Users (MAU) indicators. DAU &amp; MAU are 2 indicators that are frequently used by companies around the world, especially to track the traffic on their websites &amp; apps. This helps them design their brand campaigns &amp; get clarity on who is their target market. I won’t take any other company’s name here but Planify itself. We regularly track the DAU &amp; MAU numbers to check traffic on our page &amp; app. This helps us plan better on what our target market is. User Retention: In the last sub-unit of this User submodule, we'll discuss User Retention &amp; what it signifies. User Retention indicates the amount the company is willing to spend to retain its customers. Retaining your customers increases word-of-mouth recommendations &amp; loyalty toward the business. Infact, according to a report published by Hiver, existing customers are more likely to spend 30% more on a new product than new customers. Finally, as the financial saga unfolded, the Tapestry of Financial Concepts became a masterpiece—a symphony that harmonized the dance of risk and return, the ebb and flow of markets, and the alchemy of wealth creation. In Bharata, where every investor and trader was a storyteller, the enchanted tapestry continued to evolve, unveiling new chapters of financial mastery. ​

In the last article, we covered Concepts and terminologies related to Markets and users which are crucial to understand before any investor starts investing in a particular company. In this article, we’ll discuss the Financial Concepts &amp; terminologies related to a business, signifying the financial health of a business. Understanding the financial health of a business is equally crucial, if not more. Firstly, it provides a comprehensive insight into the company's profitability, liquidity, and overall stability, allowing investors, stakeholders, and management to gauge its ability to generate sustainable revenue and weather economic uncertainties. Secondly, a thorough analysis of financial statements helps in assessing the company's risk profile, enabling investors to make informed investment decisions based on their risk tolerance and objectives. Like always, we’ll try to start this concept in the form of a story to help our users get a comprehensive understanding of the subject: In the bustling startup hub of Mumbai, seasoned angel investor, Aisha, found herself intrigued by a young fintech startup called "FinVista." The founders, Raj and Ananya, exuded passion for their digital financial solutions platform, and Aisha sensed the potential for a transformative journey. However, she also observed a gap in their understanding of critical financial concepts. Recognizing the need for guidance, Aisha decided to mentor Raj and Ananya. The first lesson was on "Burn Rate," a term that Raj and Ananya hadn't fully grasped. Burn Rate: Aisha explained the importance of managing expenditures vis-a-vis income, and the founders realized the significance of optimizing costs to achieve sustainable growth. Burn Rate, in the case of Startup companies, is the rate at which a new company is spending its venture capital to finance its overhead before generating positive cash flow from operations. Thus, the Burn Rate can be considered a measure of the negative outflow of the business. Burn Rate can be divided into 2 types: Gross Burn Rate: Gross Burn Rate is simply the money spent by the business every month or in other words the total monthly cash outflow. It is generally calculated by combining all your monthly expenses as found on your income statement inside your P&amp;L sheet. Net Burn Rate: Net Burn Rate is the amount of money lost each month and takes into account possible company revenues. In other words, it signifies the difference between monthly cash inflows and cash outflows. Let me give you examples of a couple of companies to help you understand better the concept of burn rate: Airbnb: In the early days, Airbnb had a high burn rate as it invested heavily in marketing, growth, and product development. However, they were able to achieve profitability by focusing on revenue-generating activities and cutting back on non-essential expenses. Uber: Uber also had a high burn rate in its early days, as it invested heavily in expansion and marketing. However, the company was able to achieve profitability by scaling its operations and cutting back on driver incentives and other expenses. Runway: Next on the agenda was "Runway." Aisha painted a vivid picture of a startup's financial runway—the time it could stay afloat before running out of funds. Raj and Ananya began to see their startup's trajectory as a flight, and the concept of maintaining a sufficient runway period resonated deeply. It was a paradigm shift in their financial mindset. Runway, popularly known as Cash runway, is a term used to imply the amount of time, in months a business has before it runs out of cash. It can be calculated by dividing the current cash balance by the cash burn rate. Let's understand the concept of Cash Runway with the help of examples: Pharmeasy: Recently we heard that Pharmeasy, which had earlier planned to launch its IPO in 2023, had delayed the process till 2025 due to some concerns with its high cash burn rate which was leaving a decreased Cash runway for the company that had the potential to badly impact their proposed IPO, since that would create a negative perception about the company’s financial management in the eyes of the investors. Cash Burn Rate: The discussion then shifted to "Cash Burn Rate." Aisha emphasized the need for efficient cash management, urging the founders to understand how quickly their startup was using up its available cash. The realization dawned on Raj and Ananya that controlling their cash burn rate was paramount for longevity. Cash Burn Rate signifies the change in Cash balance month over month. It is calculated as the difference between the Cash balance in the prior month &amp; Cash Balance in the current month. Meesho: Take for instance the case of the popular online women's clothes shopping business Meesho which has recently achieved a milestone by reducing its cash burn by 90% in the last year. This is in line with the company’s aim to become EBITDA positive. CM Level 1, CM Level 2, CM Level 3: The discussion then turned to Contributing Margin (CM). Aisha emphasized the crucial role of Contributing Margin—highlighting that it represents a product’s net sales minus all associated variable costs. The total contribution margin represents the total amount available to pay for fixed expenses and to generate a profit. It can be further divided into CM1, CM2, and CM3. CM Level 1: CM Level 1 represents the Sales (revenue from Operations) minus the basic cost of goods sold, discounts, and coupons. This is the same as the Gross margin. CM Level 2: Under CM Level 2, we deduct any other Operational Variable Costs which include logistics warehouses, payment gateway fees, etc. All these are also known as Indirect Expenses in the field of finance. CM Level 3: Lastly, we arrive at CM Level 3. Under CM level 3, we deduct the marketing &amp; administrative expenses. In other words, CM level 3 can be regarded as deducting direct costs from EBITDA. Understanding and optimizing this metric is key to sustainable business growth and financial success. EBITDA: EBITDA is the net income with interest, tax, depreciation and amortization added to it. EBITDA is generally used by companies, on the one hand, to track and compare the underlying profitability of companies regardless of their depreciation, assumption &amp; financing choices &amp; by investors on the other hand to see how well is the firm being managed. PAT: PAT on the other hand refers to the amount that remains after a company has paid off all of its operating &amp; non-operating expenses, other liabilities &amp; taxes. This profit is either distributed among the shareholders as dividends or kept as retained earnings to be invested back into the business for further expansion. Royalty: Royalty is akin to renting out special rights. In startups, royalty is a way to get money from investors. Instead of giving up ownership, investors get a part of the startup's future revenue. This helps startups grow while still keeping control of their company. Let’s take an example from Shark Tank to understand this better. The first startup that appeared on Season 3 of Shark Tank, The Honest Home got a deal from Sharks as a part of which they had to give 1% Royalty per unit of sales until Sharks got ₹1.5 Cr. returns which was 1.5x the invested amount. So supposing The Honest Home is selling a unit of eco-friendly daily-use product for ₹500, they pay ₹5 to Sharks who had invested. Ramen Profitability: Ramen profitability refers to a business's ability to generate only enough profit to cover the founders' basic living expenses, reminiscent of the low-cost lifestyle often associated with instant ramen meals. While this term underscores the importance of profitability, it also highlights the limitations of generating just enough income for sustenance. However, for startups aiming for long-term success, relying solely on "ramen profitability" is not sustainable. Instead, founders should aim for "traditional profitability," where the business generates sufficient profits to support a comfortable and viable standard of living for the founders, reflecting the success of their sales efforts. Churn Rate: Lastly, Aisha delved into "Churn Rate." As she explained how customer churn impacted the business, Raj and Ananya started dissecting their user base. Understanding the nuances of customer retention became a key focus, with the founders realizing that sustaining customer loyalty was as crucial as acquiring new users. Churn Rate, commonly known as the Rate of Attrition is the rate at which customers stop doing business with the entity. It is most commonly expressed as the percentage of service subscribers who discontinue their subscriptions within a given period of time. Many companies look towards the Churn Rate to assess their performance as an entity. Infact many wholesalers also use this metric to check how efficient their after-sale services have been. Let’s look at an example of a company that had a very high churn contributing to their decreased revenues: VI (Vodafone-Idea): VI or Vodafone-Idea, India’s 3rd largest telecom player in the market has been assessing its performance year on year using a Churn Rate that has been decreasing for a while now &amp; a report by ICICI securities has cautioned them that if they don’t arrest this collapse in churn rate, they will be left at the 4th position in the telecom market in terms of active subscribers thus resulting in further increase of losses. Armed with this newfound financial literacy, Raj and Ananya transformed their pitch deck. They confidently presented to potential investors, including Aisha, showcasing a deep understanding of their startup's burn rate, runway, cash burn rate, and churn rate. The language of finance had become their ally, and it resonated with investors looking for not just promising ideas but also a solid financial foundation. As "FinVista" secured funding, Aisha beamed with pride, knowing that the journey had extended beyond mere investment—it was a journey of education and empowerment. The story of FinVista and Aisha became a beacon in the Indian startup ecosystem, emphasizing that for angel investors, a founder's grasp of financial concepts was as crucial as the innovation behind the business.

