Angel Investing : What You Should Ask

Aug 12, 2022

In the previous blog, we focused on the things which as an investor one doesn't think about when starting with the angel investment journey. Considering the hiccups that one might face by investing directly in the startup, retail investors have a saviour called "Angel Fund"

Wondering what is an Angel Fund? It is a fund that pools capital for investment in startups from a network of angel investors. There are a lot of angel funds in India, however choosing the right angel fund for you is extremely important. 

In this blog, we would like to highlight things which one should ask for, while investing with an angel fund. And no, we aren't talking about the basic questions like the returns, performance and cost. The questions are focused on helping you find the right fit which are as follows:

1. What is the fund's investment thesis?

This is the first question that one should ask the angel fund as it helps one understand the rationale based on which the fund shortlists and invests in a startup.

It is just like when an investor evaluates a mutual fund which is focused on blue chip, small chip, IT and other categories, that helps its investors pick their choice of fund based on the understanding of the market and risk of the same.

2. How strong is your deal pipeline and deal evaluation process?

As an investor, if one is investing through an angel fund then it is extremely important to know if the fund has a strong and comprehensive evaluation process or not. Also it is equally important to know if they have access to the best startups in the ecosystem. The strong deal evaluation process would hold no value if they don't have access to the best opportunities. So ensure to ask this question.

Startup curation ratio is a metric that can help one analyze the same as well. This ratio is as follows:

= Total No of startups invested/ Total No of Startups evaluated

The startup curation ratio should be as low as possible. Preferably less than 1%. That means the Angel fund has evaluated 100 startups before investing in 1 startup. Angel funds can help you with this curation as they can access more deals than what you can as an individual.

However, this ratio only helps with the quantitative analysis and not the qualitative. So do understand their qualitative approach as well.

3. What all support does the angel fund provide to its investors?

An angel fund is more than just a vehicle/platform for enabling one to invest a smaller ticket size in a startup. Essentially, one should ensure that the fund conducts a strong business, financial, regulatory and legal due diligence at the time of investment. While post investment, they must work with the portfolio to grow them and ensure best returns for its investors. Every angel fund claims that they maintain a strong check on the portfolio companies and track their regular updates but very few actually do them. So ask about the portfolio companies and gauge the level of involvement the fund has with their portfolio.

Remember to ask these 3 questions before you get swayed by the sales pitch. If you decide to invest through any angel fund then ensure that you are choosing the right fund as it would be a long term relationship. Hope this blog will help you find the right fund and make your angel investment journey a lot better.

Author(s) :
Raveena Khandelwal