Introduction to Angel Investing

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?

Chances are that when you hear the word startup, you might think of highly successful ones like Zomato, Flipkart, or maybe Cred. You might envision Artificial Intelligence, new innovations, raising funds, and most importantly Shark Tank. When you think about Angel Investors, you might imagine popular Shark Tank judges like Ashneer Grover or Anupam Mittal, or Namita Thapar.

Now, Have you ever wondered if ever these angel investors had a phase where their investment actually resulted in losses? Have you ever wondered what would they do if they find out that their investments turned into sunk investments? Have you ever wondered how many startups shut their shop within just 5 years of operations and the reasons behind it? Have you ever wondered what % of Angel investors fail every year in India?

Unlike many who believe that startup is a recent phenomenon, it’s clearly not. Infact if we see the history of the past 150 years, one can notice, every 20-30 years there has been a revolution. For instance, do you know that telephones were introduced for the first time in 1876 or the first car in 1886, or maybe the year airplanes were introduced was 1903? Ok, these were slightly tricky ones. Fast forward to the year 1938, when the world got introduced to a ball pen.

OK, enough of inventions, let’s talk about famous revolutions like the IT revolution of the 1990s which led to the IT Boom & lasted till the early 2000s. Infact, IT Revolution was a key driver behind uplifting the economic status of so many people, empowering them, and enhancing connectivity. Infact it won’t be wrong to state that IT has played a very key role in giving rise to the Startup revolution since the 2010s.

This brings us to 1 person who is not only an entrepreneur himself but has supported & continues to support many like him that are leading upcoming startups. Let’s give you a hint- He is the Founder of Shaadi.com but ironically is an eligible bachelor himself. Jokes apart he is 1 of the 5 judges in the popular reality show Shark Tank India. You might have guessed it by now, it’s Anupam Mittal.

Anupam Mittal is counted as one of the top angel investors in India. He has invested over ₹2.9 Cr. in over 240 companies including iconic startups like Ola, Cabs, Big Basket, etc. & today his net worth is around 20-25 Mn$.

Recently he claimed that, of the 240 companies he invested in, at least 60-70 have shut down their business which is a staggering 25% or ¼th of his total portfolio. Isn’t it surprising that despite 25% of startups failing he has made a fortune out of the rest of the investments signifying the importance of portfolio diversification?

Infact, taking you all back to 2022, according to NSE data, Angel Investors have lost close to 5.7 Bn$ which in Indian terms roughly translates to ₹47,000 Cr. So, in spite of all these investors having all the relevant information w.r.t startups, be it of management or the financial well-being of the company, why is it that investors are incurring such a heavy loss? Is there a problem in their strategy or is there a problem with their methodology or the fundamentals aren’t very clear? Maybe the reason is a combination of all of them. These are concerns that need to be answered before any potential investor plans to invest hard-earned savings into a business.

Too many questions to digest, right?...

According to Venture South.vc, at least 50-70% of angel investors face losses in the initial years. Infact many reports & industrialists like Anand Mahindra have claimed that 90% of startups in India shut their shops within 5 years of operations due to multiple reasons ranging from lack of funding to products not finding attraction in the market.

Yet the number of funding done by Angel Investment deals has only increased in recent years, from 308 in Q1 of 2021 to 506 in Q1 of 2022, showing a year-on-year growth of 64%. This shows immense potential for growth.

The question that is bound to arise is if there are so many failures around you then how do top Angel Investors pick the right startups & turn them into startups with market cap worth Billions of dollars? What strategy do Angel Investors like Ashneer Grover & Anupam Mittal use so that whichever startup they choose for investment turns out to be so successful? What do they see in startups that other ordinary investors aren’t able to see?

At Planify, we started your investment journey from Pre-IPO & Unicorns. When we started, we had only 12 investment opportunities, but as of today, we have over 250+ exclusive investment opportunities in which we have successfully had investors exit in 34+ instances registering returns of a minimum of 250%+ and at times as high as 1000%-2000%.

We ensured our investors achieved great success by investing in Planify-backed startups where they continue to gain returns up to 50%+ annually. All of you have highly appreciated our in-depth content on Pre IPO & Startups.
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Our journey in startups started here. This is where we started investing in startups. Planify to date has supported 6 companies whose cumulative valuation as of today has gone beyond ₹1600 Cr.

Today, Planify can proudly state that we have created a startup ecosystem where companies can raise funds and investors can invest in their favorite startups after analyzing them & generate great returns.

Planify has allowed investors to start investing in upcoming startups at a cost of just ₹2,00,000 only which has made it easier for investors to invest in their preferable startups.

While supporting investors in doing Angel Investments, many investors came to us. They requested for content on Angel Investing that would help them in clearing all concepts related to Angel Investment. They recounted one masterclass on Pre-IPO, where we had cleared all concepts from ‘What is Pre IPO’ to ‘How to make investment’ & ‘How can we generate high returns’ which helped clear all his fundamentals.