​ Throughout our masterclass journey, we have delved into various topics covering the need to Angel Invest, Why not to Angel Invest, What to expect from Angel Investing &amp; Opportunities it provides. We also covered in depth the Financial Terminologies that will assist investors in their Angel Investment journey. In this Unit, we’ll cover Asset Allocation. We’ll look at how much an investor should allocate capital towards Angel Investing, understand the power of the law of returns, how many companies one needs to invest in &amp; many such diverse topics that will assist an Investor in making the right investment decisions. Our first module discusses how much Investment Capital to allocate &amp; what things to keep in mind while allocating. Like always, we’ll start with a short story. Let’s Begin! In the bustling world of investments, Sarah found herself at a crossroads, On the one hand, her job was paying her just enough to maintain her living standard while on the other hand, the inflation was rising and her income was not enough to cope with increasing expenses. Being an elder sister she had to look after her little brother’s expenses apart from paying off monthly expenses like Rent, Groceries, Electricity, etc. One fine day while packing her bag after a long day’s shift, her friend walked up to her and inquired about how she was managing her expenses. Tension was very much visible on her face. The friend suggested she start investing whatever little she could &amp; further diversify it to reduce risks. This way not only would she meet her future expenses adequately but also be able to secure her family’s future &amp; meet her own financial aspirations. Deliberating the crucial decision of how much capital to allocate for investments. Armed with financial wisdom from mentors and years of market observation, she embarked on a strategic journey. Sarah understood the importance of diversification and risk management. Setting clear financial goals became her compass, guiding her allocation decisions. She decided to earmark a substantial portion for equities, seeking growth potential, while allocating a percentage to bonds to provide stability and minimize risk. Real estate investments offered a tangible and resilient asset class, securing another slice of her portfolio. As market dynamics shifted, Sarah remained adaptable, tweaking her allocation strategy. She embraced the principle that no one-size-fits-all formula exists, recognizing the need for periodic reassessment. Through disciplined decision-making, Sarah's portfolio flourished. The carefully balanced allocation not only weathered market fluctuations but also capitalized on emerging opportunities. Sarah's story reflects the art and science of investment allocation – a dynamic process where thoughtful decisions and adaptability pave the way for long-term financial prosperity. Now let us come to the present day. In the past, our ancestors used to advise their successors to save 2/3rd of their earnings. In other words, if an individual was earning ₹100, they were asked to save approximately ~ ₹67 of that while the remaining ₹33 would be for consumption. <div class="se-component se-image-container __se__float- __se__float-none" style="width: 50%"><figure style="width: 100%;"><img src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeu-XtulYM54fZX1-jQJk_-GGFHfAzOYUpWdHlBkl4DGUyYjm0k4RAXUHP0ZK3HlfNN5uGOqymW2nO_7QfM-7D08XcBf530yk05zWO0mJbfHQqN838c5NLfRYNaMNy-EXoOfw79fJP0uF9NTRMhsqq_Q07F?key=XzH7wtzaMqBmxCAaGeVXgA" alt="" data-proportion="true" data-align="none" data-file-name="AD_4nXeu-XtulYM54fZX1-jQJk_-GGFHfAzOYUpWdHlBkl4DGUyYjm0k4RAXUHP0ZK3HlfNN5uGOqymW2nO_7QfM-7D08XcBf530yk05zWO0mJbfHQqN838c5NLfRYNaMNy-EXoOfw79fJP0uF9NTRMhsqq_Q07F?key=XzH7wtzaMqBmxCAaGeVXgA" data-file-size="0" data-origin="," data-size="50%," data-rotate="" data-percentage="50," style="margin-left: 0px; margin-top: 0px; width: 100%;"></figure></div> Today, things are much different than they were in the past. Today’s generation is much more risk-taking and has a lot of more secure investment avenues than the previous generations had. More importantly, there’s a lot more financial awareness among individuals. Many consulting firms have come up in recent years whose entire business model revolves around directing individuals' investments to help them earn good returns. If we talk about the present scenario, individuals like to save anywhere between 33% to 50% of their earnings that align with their personal financial goals &amp; remaining is spent on consumption. Suppose an individual’s total income is ₹100, assuming Sarah’s monthly essential expenses ranging from Rent to Bills to Grocery consumes 50% of her income which leaves ₹50 as savings. Assuming this ₹50 as a whole, the first thing they need to do is save for their short-term goals &amp; long-term goals. Let’s first take a look at the Asset options that an individual has to invest in: <div style="margin-left: 0pt; text-align: justify"><table><tbody><tr><td>Assets</td></tr><tr><td>Gold</td></tr><tr><td>Real Estate</td></tr><tr><td>Fixed Deposits</td></tr><tr><td>Bonds</td></tr><tr><td>Mutual Funds</td></tr><tr><td>Listed Stocks</td></tr><tr><td>Unlisted Stocks</td></tr></tbody></table></div> Her friend suggested that 25% of your savings should be diverted towards Private Companies and the remaining 75% should be allocated towards other asset classes like Gold, real Estate, Fixed Deposits, Bonds, Listed Stocks &amp; Mutual Funds respectively. Now let’s break down the allocation of this 75% that are allocated to Non-Private Stock asset classes. <div style="margin-left: 0pt; text-align: justify"><table><tbody><tr><td>Asset Class</td><td>Allocation</td></tr><tr><td>Gold</td><td>2%-5%</td></tr><tr><td>Real Estate</td><td>2%-5%</td></tr><tr><td>Fixed Deposits</td><td>10%-15%</td></tr><tr><td>Bonds</td><td>10%-15%</td></tr><tr><td>Mutual Funds &amp; Listed Stocks</td><td>35%</td></tr><tr><td>Private Markets</td><td>25%</td></tr></tbody></table></div> <div class="se-component se-image-container __se__float- __se__float-none" style="width: 50%"><figure style="width: 100%;"><img src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfx2RWOwUxzlBtydpPDengv5P1xlHvhkwKNkWCoxHuNoKhq1f-A17EDeNg9V4NZnzATBy4_ivmfnNd2zvhOxDje2xTdJsM6f-B5AQGKmwA1d3K__lZ47b4YXvaj6AaIHnArRvpAWkfzdlqV2ozE75IAjsIZ?key=XzH7wtzaMqBmxCAaGeVXgA" alt="" data-proportion="true" data-align="none" data-file-name="AD_4nXfx2RWOwUxzlBtydpPDengv5P1xlHvhkwKNkWCoxHuNoKhq1f-A17EDeNg9V4NZnzATBy4_ivmfnNd2zvhOxDje2xTdJsM6f-B5AQGKmwA1d3K__lZ47b4YXvaj6AaIHnArRvpAWkfzdlqV2ozE75IAjsIZ?key=XzH7wtzaMqBmxCAaGeVXgA" data-file-size="0" data-origin="," data-size="50%," data-rotate="" data-percentage="50," style="margin-left: 0px; margin-top: 0px; width: 100%;"></figure></div>​ Now let’s understand the allocation process. Assuming Sarah’s annual savings amount to ₹2 Crores &amp; she has ₹1 Crore of past savings. So now, we begin with the allocation process. Let’s start with Gold. People in India consider gold to be an ornament rather than an investment. Infact as per recent estimates, Indian women account for 11% of the world's total gold reserves. This is about 18,000 tons of gold. Real Estate Investments have also mostly given single-digit returns in the past decade. Although there are real estate investments that provide double-digit returns as well those are mostly limited to Tier 1 cities, and the cost of investment is often considered excessive. More importantly people in India like to prefer investments in real estate for their consumption i.e. for their living rather than looking at it from a pure profitability prism. Owning a house has become a statement of lifestyle now. Indian values lay importance on having a roof over your head is one of the top priority. So the amount of savings an individual diverts toward these two assets depends on their returns-generating capability and your short-term and long-term goals. On average 2-5% of your investments should be in Gold &amp; Real Estate. Next, we turn to short-term goals. Short-term goals are generally considered as a period of up to 7 years. Supposing in another 2 years, Sarah plans to have a car or she plans to pay the college fee of her younger sibling in the next 5 years or Sarah plans to save something for her marriage over the next 7 years. Sarah would look to invest in instruments or assets that give her fixed returns over a period of time. In this case, where she is planning to undertake a financial liability upon herself, she can invest in assets like Fixed Deposits, Bonds, or Non-convertible debentures &amp; Debt/balanced type Mutual Funds that would pay her regular returns. Now this can also depend upon person to person. Planning for Kids or going on Extravagant/foreign trips on Honeymoon are other common financial goals that people have in their bucket lists. Most people tend to put all of their savings towards Short-term goals and nothing is kept for the long term. Assuming Sarah ends up diverting 40% of her savings toward these Short-term goals, she would be left with 60% of her remaining savings, out of which another 35% she can divert toward her Medium-term goals which can be related to family planning or planning your kids future or buying a house, etc. Sarah being an avid investor would look to invest in Equity Funds and Mutual funds to plan to finance her Medium-term goals. Her friend suggested that for better returns, she might as well diversify her equity &amp; mutual funds portfolio in such a way that it focuses more on the small-cap stocks and Sector sector-specific stocks that have higher growing potential. If she wants exceptional returns then Sarah might also invest in PMS where professional portfolio mangers would manage her investments. Disadvantages &amp; Inherent Risks of Mutual Funds get covered in PMS. This leaves 25% of investable savings with Sarah which she could divert towards investing in Private markets. Her friend suggested she adopt a disciplined approach when investing in Private Markets and don’t get carried away by outliers. In other words, if she has 25% savings diverted toward Private Markets, then in 4 years that sum will go up to 100%. Let’s consider this as ₹100 for ease. Sarah can adopt a strategy where this ₹100 will be distributed among 20 companies over the next 4 years with each company getting approximately ~ 5% or ₹5 of savings. Her friend also cautioned that if she invests in 20 companies, the probability of finding an outlier in 1 company is 60%. Outlier, in other words, means any company that gives you more than 10x returns. If she invests in 50 companies with each getting ₹2, then the probability of an outlier is 95% and it keeps on increasing. So, if Sarah invests in 20 companies in the next 4 years, she’ll have to identify 5 such Private Companies every year from whom she can earn good returns &amp; this would take it to 20 companies over 4 years. Let’s assume Sarah right now has ₹1 crore as savings &amp; she can save ₹50 Lakhs every year, in the next 5 years, her total savings would be ₹3.5 Cr. to invest in Private Companies. Even if she plans to invest it in 25 companies (5 companies per year), the per-company investment amount would come out to be roughly ₹14 lakhs. If Sarah plans to invest in 5 companies annually, then her annual investment in Private companies would come to ₹70 lakhs. Let’s take another example. Suppose Sarah doesn’t have anything in savings and she can save ₹50 Lakhs per year for private markets, then total investment, over 5 years comes out to be ₹2.5 crores. Assuming she invests in 25 companies over 5 years i.e. 5 companies every year, then her annual investment would come out to be ₹50 lakhs with each company getting ₹10 Lakhs. Take another example. For instance, Sarah had ₹1 Crore as past savings, and assuming she had the ability to save ₹50 Lakhs in the first year &amp; every year her ability to save increased by ₹10 Lakhs. By the 5th year, she would have a total savings of ₹4.5 Crores. Keeping the number of companies the same i.e. 25, her annual investments would be ₹90 Lakhs with each company getting ₹18 Lakhs as an investment. Take a fourth example where Sarah wants to increase her investment avenues and so she plans to double the number of opportunities. In other words, the number of companies increase to 50. In that case keeping everything else constant including ₹4.5 Cr as savings, the total annual investment would amount to ₹90 lakhs but the investment in were company would drop to ₹9 Lakhs. Too many cases, right? Ultimately the amount of investment any individual makes depends on the savings they can generate. The key here is to take small bets &amp; average out the risks through diversification. So what lessons do we learn from the above story? Several valuable investment lessons emerge: Strategic Diversification: Sarah understood the importance of spreading her investment capital across different asset classes. This strategic diversification helped manage risk and capitalize on various market opportunities. Strategic diversification is the cornerstone of a resilient investment portfolio, involving the deliberate allocation of capital across a range of asset classes. Clear Financial Goals: As we saw in the story, setting clear financial goals provided Sarah with a roadmap for her investment journey. This clarity enabled her to align her allocation strategy with specific objectives, whether it be growth, stability, or a combination of both. Continuous Assessment: Regular reassessment of her allocation strategy showcased the importance of ongoing evaluation. Markets and personal circumstances change, and periodic reviews ensure that the investment portfolio remains aligned with evolving goals and market conditions. In essence, the story emphasizes the art and science of investment, where a thoughtful, disciplined, and adaptable approach to capital allocation forms the foundation for long-term financial success. ​

