My Criteria for Investing in Startups
Before investing in startups I ask ponder over following questions:
- Is the startup solving a real problem/pain point?
- How big are the opportunity and the market? How fast is that sector growing?
- Does the company have any true business model? How does it generate revenues and profits?
- Does the company/product have any competitive advantages? What is the competitive and differentiation strategy? What are the barriers to entry? Can the business scale?
- What is the track record of the team? Did the team deliver any compelling products in the past? Does the founding team truly believe in the idea i.e. are they passionate? Can the founding team stay together through thick and thin?
Attributes I Look for in an Entrepreneur
- To me an entrepreneur needs to solve a real pain point. The product that he/she built must solve a problem.
- Founders have to be passionate about the idea and have to be 200% committed to the success of their startup.
- The founders must have a long-term vision for their startup.
- Can the founders stay together through ups and downs? What is the commitment of the founding team to the startup?
- Are the founders aligned on the vision?
- Do the founders know their strengths and weaknesses? If the founders are not strong at something, are they willing to complement the team from outside? Will they be open to outside advice and/or other team members that are not part of the founding team?
- Can the team attract and retain top talent?
- Are the founders open to changing the course if their original idea isn’t working? Can they pivot?
- How do the founders make decisions? Are they data driven?
- Are the founders easy to work with? Do they have even temperament?
- Can the founders articulate their product strategy well?
How Much to Offer an Angel Investor
Entrepreneurs can do convertible debt in their seed round. That will eliminate the anxiety of figuring out a valuation for their startup and also removes any anxiety of giving a percentage to angels. I suggest doing a convertible debt in Angel and seed rounds till they go to series A. Regarding offering Board seats, startups should choose Board members who can offer guidance. Board members should complement the strengths of the team and should help guide the young entrepreneurial team to avoid mistakes and also to help them to move forward. Most importantly, startups should choose someone who believes in the company’s mission, the strategy and the team to serve on its board. A right board can really help a startup to connect with the right folks, to fine tune the strategy, to attract top talent, to raise money, to introduce customers, offer insights into the industry and competitive landscape and so on.
Most Popular Types of Businesses in India at the Moment
It is more important to solve a real pain point (i.e. a real problem). Can the product disrupt a marketplace? You can take any marketplace and find a way of doing it better. For example: Uber is trying to disrupt the taxi cab market, TigerText is solving HIPAA compliant messaging in hospitals etc. That said, the broader problems that entrepreneurs can look into are in Mobile, Cloud, Big Data, Education, Health Care and Enterprise.
In India, companies like Flipkart, InMobi, Cleartrip, SnapDeal, RedBus, etc are disrupting different types of businesses. Indian market with over 1 billion people is ripe for disruption. In India, there are several opportunities to disrupt the consumer Internet space, education, health care, energy and transportation spaces. Mobile is a huge opportunity for entrepreneurs targeting Indian market. Majority of the population have mobile phones, but does not have PCs. So the products that the entrepreneurs’ build should be mobile focused (or mobile first). Any startup that is focused on simplifying the lives of consumers or enterprises will be a big winner.