Here's how you can benefit from fellow investors' wisdom in angel networks

A novice investor can profit from the diverse perspectives and expertise of group members evaluating a deal along with him, and thereby make better investment choices

If you have recently joined the field of angel investing, going it alone could be a daunting task for you. Finding deals (options to invest in), evaluating them, handling the paperwork, and then monitoring those investments could all be overwhelming for you, especially if you also have a regular job. One route that many angel investors nowadays take is to join an angel network, many of which are there in India now.

On the one hand, there are a few online platforms like AngelList and LetsVenture where entrepreneurs list their deals and angel investors can choose from them. In addition, there are several real-world networks. CIO Angel Network (CAN), for instance, focuses on technology-related deals. Other established networks include TIE Mumbai, Mumbai Angels, Lead Angels Network, Indian Angel Network, and so on. Most of them have chapters in several cities across India.

Access to deals

A key reason for individual investors joining angel networks is access to deals. Many startup founders are not too keen to accept money from an individual investor who can write only a small cheque. Moreover, attractive startups are spread out all across the country, and it is an onerous task for an individual to seek them out personally. Joining an angel network gives him access to a large number of deals, which he can pick and choose from. At an angel network, you could be presented with 50 or more deals in a year.

An investor also benefits from the investment acumen of fellow members by being part of the angel network. "We invested in a non-alcoholic beer company last month. I was the lead investor. I did the due-diligence on the company. All the other investors who were part of the syndicate that invested in it relied on my due-diligence to take the final decision," says Sanjay Mehta of Mehta Ventures.

Alok Mittal, co-founder of Indian Angel Network, agrees: "You get the benefits of diverse expertise, experience and perspectives of all the other investors who are in that deal with you." Decisions based on the combined inputs of several investors tend to be more robust.

Diversify your portfolio

Joining an angel network also allows you to make smaller investments in a larger number of companies, thereby enabling you to create a more diversified portfolio. "An individual investor may have to invest as much as Rs 2.5-3 million in a single company. If you have a corpus of Rs 20 million, you will at best be able to invest in six-eight startups. By being part of a syndicate, you can invest as little as Rs 500,000 in a single company, which means that you can diversify your portfolio among a larger number of companies," says Mittal.

Portfolio diversification is crucial in angel investing. "This is a very risky asset class. Here, 60 per cent of the startups you invest in might fail, 30 per cent could give average returns, and only 10 per cent would give you bumper returns. To earn a good rate of return, you need to make at least 20 investments over a five-year period," says Mehta.

Angel networks also do the initial screening and basic due-diligence on behalf of their members. TIE Mumbai, for instance, has a partner called Tipping Point that does the due-diligence on behalf of members. "The network will make sure that there is a business in place, and that the information that investors need to make the investment decision is easily available to them. It will also do the accounting and legal due-diligence. It will make sure that the startup's books are in order, and its revenues are indeed what it claims it to be," says Mittal. Angel networks also handle the paperwork and help create shareholders' agreement.

How to join a network

Some networks require a referral from existing members. "We don't just want members who will give their money. We want those who will mentor startups, and help them with their advice and contacts. That is why we need an existing member to corroborate that the person who wants to join the network will indeed spare time to mentor startup founders," says Mittal.

Angel networks don't stipulate a minimum investment corpus. As mentioned earlier, you can invest as little as Rs 500,000. However, to be able to diversify your portfolio adequately, it is advisable to have a minimum corpus of Rs 10 million so that you are able to make at least 20 investments over a five-year period.

Above all, by joining an angel investing network, you become part of an accomplished group of investors. "For most individual investors, an angel network is the perfect way not just to find interesting start-ups, but also to network with like-minded people and learn the ropes of angel investing," says Sushanto Mitra, chief executive officer of Lead Angels Network.

How to choose the right network

Angel investing opportunities are spread across the country. "You are better off choosing a network with national coverage. This will give you access to a larger set of opportunities," says Mitra. He adds that you should also examine the processes of an angel network, its capabilities, and how professionally it is run before you sign up.