In the last module, we learned how much Investment Capital should be allocated overall &amp; why diversification is necessary to achieve sizable profits while minimizing risks. In this module, we’ll do a comprehensive study of the Power of the Law of Returns &amp; find ways of how to win big without losing money. Like always, we’ll try to understand this topic through a story: Joe was a savvy investor with a knack for picking promising ventures. Over the years, he meticulously built a diverse portfolio, investing in 20 companies that spanned the spectrum from small cap to large cap. Joe's strategy was simple yet effective: diversify to mitigate risk and maximize potential gains. Despite his varied investments, Joe understood the Law of Returns. This principle asserts that the returns of 25% of your investments will determine your overall return, while the rest will yield either average or suboptimal results. Joe's portfolio was no exception. Out of the 20 companies, five stood out, delivering exceptional returns that bolstered his overall performance. The remaining 15 companies produced modest or disappointing results, underscoring the importance of the top performers. The pattern was clear: few investments often drove most gains. Joe's experience reinforced this concept, illustrating that in the world of investing, a few stellar performers could significantly influence the overall success of a portfolio. We will further validate this theory later in the article when we apply it to returns generated by an experienced Angel Investor. <div class="se-component se-image-container __se__float- __se__float-none" style="width: 50%"><figure style="width: 100%;"><img src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfzz_x-IZ1e7ZmMjhDtus-nEIiatHIS6Em9m0O2j1Xkj-LEltW1ftnaT_PLi5w9fvcIVD_V58bmKJ_NwDfYo4STploahIk8iloXKorSXPLdR7D2ujC2pGnirIYt35ipZMA3uCWxPafSkfRIfMTFA26P4No?key=me8lFFoDBGd3BA7ka2TuwA" alt="" data-proportion="true" data-align="none" data-file-name="AD_4nXfzz_x-IZ1e7ZmMjhDtus-nEIiatHIS6Em9m0O2j1Xkj-LEltW1ftnaT_PLi5w9fvcIVD_V58bmKJ_NwDfYo4STploahIk8iloXKorSXPLdR7D2ujC2pGnirIYt35ipZMA3uCWxPafSkfRIfMTFA26P4No?key=me8lFFoDBGd3BA7ka2TuwA" data-file-size="0" data-origin="," data-size="50%," data-rotate="" data-percentage="50," style="margin-left: 0px; margin-top: 0px; width: 100%;"></figure></div> Many aspiring investors would possibly be hearing the term “Law of Returns” for the first time in their lives. The questions that might bother them would be, First, What is the Law of Returns &amp; Second, How to identify high potential opportunities that would help maximize the Law of Returns? Let’s start with the first question ~ What is the Law of Returns? The Law of Returns for Angel Investors mirrors the economic principle of diminishing returns. Initially, as angel investors diversify their investments, returns may surge, benefitting from a broad portfolio. However, beyond a certain point, spreading investments too thin can lead to diminishing returns. In essence, The Law of Returns states that a handful of investments drive the bulk of the returns. A few successful investments can recoup the losses of many unsuccessful investments. In other words, Strategic, well-informed investments remain crucial to achieving optimal returns in the dynamic startup funding landscape. Let’s take an example to understand the Law of Returns. Take a case where an investor has 100 companies in front of him and he chooses to invest ₹10 Lakhs in each one of them. Out of the 100 companies, only 10 companies will be those who give over 5x returns, even out of these 10, only 2-3 would generate superstar returns of upto 50x &amp; beyond. Out of the remaining 90 companies, 30 companies will be those who give average returns, ranging between 1x &amp; 5x &amp; 60 companies will be those who give sub-optimal returns of less than even 1x. Overall, the returns generated on invested income would be estimated to be around 21.3%, at CAGR, over 7 years. <div style="margin-left:0pt"><table><tbody><tr><td>Category</td><td>Category Return</td><td>Company Return Assumption</td><td>Invested Capital</td><td>Total Return</td><td>Time Frame</td></tr><tr><td>Cat - A</td><td>&gt;50x</td><td>70x</td><td>2</td><td>140</td><td>7</td></tr><tr><td>Cat-B</td><td>10x - 50x</td><td>30x</td><td>3</td><td>90</td><td><div> </div></td></tr><tr><td>Cat - C</td><td>5x - 10x</td><td>7x</td><td>5</td><td>35</td><td><div> </div></td></tr><tr><td>Cat - D</td><td>1x - 5x</td><td>3x</td><td>30</td><td>90</td><td><div> </div></td></tr><tr><td>Cat - E</td><td>&lt;1x</td><td>0.7x</td><td>45</td><td>31.5</td><td><div> </div></td></tr><tr><td>Cat - F</td><td>0x</td><td>0x</td><td>15</td><td>0</td><td><div> </div></td></tr><tr><td><div> </div></td><td><div> </div></td><td><div> </div></td><td>100</td><td>368.5</td><td>21.3%</td></tr></tbody></table></div><div style="margin-left: 0pt"> </div><div style="margin-left:0pt">Let’s now understand the Law of Returns with the help of an example. For instance, we shall look at the asset allocation of Anupam Mittal, Founder &amp; CEO of Shaadi.com. I am sure all of you would have seen the popular reality show Shark Tank India. Anupam Mittal is a Shark in that show who invests in budding startups with high growth potential. Now that we are done with the introduction part, let's shift our focus towards his Asset allocation.</div><div style="margin-left: 0pt"> </div><div style="margin-left:0pt"><table><tbody><tr><td>Category</td><td>Category Return</td><td>Company Return Assumption</td><td>Invested Capital</td><td>Total Return</td><td>Time Frame</td></tr><tr><td>Cat - A</td><td>&gt;50x</td><td>3 &gt;100x (1&gt;150x)</td><td>2</td><td>140</td><td>5</td></tr><tr><td>Cat-B</td><td>10x - 50x</td><td>10</td><td><div> </div></td><td><div> </div></td><td><div> </div></td></tr><tr><td>Cat - C</td><td>5x - 10x</td><td>15</td><td><div> </div></td><td><div> </div></td><td><div> </div></td></tr><tr><td>Cat - D</td><td>1x - 5x</td><td>40</td><td><div> </div></td><td><div> </div></td><td><div> </div></td></tr><tr><td>Cat - E</td><td>&lt;1x</td><td>4</td><td><div> </div></td><td><div> </div></td><td><div> </div></td></tr><tr><td>Cat - F</td><td>0x</td><td>38</td><td><div> </div></td><td><div> </div></td><td><div> </div></td></tr><tr><td>Total</td><td>118 companies</td><td>110</td><td><div> </div></td><td>IRR 40%</td><td><div> </div></td></tr></tbody></table></div><div style="margin-left: 0pt">Now what we can infer from the portfolio allocation table of Anupam Mittal is that there will 25%-30% of such investments out of our total investable companies will give us returns of more than 5x &amp; whereas another 50% of the remaining 75% will generate returns between 1x-5x &amp; last 25-30% will like to give us no returns or even might erode our capital. The below picture of a bell curve will further help add to investors’ clarity about how much returns to expect from their portfolio allocation. The reference to these data points can be credited to the book titled ‘Insider Secrets to Wealth Creation’ by Sanjay Kulkarni. It is to be noted that no investment is without a risk. Although, by taking time to understand both the business and your investment goals you can help mitigate some of those risks and give yourself a better chance at earning a healthy return on an investment. ​ </div>

