Most venture investors clear that they want founders focused on running their own companies rather than advising other entrepreneurs
It is verily the season of reflection for the Indian startup industry as the heady excess of recent years gives way to circumspection. As investors tighten purse strings and expectations move from growth to profitability, key stakeholders are questioning moves once accepted as the norm in a fast-paced industry.
Can founders be active angel investors? A look at startup deal tables in the past two years would indicate that few objected to the practice. However, a first-of-its-kind survey of the most influential people in the industry indicates that the majority of them believe that it is taboo.
“(Angel investment) as a one-off to support or encourage someone you know or have worked with is fine, but as a side career while running a venture funded business is a distraction,” said a senior venture capital investor. An overwhelming 78% of investors polled as part of The Economic Times Startup Ecosystem Barometer said that founders of startups should not be active investors in other startups.
More than half of the founders of companies valued over $100 million, polled in the survey, have made at least one investment, indicating that it is a fairly widespread trend. Those who answered the survey agreed to do so on condition of anonymity, allowing themselves the freedom to express their views candidly. The result is a comprehensive and fascinating snapshot of Startup India.
Over the past two years, fellow founders have become the first port of call for entrepreneurs looking to raise their first round of funding. The idea is that investment will come with advice. However, as the business environment turns more difficult, venture investors are clear that they want founders focused on running their own ventures rather than advising other entrepreneurs. Several of those surveyed said first-time entrepreneurs, in particular, should not be angel investors as they are still figuring out how to run a business.
It is a view corroborated by angel investor Aprameya Radhakrishna who cofounded TaxiForSure. After selling his company to Ola in a $200-million deal, he has made 14 angel investments, interacting with at least a third of them every fortnight.
“If I was running a company and met a startup that could benefit my company later, I would make that investment from the books of the company with investor approval rat her than a personal investment,” he said. “I think that’s a grey area.”
Venture investors were divided on the pace of investments in the industry this year with half saying they would close fewer dither half indicating they would step up. But while the other half indicating they would step up. But there were no doubts as to the direction that valuation of startups would travel a full 92% said valuation expectations have dropped in the market.
It is business as usual, for some others. “We didn’t get stuck much in the craziness of last couple of years and deal pace has remained constant,“ said Alok Goel, MD at SAIF Partners India which has backed companies like Paytm and MakeMyTrip.
Source : The Economic Times (Delhi)