After our extensive research on the net, We realized that there is no such masterclass available in the market despite being in high demand from investors. A lot of concepts have been cleared in bits & pieces but there is no site where you can find consolidated information on Angel Investing, What should be the approach, and How to analyze shares of a company. While doing this we also realized that there are certain financial websites that are selling Angel Investing Masterclasses at exorbitant prices, as high as ₹1 Lakh to ₹2 Lakh.

Today, for the first time we have brought an Angel Investing Masterclass where we would cover topics in-depth. There are a total of 13 units in this masterclass with each unit having small sub-units or modules covering various fundamentals in-depth. Let's briefly go through what are we going to cover in the Angel Investing Masterclass.

Our 1st unit talks about Introduction to Angel Investing under which we would cover:
Why one should do Angel Investing?
What are the reasons why you should not do Angel Investing?
What can we expect from Angel Investing?

In the 2nd unit, we would cover Financial Concepts & Terminologies consisting of sub-topics like TAM/SAM/SOM, CAC, LTV, MRR/ARR, COGS so on & so forth. Apart from this we would also cover sub-topics like DAU, MAU, user Retention, Burn Rate, Runaway, Churn Rate etc.

This brings us to the 3rd unit where, we’ll look at How to carry out Portfolio Allocation while doing angel investment. We will study in detail to allocate your Investment capital, what is the law of the power of returns & how to invest without losing any returns, what’s the magic number regarding the number of companies, the amount of investments etc. We will cover all this in detail.

In the 4th unit, we’ll cover How Angel Investors allocate their Asset, and how Family Offices allocate their assets. Overall how many shares of your total investment portfolio are allocated to angel investment, what are the things that angel investors need to keep in mind before investing, how many startups should one invest in to create a diversified portfolio, and in how many years can an investor expect results?

In the 5th unit, we’ll cover the Rights of an Investor, where we will try to learn in detail about concepts like Liquidation preference, Anti Dilution, Pre-emptive, Tag Along, Basic Information, Lock-in Rights & Exit Rights. We would also cover roles played by an investor in an organisation which would include Board Rights/Observer, Detailed Information Rights, Critical Affirmative Rights, Voting Rights, Drag Along Rights & Detailed Affirmative Voting Rights.

The next unit i.e the 6th unit would cover would Investing Instruments where we would discuss the following topics:
Equity: Equity Shares, CCPS, Partially Paid, CCD
Hybrid: Convertible Notes or SAFE Notes, OCD
Debt: Loan

When we do Angel investment, we generally do it in ordinary shares but here we would learn to do it in Preferential options as well which we would cover in CCPS. Apart from that, Partially paid shares would also be covered. Along with that, we would also cover Hybrid mode where we would learn about Convertible notes & OCD. We would also cover concepts of Debt Instruments like loans.

Coming to the 7th unit we would discuss Where to source our investments? In this, we would learn about thesis-based investing, and opportunistic investing & along with that we’ll also cover the different platforms used for Angel investing.

The next unit after sourcing, i.e. 8th unit would be on How to evaluate deals? Apart from financial concepts also, there are a few deals that need to be kept in mind while evaluating deals.

In the 9th unit, we would discuss How to perform Due Diligence on companies, how to make a cheat sheet to calculate the valuation of companies, and how to study recent trends of startups.

In the 10th unit, we will learn, How to manage deals end to end & liquidate your investments? We’ll cover topics like managing deals and liquidation, we will also learn about the entire liquidation process & lay emphasis on exit strategies like Secondary sales, Pre IPO etc. We will also learn when is a good exit and what is the difference between good, bad & ugly exit. We will also see what goes on behind a large acquisition and successful IPO.

In the 11th unit, we’ll discuss about Exit Strategies where we would discuss exit strategies such as Buyback, Secondary sales, IPO, Next round of funding & Acquisition.

In the 12th unit, we’ll discuss How to add value to your startups & manage your portfolio? We’ll study Portfolio Management, Assessing Returns Key Metrics & How to add value as an Angel Investor.

In the 13th unit, we’ll discuss Private Market Taxation. We’ll study an in-depth Understanding of Regulations and Taxation around Angel Investing, Tax Offset & Personal Branding.

In the 14th unit, we’ll Understand the Risk in Angel Investment. The sub-topics that would be covered under it include Business going bust, Fear of Missing Out, Regulatory Risk, Privacy invading business, Hazardous Business, Product Liability & What approach to take while advising a CEO on how to manage risks.

In the second part of this unit, we will study about how to evaluate. Under this, we would learn about the evaluation of different kinds of startups like Consumer Startups, Deeptech Startups, Subscription-based startups and E-Commerce startups to name a few.