Once upon a time, there was a budding investor named Sarah. She was eager to dive into startup investments but was unsure about how many companies she should invest in to maximize her chances of success. As she began her journey, Sarah sought advice from her old seasoned investor friend and did some research of her own. She soon discovered that there was a magic number when it came to investing in startups - and it was more than she initially thought. "Think of it like planting a garden," explained Rajesh. "If you only plant one or two seeds, you're putting all your eggs in one basket. But if you plant a variety of seeds, you're more likely to have a successful harvest." "Although the magic number is 50 companies if you want to maximize your outliers chances, practically you should aim to invest in at least 20 to 25 companies," advised Rajesh, her successful angel investor friend. "Investing in multiple startups helps spread your risk and increases your chances of backing an outlier. Outlier, in other words, means any company that gives you more than 10x returns. If you invest realistically in 20 companies, the chances of getting an outlier are just 60%. Similarly, if you invest in 50 companies with each getting 2% of the portfolio, then the probability of an outlier is 90% and it keeps on increasing.” Rajesh further cautioned “If you invest in lesser companies then the chances of gaining an outlier also decreases. For instance, if you have a portfolio of only 10 companies, then the chances of getting an outlier are just 40%.” <div class="se-component se-image-container __se__float- __se__float-none" style="width: 50%"><figure style="width: 100%;"><img src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXelbcaM6-kPkaAxq_H309mCgyg9UiXAAjnlJS3fP_xRFuNzYTUT2bkP-qKkXVMI_2pOlfat6EJMuGtXyTLR_Hb4pU5o85liQmFVsAq2PEnDbS2X4K72__6AlcXMmWcU3xJdWID9IvSiZsmHFGcp7ftq3Yc?key=hi9lP2OPm_Za7_eo6P7chA" alt="" data-proportion="true" data-align="none" data-file-name="AD_4nXelbcaM6-kPkaAxq_H309mCgyg9UiXAAjnlJS3fP_xRFuNzYTUT2bkP-qKkXVMI_2pOlfat6EJMuGtXyTLR_Hb4pU5o85liQmFVsAq2PEnDbS2X4K72__6AlcXMmWcU3xJdWID9IvSiZsmHFGcp7ftq3Yc?key=hi9lP2OPm_Za7_eo6P7chA" data-file-size="0" data-origin="," data-size="50%," data-rotate="" data-percentage="50," style="margin-left: 0px; margin-top: 0px; width: 100%;"></figure></div> Sarah was amazed when she sat to invest. She had thought that investing in fifty companies would not be as difficult as Rajesh was making it seem. But as she learned more, she realized that startup investing was a numbers game. Sarah started utilizing her weekends to conduct meetings with founders in order to better understand their business model, and their vision by listening to their pitches &amp; how they see the respective industries growing, etc. When Sarah sat down to invest she realized that she could only select 5-6 high potential startups for investments instead of 10 per year. Ultimately, she realized that instead of finding an investable company every month, it would be better to make an investment every 2 months. In other words, she planned to invest in 25 companies over 5 years. This way she planned to increase her chances of gaining an outlier. Sarah understood by investing in multiple startups, she could diversify her portfolio and increase her chances of finding the next big success. However, Sarah also knew that investing in startups wasn't just about the quantity of investments - it was also about the quality. She made sure to thoroughly research each startup before making an investment, looking at factors like the team, the market opportunity, the industry, and the company's traction. Armed with this knowledge, Sarah set out to build her startup investment portfolio. She invested in a variety of companies across different industries, from healthcare to technology to consumer goods. Years passed, and some of Sarah's investments thrived, while others faltered. However, because she had spread her investments across multiple startups, the successes far outweighed the failures. And in the end, Sarah's startup portfolio generated a healthy return on investment. As Sarah reflected on her journey, she realized that there was indeed a magic number when it came to startup investments - and it was more than she had initially thought. By investing in at least 20 - 25 startups, Sarah had unlocked the key to success in the world of startup investing. However, if you're thinking about dipping your toes into the world of startup investments, remember Sarah's story. Invest in multiple startups, do your research, consult your financial advisors, and diversify your portfolio. Who knows? You might just uncover the next big success story.

