When an 'angel investor' speaks wannabe entrepreneurs and startups better listen. Rehan Yar Khan of the Indian Angel Network is one such voice.
Rehan, who founded flora2000.com, a company that delivers flowers to over 150 countries worldwide, has 16 years of experience in building and managing companies. A keen observer of the consumer internet domain, Rehan started his career as a chartered accountant in the UK.
Soon the entrepreneurship bug bit him and he quickly moved into managing companies and hand-holding startups.
In an interview with rediff.com's Prasanna D Zore, Rehan discusses a wide range of issues related to entrepreneurship and how the Indian Angel Network supports startup companies.
As an 'angel investor' what do you look in companies you would want to invest?
We look at companies which are a) early -- as the mandate of angel investors is to find an early opportunity, b) we look at a very, very large opportunity and c) we look at whether the team that leads the company has the potential to go all the way.
These are the three essential criteria of angel investment.
How do you identify a target company?
We have a very structured process at the Indian Angel Network.
Entrepreneurs looking out for funding contact us from multiple sources; either they are referred to us or come through our website. The other way is for them to come to us and pitch around their ideas and businesses.
When we meet entrepreneurs they showcase their business plan and explain their strategies to us. If people from the Indian Angel Network like their plans then one person from amongst us who knows the space or is interested in the space goes ahead with the project.
The person then does the due diligence, works with entrepreneurs, knows more about their business; basically spends some time to understand the business of that particular startup.
Can you deconstruct the awe surrounding 'angel investors'?
Angel investing typically is a very high risk, high worth kind of investing. People who are angel investors are, most of the time, entrepreneurs. These are the people, who have worked on difficult startups, made them successful through infusing money and hand-holding startups during the initial phase, have put a lot of their own money, effort and network to all the projects.
In fact, an angel investor needs to be an entrepreneur, a risk taken, an opportunity spotter -- wherein s/he spots an opportunity when it's in the initial stage, on paper, during a conversation with an entrepreneur. Once this is done, s/he needs to put lot of efforts and energy into maturing that opportunity.
How important a role does an 'idea' play in spotting an opportunity?
An 'idea' is of course the beginning of an opportunity. Let's take the example of Tata Nano, which in the beginning was essentially just an idea. And then one man, one entrepreneur Ratan Tata decided to bet on that idea and this trait of betting big on an idea can only come from an entrepreneur.
Though you have these big global automotive giants like General Motors, Toyota and the who's who of the world. But one guy with a pretty small company compared to these global giants had that entrepreneurial bent to convert an idea into reality. He saw an opportunity here: billions of people, no proper motor transport, we got to find a solution for this. And he did it!
So Nano was just an idea. After that Mr Tata spent his energies to sit and work on that idea.
Is money a very important factor for an angel investor?
You know the Indian stock markets, right? I mean my wife can make more money than I do by investing in the market. But that's not the key driver in angel investing. Entrepreneurs always have a zeal for building things from scratch.
It's the idea, the people and how they come together to make an idea successful is what draws an angel investor to back a project.
What's the difference between an angel investor then and now?
There have been angel investors in the past too. Indians are known for their entrepreneurial zeal. Look at Indians across the world. Like the Patel community in America which took over the entire motel network in the 80s and 90s.
Earlier on investing used to happen as debt wherein a relative or a group of friends lent you money to start your business. Now angel investors are putting their money by willing to take a part of the company's equity and work on the project with you.
Angel investing or investing in an entrepreneur's idea has always happened in India. But we used to be traders earlier; now there's a lot of product development work happening and angel investing is sort of coming off age in India.
What would be your advice to startup entrepreneurs?
The biggest and the most important advice is that an entrepreneur got to show her/his maturity. If you come and show us a very grand plan or if you don't completely tell the truth or purposely hide something then we feel that an entrepreneur is not mature enough to execute an idea.
Everybody in the world understands that there will be problems and ups and downs. If you had been to jail as a teenager then please come to us and tell us about it. It's not unusual for lot of teenagers to be foolish when they were young. Nobody will hold that against you.
Investors won't like if the truth has to be dragged out of you. Then even if you will have a good idea investors will find it painful to work with you. You got to be frank and honest. An angel investor is like your partner and you should be honest and fun to work with.
Young entrepreneurs in particular should not rush into startups. Without experience you will make a lot of mistakes at your own cost. It might be an interesting experience to work in a number of spaces before you begin your enterprise. Once you start you should stay committed to your venture. It takes lot of time to learn to be a manager, an entrepreneur and an owner.
There is always a solution to problems and the future is not dark as it seems sometimes. Value constructive feedback, don't let it upset you. If somebody says the business is not going to pick up then probe that person. Ask her/him why s/he would believe so. Get that information out in a very pleasant manner. Examine that information objectively, satisfy yourself, and learn from your mistakes if any.