In the last article, we covered the Power of the Law of Returns which is crucial to understand before any investor starts investing in a particular company. In this article, we’ll discuss the ways to maximize the Law of Returns. Understanding ways to identify high-potential opportunities is important as an investor needs to keep in mind the strategies that can be adopted to maximize their returns, These indicators can differ from Sector to Sector as well as the stage of the company. Lakshay was once in a perplexing situation. The question was simple yet difficult to answer. The question was “Should I double down on Winners? Or Should I double down on Losers (average on Losers)?” Now here’s a case he had to pick. The company was making losses. The entrepreneur was assuring Lakshay that the company would soon become profitable. All he had to do was pump in more money. The question was should he do so? His friend Akshay, an avid investor, suggested he stay within this assurance. If you persist with investing in companies that are non-performing, hoping that one fine day they will start generating profits, then there’s a great chance that your portfolio will also become non-performing. Generally, Retail investors tend to average out stocks and add more shares where they are in losses &amp; the moment share prices increase, they sell their shares. In fact the shares which were seeing a price increase were the shares that Lakshay should have held onto for long as these shares would have generated returns. To further explain this, let’s understand with the help of a chart: ​<div class="se-component se-image-container __se__float- __se__float-none" style="width: 50%"><figure style="width: 100%;"><img src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcdrrGGXVh_SCPWViQ48Z1mQSkjgRFW5Wn0jfRzkFhjow9Lewt4rXc4oTJDIIYJmLrr70mfEAAYFBImiMTvfuJRyy4LXDPJpvVD25GjBT6iqMbQN0fZMuM7_WIEOIYii5U5HVImehEg0YM7EVLBeM4v_T0?key=aMxvuPtlogPXcqjWDAEr2A" alt="" data-proportion="true" data-align="none" data-file-name="AD_4nXcdrrGGXVh_SCPWViQ48Z1mQSkjgRFW5Wn0jfRzkFhjow9Lewt4rXc4oTJDIIYJmLrr70mfEAAYFBImiMTvfuJRyy4LXDPJpvVD25GjBT6iqMbQN0fZMuM7_WIEOIYii5U5HVImehEg0YM7EVLBeM4v_T0?key=aMxvuPtlogPXcqjWDAEr2A" data-file-size="0" data-origin="," data-size="50%," data-rotate="" data-percentage="50," style="margin-left: 0px; margin-top: 0px; width: 100%;"></figure></div>​ Based on a ₹5 Crore model portfolio with over 50 companies, 02% write-offs &amp; exits are distributed between ₹2 crores (~ 20x) &amp; ₹20 crores (~ 200x). Let’s understand this with the help of a chart: <div style="margin-left:0pt"><table><tbody><tr><td>Investment/Round ($k)</td><td>Seed</td><td>Serie A</td><td>Serie B</td><td>Serie C</td><td>Reserves</td><td>Fund/Multiple</td></tr><tr><td>No Pro Rata</td><td>10,000</td><td>0</td><td>0</td><td>0</td><td>0%</td><td>6.6x</td></tr><tr><td>PR Through C</td><td>2,600</td><td>2,600</td><td>6,600</td><td>13,200</td><td>74%</td><td>3.4x</td></tr></tbody></table></div> Let's say a company had 1000 shares and investor owned 125 shares or 12.5% of the stake. Now the company plans to raise additional funds and it issues 200 shares, so the total shares would become 1,200. Now if the investor wants to maintain his stake he’ll have to own 150 shares. If they continue with 125 shares, they’ll own only 9.6% stake in the company after the new round. The same thing happens in the chart. If the investor wants to maintain consistency of 3.3% w.r.t ownership, then they’ll have to invest in every new round. In case the owner doesn’t buy additional shares, while the number of shares remains constant the stake in the management gets diluted with every new round. Now a question might appear ‘Why should we invest early in startups?’ Rajesh explained this in the form of a case study “Let’s take a case. Supposing Lakshay was asked to invest in 10 shares of ₹10,000 in a company whose valuation was ₹10 Lakhs at that point. So Lakshay acquired 10% stake but the entire investment was done in Seed round itself. Lets take another case where Saurabh divided the amount and instead of investing in a single go during seed round, he decided to invest ₹2,600 in a company whose valuation was ₹10 Lakh. So Lakshay acquired 0.26% stake. In follow on rounds he invested ₹2,600, ₹6,660 &amp; ₹13,200 respectively. All of you might be wondering why there is a sudden increase in Serie B &amp; Serie C rounds. It is done assuming that during later funding rounds the valuation of company would have also increased. Now let’s do a quick comparison by looking at the above chart as well as graph. By investing ₹10,000 during seed round Lakshay achieved a Funding multiple of 6.6x while sees his stake drop from 12.5% to 6.1%. Saurabh on the other hand keeps on investing in multiple rounds and maintains a funding multiple of 3.4x while having a consistent stake of 3.3%.” At this point Akshay asked a question "Should Lakshay invest again and double down or avoid?” Rajesh replied “To answer this question, let’s go back to the previous chapter where we told you that with asset allocation you need to invest only 5% in every company. Now if there’s an outlier that ₹5 might become ₹500 but still it is advisable to pay caution on doubling down. This concept is similar to that of a casino. In Poker, you just sit back &amp; relax once you earn a profit. Wait for the right time to liquidate your holding. Many analysts have computed that after a certain point returns start saturating. So while you may earn compounding returns, you still won’t earn it at the rate that you did when you invested first. Hence it's advisable to invest early in high-potential private companies.” You may experience numerous small wins along the way, but the majority of your returns will come from a tiny fraction of your investments. Massive wins are rare, regardless of who you are or where you invest. Since these big, rare wins drive most of your returns, it makes sense to maximize your chances of securing them. If you invest in 10 companies, you might have 5 potential big successes; with 20 investments, you increase your chances by fishing from a pond of 10. Now what if VC enters the picture? So, when a VC comes in, VC always comes with an approach where if they want to invest 30 crores, they’ll set milestones where they’ll first invest ₹15 Crores and only if the company achieves the milestones will they invest the second tranche of investment. Here is an important lesson to learn for the Investors. When a VC enters the picture, the investors need to sit down with the Founder and clarify the term sheet that has been signed with the VC on further rounds of investment. 95% of VCs set milestones for future rounds of funding. Milestones could be in the form of increased sales or profit or even investment in expansion to increase geographical presence in a stipulated period. As was written earlier, Investors are advised to sit back &amp; relax and discuss with the founder the term sheet signed with the VC on agreeable milestones. Lakshay's story teaches us that winning big in the financial realm involves a judicious blend of diversification, compounding, and a disciplined approach that withstands market fluctuations and steadily builds wealth over time. The Law of Returns becomes a beacon, illuminating the path to financial success without unnecessary gambles.

In the last article, we covered whether we should be doubling down on winners. In this article, we’ll discuss What is a good pace for making new investments on an annual basis &amp; further discuss ways to build a mature angel investment portfolio. Understanding the pace required to make new investments on an annual basis is extremely critical in order to ensure investors not only maximize the law of returns but also ensure they have the maximum possible chance to get an outlier. Understanding ways to build a mature angel investment portfolio is crucial for several reasons. Firstly, it spreads risk across a diverse range of startups, reducing the impact of potential losses from any single investment. Secondly, a mature portfolio allows investors to capitalize on the potential growth of successful startups, maximizing returns over time. Additionally, it provides opportunities for learning and mentorship, as investors engage with founders and contribute to their growth. Overall, building a mature angel investment portfolio is essential for long-term financial success and impact. Like always, we’ll try to explain these concepts using a story. Without any further delay, Let’s begin. I am sure all of you would have heard of Sarah, the seasoned investor, in the bustling city of Bengaluru. Known for her keen eye and strategic thinking, Sarah had built a reputation as a successful angel investor. She had been through the highs and lows of the market and had a treasure trove of lessons learned so far. One of the most valuable lessons she learned was about the right pace for making new investments. Years ago, Sarah started her angel investing journey with an eager heart and a sizable saving. In her first year, instead of the recommended 5 startups, she invested in 30 startups, excited by the potential she saw in each one. However, by the end of the first 6 months, she realized that almost half of her total investment had run out of business. It was at this point that she realized that her approach was more scattergun than strategic. Managing such a large number of investments spread her thin, making it hard to give each startup the attention it needed.After a year of reflection and research, Sarah decided to change her strategy. She attended a masterclass on angel investing, where she learned about the importance of pacing her investments. The instructor, a veteran investor named Rajesh, shared a golden rule: "Invest in 10-12 new startups per year &amp; do it over a 5-year horizon. Investment in startups often begins to generate returns from the 5th year onwards as the business matures and opportunities for exits, such as acquisitions or IPOs, become more prevalent. This rotation of capital allows investors to reinvest returns into new ventures, perpetuating the cycle of growth and innovation. In fact in most cases when you start meeting the management team, understand their vision, take a look at their business model, and growth prospects, and make a decision to invest. This pace allows you to diversify your portfolio while still dedicating sufficient time and resources to each venture." Taking Rajesh’s advice to heart, Sarah adopted this new approach. She realized that she filtered almost 80% of startups out of 12 that she had selected, ultimately, leaving her with only 4-6 startups, following which she carefully selected six startups to invest in. This reduced pace allowed her to conduct thorough due diligence, form deeper relationships with the founders, and provide meaningful mentorship and support. At the same time, this also allowed her the flexibility to diversify her savings toward other asset classes. By the end of the year, the difference was palpable. Her portfolio startups were performing better, and she felt more connected and invested in their success.Taking the next five years as a horizon, Sarah continued to invest in 5-7 startups annually. This strategy paid off handsomely. Her portfolio was diversified and filled with startups with strong potential, thanks to the time and effort she could devote to each one.Sarah's story became a cornerstone lesson in the angel investing community in Bengaluru. She often shared her journey at conferences and masterclasses, emphasizing the importance of a measured pace. "It's not about how many investments you make," she would say, "but how well you support and nurture each one. You should neither make all investments in a single shot nor invest in all-in-one startups. Most importantly you need to keep this disciplined approach for 5 years."After a few years, Sarah again contacted Rajesh with a query. This time it was regarding building a mature portfolio. Her question was simple ‘How to build a mature portfolio?’ Rajesh explained to her that on average she will be left with only 20-25 companies in 5 years because you don’t find so many good opportunities.After 5 years, investors start finding good exit opportunities but therein lies a problem which most investors unknowingly commit. Usually, once investors have invested in the first year, they just sit back and wait for an exit opportunity to take place. This is a wrong practice since these positions would mature after 5 years but once they have matured, investors are not left with any further exit opportunity. Instead what Rajesh advised investors was to constantly maintain their pace of investments i.e. 5-6 investments annually so that after the 5 years, every year, investors have an exit opportunity that generates good returns &amp; they can re-invest those returns to further generate returns.This way a cycle of investments and continuous returns is formed. 5 to 6 startups, Rajesh explained, strike a balance between diversification and manageability. It allows an investor to spread risk across multiple ventures while still being able to devote sufficient time and resources to each one.Sarah’s disciplined approach to pacing her investments coupled with a sound advisor like Rajesh guiding her in building a mature portfolio taught aspiring investors the value of quality over quantity. By focusing on a manageable number of startups each year, Sarah was able to provide the guidance and support that turned promising ideas into successful businesses.

In the last article, we covered the strategy to ‘Pace our Investments &amp; Build a Mature Angel Investment Portfolio’ which is crucial to understand to enhance the portfolio returns. In this article, we’ll discuss a question that bothers many accredited investors. The question is ‘You are an industry expert? Should I invest most in that industry? Getting an answer to this question is very crucial. Being an industry expert can provide valuable insights, but investing solely in that industry may not be prudent. While expertise offers an advantage, it's crucial to consider broader market trends and opportunities. Investing across industries can hedge against sector-specific downturns and capitalize on emerging sectors. This is exactly what we will delve into in this article. As usual, we’ll try to explain this concept using a story. Let’s begin! In the bustling city of Kolkata, there was an industry expert named Radhika. Known for her deep knowledge of the chemical industry, Radhika had spent years working her way up from a chemical engineer to a senior executive at a leading chemical company. Her expertise was widely recognized, and she often spoke at conferences and wrote articles on the latest tech trends. One day, Radhika decided to venture into angel investing. She attended an Angel Investing Masterclass to learn more about diversifying her portfolio and maximizing her returns. During one of the sessions, a question was posed that resonated deeply with her: “You are an industry expert. Should you invest most in that industry?” Radhika’s initial thought was, “Of course! I know chemical engineering inside out, so I should put most of my money where my knowledge is. I know the technicalities and I have an established network of professionals that helps me stay up to date with the latest trends in the sector.” As the masterclass progressed, she began to see the bigger picture. Her instructor, a seasoned investor named Shaurya, shared a story of his own. He too had started investing primarily in the industry he knew best – Hospitality. At first, his deep understanding of the field gave him an edge, and he made several successful investments. However, over time, the market dynamics shifted, COVID struck, many restaurant &amp; hotel businesses were forced to shut down and his heavily concentrated portfolio started to underperform. Shaurya had picked the best of Restaurant businesses across India &amp; seemed to be sure of earning handsome returns but once COVID struck, and across the world businesses were forced to shut down. Shaurya explained that while having expertise in an industry can be advantageous, it also comes with the risk of overexposure. The economy can be volatile, and even the most expert investors can't predict every twist and turn. After all no one could have predicted a Once-in-a-Century pandemic. Diversification, he emphasized, is key to mitigating risk. She decided to contact her old friend cum mentor Rajesh who was an experienced investor himself. Rajesh was holding the position of an Independent Director in a Solar Photovoltaic Cell Manufacturing firm. In other words, his company was involved in Solar panel manufacturing. It is safe to say that he possessed a good knowledge of the Solar industry. Rajesh had invested in a few Solar industry-based startups that he saw had huge potential going forward. The only concern he faced was that these firms were importing Solar modules from China. It was all going very well till 2020 but once Covid struck, the government came up with the Aatmanirbhar Bharat initiative under which they planned to incentivize local manufacturing &amp; remove over-dependence on any third country. As a result, the government increased the customs duty on Solar modules imported from China making it increasingly difficult &amp; expensive for both the startups to import products from China on which they were heavily reliant. The increased costs directly impacted their margins which started falling and as a result, many investors exited. Rajesh while giving a lesson shared the Canslim Theory which states that when an individual decides to invest in a business, out of 100% investable amount 30% depends upon the business, 30% depends on the sector &amp; 40% depends on the market. Let’s understand this with the help of an example. In the decade of 1990s, India’s domestic Steel Industry was underperforming as in the foreign marketplace, foreign steel manufacturers, primarily from China were preferred as they were providing steel to Global giants at cheaper prices compared to Indian steel companies. So even though the steel market was overall booming with increased demand &amp; management of JSW, Tata Steel was highly experienced &amp; capable, since the sector was underperforming, many investors were wary of investing in these global giants. It was only after 2014 that the Indian government decided to provide incentives to steel manufacturing units to set up their plants and further ramp up their capacity which resulted in an increase in revenues and profits for the steel manufacturing companies. Post that many investors started finding this sector increasingly lucrative. Inspired by Shaurya &amp; Rajesh’s experience, Radhika decided to re-evaluate her strategy. She recognized that while her chemical engineering expertise gave her an edge in evaluating chemical startups, relying too heavily on one sector could jeopardize her overall investment portfolio. She started to diversify, investing in a mix of industries including healthcare, consumer goods, and renewable energy. Over the next few years, Radhika built a well-rounded portfolio. Her investments in different sectors not only spread her risk but also provided her with insights into various industries, making her a more versatile and informed investor. She continued to leverage her tech expertise but always kept in mind the importance of balance. At subsequent Planify Angel Investing Masterclasses, Radhika shared her journey. She encouraged new investors to leverage their industry knowledge but to always remember the importance of diversification. “Being an expert in your field is a strength,” she said, “but investing wisely means looking beyond what you know and embracing a broader perspective.” A question that was widely asked to her during her interaction with budding investors was ‘How would an investor identify which company to invest in?’ To this question, Radhika stated that the Principle of Finance would hold. In any business across any sector, if an investor would like to invest, they need to prepare a Scorecard that will assist investors in identifying key parameters related to that sector based on which they can make their decision to invest or not. She further promised to explain the Scorecard Methodology in a future session on the Planify Angel Investing Masterclass. Radhika’s story became a cornerstone lesson at the masterclass, demonstrating that while expertise in a specific industry can provide a competitive edge, true investment wisdom lies in building a diversified portfolio. This approach not only mitigates risk but also opens up opportunities for growth across different sectors, ensuring a more resilient and successful investment journey.

In the last article, we covered as an industry expert, should I invest most in that industry? In this article, we’ll discuss the ways to build a How confidently do you invest in companies that are outside your area of expertise? Understanding how confidently you invest in companies outside your area of expertise is crucial for several reasons. It helps gauge your risk tolerance and ensures informed decision-making. Venturing beyond familiar sectors can diversify your portfolio, reducing overall risk and increasing potential returns. However, investing in unfamiliar areas requires diligent research and seeking expert advice to mitigate risks. As usual, we’ll try to explain this concept using a story. Let’s begin! Rahul was a seasoned tech entrepreneur in the vibrant city of Innovatia. Having successfully built and exited two tech startups, he had amassed a wealth of knowledge and a substantial capital base. Naturally, when he decided to become an angel investor, his initial investments were predominantly in the tech sector. One evening, Rahul attended a Planify Angel Investing Masterclass, seeking to refine his investment strategies. During the session, the instructor posed an intriguing question: "How confidently do you invest in companies that are outside your area of expertise?" Rahul's mind wandered back to an opportunity he had recently come across: a promising agri-tech startup aiming to revolutionize sustainable farming. The concept intrigued him, but agriculture was far outside his tech comfort zone. He hesitated, uncertain if he could make a sound investment in a field he knew so little about. As the masterclass progressed, the instructor, Sarah, shared her own experience. She had started as an investor focused solely on fintech, her area of expertise. But over time, Sarah realized that some of the most groundbreaking innovations were happening in sectors she knew little about. To diversify and capitalize on broader opportunities, she decided to step out of her comfort zone. Sarah’s first investment outside her expertise was in a biotech company. She diligently researched the industry, consulted experts, and attended relevant seminars to gain a basic understanding. Her efforts paid off handsomely when the company developed a breakthrough medical device that significantly improved patient care. This success bolstered her confidence and underscored the value of venturing beyond familiar territory. Inspired by Sarah’s story, Rahul decided to take a calculated risk with the agri-tech startup. He spent weeks immersing himself in the agriculture sector, reading reports, attending industry conferences, and seeking advice from agricultural experts. Armed with newfound knowledge, he invested in the startup, confident in his due diligence. Months later, the agri-tech company unveiled a revolutionary irrigation system that garnered widespread acclaim. The startup's valuation soared, and Rahul’s investment proved to be a resounding success. This experience taught him the importance of stepping out of his comfort zone and diversifying his portfolio. Rahul continued to invest in various sectors, always ensuring he did thorough research and sought expert advice. His diversified portfolio not only reduced his risk but also opened up new avenues for substantial returns. At future Planify Angel Investing Masterclasses, Rahul often shared his journey. He encouraged new investors to confidently explore opportunities outside their areas of expertise, emphasizing the importance of research, education, and diversification. Rahul’s story became a cornerstone lesson at the masterclass, illustrating that while expertise provides a strong foundation, true investment wisdom lies in the courage to venture beyond it. Embracing diverse sectors not only mitigates risk but also maximizes the potential for growth and innovation.

In the last article, we covered How confidently should an investor invest in companies that are outside his area of expertise. In this article, we’ll discuss how to build an ideal Portfolio Size. Understanding your portfolio size for optimizing investment returns and managing risk. In an appropriately sized portfolio, ideally there should be 50 companies but realistically, the number would be between 20 to 25 startups only, which ensures diversification, reducing the impact of individual failures and increasing the chances of high returns. This strategic decision balances immediate liquidity needs against long-term gains, aligning your investments with your financial goals and risk tolerance. As always, we’ll try to delve into detail and explain the two concepts using a story. So let’s begin! Maya was an enthusiastic entrepreneur who had successfully exited her first startup in the e-commerce sector. Inspired by her journey, she became an angel investor to help other entrepreneurs achieve their dreams. She signed up for the Planify Angel Investing Masterclass to learn more about building a robust investment portfolio and making strategic exit decisions. During the masterclass, the instructor Rajesh posed two critical questions: "What should be your portfolio size?" Maya recalled her initial foray into angel investing, where she had invested in a handful of startups. Her portfolio was small and focused primarily on industries she was familiar with. However, she soon realized the importance of diversification and wanted to learn the optimal size for her portfolio to balance risk and reward. The instructor, Rajesh, shared his insights. He explained that an ideal portfolio size for an angel investor typically ranges up to 50 startups but realistically an investor will be able to achieve only 20-25 startups. This size allows for sufficient diversification, spreading the risk across multiple ventures. By investing in various industries and stages, investors can enhance their chances of hitting a high-growth company while mitigating the impact of any single failure. Rajesh also highlighted the importance of managing the portfolio actively. He advised that investors should continuously monitor their investments and be prepared to support startups with additional time, networking, mentorship, or strategic advice as needed. Maya took this advice to heart and began expanding her portfolio, carefully selecting startups from different sectors, including fintech, agri-tech, and renewable energy. She found that this diversification not only reduced her risk but also provided her with exciting learning opportunities in new industries. Armed with this knowledge, Maya made informed decisions about her investments. When one of her portfolio companies attracted VC interest, she carefully assessed the startup's potential and her own financial goals. In some cases, she chose to exit and reinvest her returns into new startups. In others, she stayed invested, riding the wave of growth alongside the VCs. Maya's journey became a hallmark example at the Planify Angel Investing Masterclass. She shared her story with new investors, emphasizing the importance of a well-sized, diversified portfolio and the strategic considerations when deciding to exit. Her experience highlighted that while building a portfolio and making exit decisions can be complex, a thoughtful, informed approach can lead to substantial rewards and continued growth as an angel investor.

Just to give a brief recap, in the last unit, we covered the concept of Portfolio Allocation in-depth. In this unit, we aim to cover the concept of Asset Allocation in depth. Our first module covers the concept of how successful angel investors allocate assets. under which we’ll be dividing our topic into 2 segments dealing with both beginners as well as Family Offices. Let’s begin! In the bustling world of finance, the art of balancing risk and reward is the hallmark of a successful investor. This story takes you through the journey of a seasoned angel investor who, over 15 years, has masterfully allocated assets to build a robust and diversified portfolio. This narrative is crafted to inspire both novice investors and family offices alike, highlighting the strategic choices that can lead to sustainable growth and stability. Once upon a time, there was a budding investor named Radha. She was eager to dive into the world of startup investments but was unsure about ‘How successful investors allocate assets?’ As a beginner, she decided to contact her old friend and mentor Rajesh who was an angel investor himself. Rajesh decided to help Radha and explained using 3 case studies. “Suppose there was a girl Sarah, aged 25 who required Rajesh’s assistance concerning starting her angel investment journey. Rajesh’s advice was simple. Sarah had to save a minimum of 33% and ideally 67% of her income as savings depending upon her lifestyle, which she needs to invest. Consider the 67% as a whole or 100%. The priority for Sarah was to secure her short-term goals like marriage or education etc. For that, you’ll have to invest anywhere between 25% to 75% in Liquid Assets that give you regular returns like Fixed Deposits, Gold, etc. Since Sarah is young, she has a longer time horizon to meet her goals. Her long-term goals could include family planning etc. So the remaining 25% can be invested in Private &amp; Public Markets where 10% can be invested in Public Equity Markets in the form of ETF, Listed Stocks &amp; Mutual Funds and remaining 15% in Private Markets.” Radha inquired, can the ranges vary? Rajesh replied “Of Course the ranges can vary. If an individual has high savings and small short-term goals, then they can divert even 40% to 50% towards markets by reducing investment in Liquid assets.” Rajesh further continued “Take another case of Shubham who is a 40 years old working professional. He might be well settled with a happy family. So less likely that he’ll have any short-term goals. He might be planning only for long-term goals like maybe buying a new house or planning to make his kids study abroad etc. Keeping these goals in mind, it would be prudent for him to divert 50% of his investable savings towards liquid assets like FDs, Real Estate Investment Trusts, Bonds, etc. and the remaining 50% can be diverted toward the non-liquid assets out of which 25% can be invested in Public Market (listed Stocks, Mutual Funds, ETFs) and 25% can be invested towards Private Markets.” In between Rajesh narrated his journey “I began slowly, investing in only 5-6 companies annually but ensured I am investing in companies who tick most of my investment criteria boxes, a topic that I'll delve later into. My main purpose was to ensure that I maintained a constant pace and establish a cycle of constant returns. Over the next 5 years, I was able to establish a portfolio of 30 companies and today my angel investment allocation consists of roughly 25% of my total portfolio.” At this point, Radha was wondering ‘How do Family Offices allocate their assets?’ As has been the trend, Rajesh decided to narrate a story to explain this concept. Mehra Family Office is a multi-generational family deeply rooted in legacy wealth management. This is a story of how they navigated the intricate landscape of asset allocation, balancing traditional investments with the high-risk, high-reward world of angel investing. Today, Navya Mehra heads the ₹100 Cr worth family office and she’s responsible for managing the investments of the family. “Many years ago, the Mehras began their investment journey with a strong focus on stability and liquidity. Their portfolio initially comprised public companies, Real Estate Investment Trusts (REITs), and Exchange-Traded Funds (ETFs). These investments provided a steady income stream and the flexibility to buy and sell as needed, crucial for maintaining financial stability. They offer dividend-generating, liquid investments that ensure we have a stable source of income and the ability to respond swiftly to market changes.” Navya noted. Now Navya decided under a new strategy that they didn’t want to take any additional risk. They were totally risk averse and required regular liquidity. Navya decided to consult Rajesh about her investments. Rajesh prepared a plan for her under which the priority for Navya was to secure her family’s liquidity goals. For that, Rajesh advised Navya to invest around 75% in Liquid Assets like Bonds, Fixed Deposits that give regular returns and the remaining 25% in Markets out of which 15% can be diverted towards Private markets and the remaining 10% in Listed or Public markets. A question appeared in Radha’s mind. She asked “Rajesh why do Investors &amp; Family Offices only stress on allocating 25% to Angel Investing? Can’t the amount of allocation be higher? Rajesh replied “Sarah, The answers to your questions about whether it should be more or less is a very personal choice. Both individuals and family offices have financial responsibilities towards their families. Being a more aggressive angel investor would limit their choices in the near term and they might not be willing to make those sacrifices yet. By maintaining a reasonable 25% allocation to angel investing, the Mehras ensure they remain deeply involved in this high-growth area without compromising their family’s financial security. This allocation allows them to build a portfolio of over 30 companies over 5-6 years, spreading risk and increasing the likelihood of success.” All case stories exemplified the art of strategic asset allocation. By combining traditional investments with a measured foray into angel investing, they crafted a portfolio that offers both growth and security.

In the last article, we covered ‘How do successful angel investors allocate assets?’ &amp; ‘How Much Investment to Allocate?’ In this article, we’ll be covering ‘What advice would you give a new angel just starting?’ and more importantly ‘How much capital they should expect to invest on an annual basis?’ For new angel investors, receiving tailored advice is crucial to navigating the high-risk, high-reward landscape of early-stage investing. Experienced investors emphasize making new investments annually to maintain a sustainable pace. This strategy helps avoid overexposure and potential buyer’s remorse, fostering a deeper understanding and increasing the likelihood of successful investments over time. As always we’ll try to explain this concept with the help of a story. Let’s begin! Shubham was a newcomer to the world of angel investing. With a background in tech and a passion for innovation, Shubham was eager to dive in but wisely sought advice from seasoned investors. This story chronicles his initial steps and the valuable guidance he receives along the way. When Shubham first considered angel investing, he was advised to start slow and steady. A seasoned investor Rajesh at Launchpad suggested that a portfolio of 25 investments is the minimum, but aiming for 50 would be better for diversification. He also recommended making 5 to 6 new investments per year to maintain a sustainable pace. According to Rajesh, "At the low end, you should aim for at least 25 investments, and 50 is even better," he told Shubham. "Pacing yourself with 5 to 6 new investments per year is a good strategy." Taking this advice to heart, Shubham made his first few investments cautiously. he chose startups that aligned with his expertise in tech and innovation, spreading his capital across multiple deals. This strategy helped him learn the ropes without risking too much of his capital upfront. By making smaller investments, Shubham could participate in more deals, gaining a broader perspective on different startups and their growth potential. This hands-on experience was invaluable in building his confidence and understanding of the angel investing landscape. As Shubham progressed, he continued to seek advice from Rajesh and adjust his strategy accordingly. He learned the importance of thorough due diligence, networking with other investors, and staying informed about industry trends. Each investment taught him something new, and his portfolio began to grow steadily. One day, while interacting with a few budding investors, Shubham was asked a question by his buddy Rahul -&nbsp;How much capital they should expect to invest on an annual basis? Shubham was a little perplexed by this question. He asked Rahul to accompany him to meet Rajesh. Rajesh while answering the question narrated an incident where he had explained the very same concept to another investor Lokesh. “Lokesh began his investment journey with a plan to invest in three new companies per year, allocating $10,000 to each. Rajesh advised Lokesh to reserve a dollar for every dollar invested in the first round. This meant setting aside additional funds to support follow-on investments, crucial for startups needing further capital within the first 18 months. First Year of Investing: In his first year, Lokesh invested ₹25,00,000 in 5 companies:<ul><li>​₹5,00,000 in each of the five companies</li></ul>Lokesh also reserved ₹25,00,000 for potential follow-on investments, aligning with the advice to match initial investments with reserved capital. This preparation ensured he could support the startups through subsequent funding rounds. Subsequent Years of Investing: In the second year and beyond, Lokesh continued his strategy, but his annual capital commitments increased:<ul><li>₹25 Lakhs for five new companies.</li><li>₹25 Lakhs for follow-on investments from the previous year.​</li></ul>This totaled ₹50 Lakhs, but Lokesh typically found himself investing an additional ₹2 Lakhs in each of the 5 new companies from the first year, adding another ₹10 Lakhs. Consequently, Lokesh’s investment grew to ₹60 Lakhs by his second year. Scaling Up Investments: Lokesh considered increasing his investments to ₹10 Lakhs per company. Here’s how the numbers worked out:<ol><li>₹10 Lakhs in the first year for each of the five new companies.</li><li>Reserving ₹50 Lakhs for follow-on investments.</li><li>In subsequent years, ₹50 Lakhs for new investments and ₹50 Lakhs for follow-ons, totaling ₹1 crore</li></ol>Alternative Strategies:However, not all investors follow Lokesh’s method. Some opt out of follow-on investing, significantly reducing their annual capital commitments. Without follow-on rounds, the investment is halved:<ul><li>₹5 Lakhs in the first year for five new companies.</li><li>₹5 Lakhs each subsequent year. </li></ul>Another crucial piece of advice Shubham received was to start with smaller investments. At Launchpad, Rajesh recommended he begin with investments around the ₹25,00,000 level. This approach allows new angels to gain experience without overcommitting their resources. Rajesh advised him "Getting your feet wet is better by doing more deals and smaller investments, I always get upset when an investor writes a ₹1 crore check for their first investment. It’s better to avoid setting yourself up for an unsustainable pace and potential buyer’s remorse." By maintaining a measured pace and diversifying their investments, Shubham &amp; Lokesh mitigated risks and maximized their learning opportunities. They also built a network of fellow investors and mentors, which proved to be an invaluable resource for advice and support to other budding investors.

In the last article we covered the topics, ‘What advice would you give a new angel just starting &amp; How much capital they should expect to invest on an annual basis?’ In this article, we’ll cover ‘How much capital should investors allocate for their entire angel portfolio?’ Allocating sufficient capital for an entire angel portfolio is crucial for achieving diversification and mitigating risk. Usually, the amount varies between ₹1 Crores &amp; ₹1.5 Crores over 5 years. This level of investment ensures a broad enough range of opportunities to balance the inevitable failures with potential high-reward successes. Without this minimum allocation, investors may not diversify adequately, increasing their exposure to risk and reducing the likelihood of significant returns. Like always we’ll try to explain this concept with the help of a story. Let’s begin! Meet Priya, an aspiring angel investor looking to build a diversified and robust portfolio. Through careful planning and strategic investments, Priya has learned how to allocate capital effectively over several years. This story highlights her journey and the financial insights she gains. Priya started by investing in 5 new companies each year, with an initial investment of ₹5 Lakhs per company. Following the seasoned advice of her mentor Rajesh, she also reserved an equal amount for follow-on investments within 18 months. This meant she allocated ₹50 Lakhs in her first year: ₹5 Lakhs for each company and another ₹25 Lakhs reserved, totaling ₹50 Lakhs. By maintaining her pace of 5 new investments annually, Priya saw her portfolio grow steadily. After 4 full years, she had invested in approximately 20 companies. Accounting for potential early failures or acquisitions, Priya found herself investing around ₹1 Crore to ₹1.25 Crores. This amount, ₹1 Crore to ₹1.25 Crores over four years, emerged as the minimum recommended capital for building a viable angel investment portfolio. "Anything less than that amount and you won’t have invested in enough companies," Rajesh explained to Priya. She realized that a smaller portfolio might not provide the diversification needed to mitigate risks. Priya considered a more aggressive strategy, aiming for a portfolio of 30 companies. Investing in 6 new deals each year required careful planning:<ul><li>Initial rounds of ₹5 Lakhs each, totaling ₹25 Lakhs annually.</li><li>Reserving an additional ₹25 Lakhs for follow-on investments.</li><li>Over 5 -6 years, Priya’s investment totaled over ₹1.5 Crores.</li></ul>Priya’s story underscores the importance of a substantial and sustained capital commitment for angel investing. For new angels, aiming for a minimum of ₹1 Crore to ₹1.25 Crores over four years ensures a diversified portfolio with enough companies to balance risk and reward. For those ready to scale, increasing the number of investments can lead to a portfolio of 30 companies, with a capital allocation of over ₹1.5 Crores in five years. This strategic approach equips new investors to build robust and resilient portfolios in the dynamic world of angel investing.

In the last article, we covered the topic, ‘How much capital should they allocate for their entire angel portfolio?’ In this article, we’ll cover the topic ‘What do you do when one of your angel investments returns capital to you?’ Understanding ‘What to do when an angel investment returns capital?’, is crucial to strategically manage this windfall to maximize future growth and stability. Reassessing financial goals, reinvesting in new opportunities, and maintaining a balanced portfolio are essential steps. This approach not only diversifies risk but also ensures sustained income and capital appreciation. Additionally, leveraging this moment to expand one's network can unlock new investment opportunities and valuable insights. Thoughtful reinvestment of returned capital solidifies an investor’s long-term success in the dynamic world of angel investing. As usual, we’ll try to explain the topic using a story. Ravi was an aspiring Angel investor who recently saw one of his early investments pay off. This story follows Ravi’s journey and the strategic decisions he made after his investment returned capital. Ravi’s investment in a promising tech startup finally paid off, returning his capital along with a handsome profit. Excited but prudent, Ravi knew this moment required careful planning. "It’s not just about celebrating the win; it’s about what you do next," he mused. Ravi’s mind was filled with various questions. The primary question was what to do with the returns? The second question that appeared was what were the options available with him should he plan to re-invest? Ravi decided to contact his friend cum mentor Rajesh. Rajesh decided to help him by preparing a stepwise procedure to ensure that Ravi not only learns but also spreads the word so that many others like him can take better care of their returns. First, Rajesh asked Ravi to take a step back to reassess his overall investment strategy. Reviewed the portfolio and ensured it was still aligned with his long-term financial goals. The return provided an opportunity to reallocate funds strategically, enhancing portfolio diversity and stability. Post assessment, the second advice that Rajesh gave to Ravi was to treat his Angel Investment Portfolio as an ‘Evergreen Fund’. In other words, Rajesh advised Ravi to re-invest whatever returns he generated in new startups and maintain this trend so that a cycle of investment - returns - re-investment - higher returns can be formed. Rajesh further tried to explain to Ravi with the help of an example. “Supposing Ravi you invested ₹5 Lakhs in each of the 5 companies in the first phase. There was 1 company that acted as an outlier and gave you 10x returns followed by 2 companies that gave you returns in the range of 3-5x. The last 2 companies shut down their business and investment failed. In other words, on an investment of ₹25 Lakhs, you earned close to ₹80 Lakhs. Now, Ravi, you have 2 options. Either you increase the ticket size from ₹5 Lakhs to ₹10 Lakhs and invest in 8 new startups or continue with the same ticket size and invest ₹5 lakhs each across 16 companies. Either way, you’ll be able to earn better returns with this investment. If you invest in 8 companies and even one startup provides you with 10x returns, you’ll cover your entire investment. Generally, you’ll get 3-4 companies as outliers. On the other hand, the chances of outliers increase with more investments so if you choose Option 2, again you’ll be able to earn exceptional returns which you can then re-invest later. Ravi nodded in acceptance and decided to follow Rajesh’s advice which ultimately resulted in him earning exceptional returns in the future. Ravi’s story highlights the importance of strategic planning after receiving returns on angel investments. By reassessing goals, reinvesting wisely, balancing risk, and expanding his network, Ravi maximized the benefits of his successful exit. For new angels, his approach serves as a roadmap to ensure continued growth and stability in the dynamic world of angel investing. ​

These module will go into detail on the various styles of investing, amounts to invest, knowledge sharing, and trust vs legals.

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