ESV Times | Monthly Newsletter | September 2024

Angel Investor: To be or not to be?

Often, people have a lopsided notion about startup investing. Influenced by news reports, either they are too optimistic to generate 100x returns or too pessimistic that funding winter is wiping out the industry. Let me first share reasons not to invest in startups as an Angel Investor.

First, if your ‘only’ goal is to generate ‘super-normal’ financial returns, then capital markets might be a better alternative. There might be gems in small-cap / mid-cap that give equally good risk-adjusted returns.

Second, If you expect liquidity, then stay away from startups; investments in private companies are illiquid by design. Startup investors typically invest with a 3-5-year horizon, and if you try to sell earlier through secondaries, generally it would be at a significantly discounted price, rendering the whole purpose meaningless. Startup investments are for those with staying power.

Third, one should not be swayed by a couple of flamboyant stories, and jump into taking exposure in them. Irrespective of how attractive an investment may seem, it is always recommended to undertake a portfolio approach in startups – have enough capital to spread the risk across at least 5-7 startups.

Fourth, If you don’t have a solid connection into the startup world, and have access to a great deal pipeline, then generally you’re trying to select from a very small sub-set of the overall market. One has to have access to a larger funnel to (a) find the right gems, and (b) develop the right judgment about evaluating these startups.

Now, let me share the reasons to become an angel investor:

First, if you have a passion for building something of substance. Successful angel investors are super excited about the prospect of helping build something new, something big, something great. They want to be part of such stories where they feel like I’ve contributed to a story-in-making. Help founders, guide them, open doors for them, solve their problems, and be their sounding board. These are things one gets to do as an angel investor, but never as just an investor in public markets.

Second, a related benefit of the above is that once you start getting recognized as a valuable startup mentor/investor, you can also make this a professional career (part-time or full-time) as a business coach for startups, and charge for it separately.

Third, there is a constant desire to learn and become part of the future: remember, we’re talking about promising companies run by stellar founders using emerging technologies to craft the future. The learning from this journey is phenomenal.

Fourth, have access to a great pipeline of deals (if you are doing this full-time) or relationships with angel networks/funds through which you can invest and build a portfolio (if you’re doing this part-time). In this, make sure your deal pipeline is through actual ‘investors’ and not simply brokers/advisors/bankers.

So, if you’re sufficiently-informed about startup investing, and smart about it, you can have a great ride. Else, you may end up joining a large group of people who’ve burnt their hands.

Deal of the Month 01

AI Infrastructure for next gen Advertising

Hypergro.ai is an AI-led, video-first, and hyper-personalised, user-generated content (UGC) video ads creation and distribution platform to power performance marketing of brands. Their innovation drastically reduces CAC, skyrockets ROAS, and brings the power of personalized advertising to the forefront.

The numbers speak for themselves:

• 1282% ROAS improvement for a lab-grown diamond brand.
• 4X increase in organic trade volume for a leading trading platform.
• 90% reduction in CAC for a voice chat app.
• $350k ARR in 12 months of launch
• Poised to reshape the $650B+ digital advertising market
• LTV to CAC > 10

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Deal of the Month 02

India’s most valuable sportstech venture

Machaxi, is revolutionizing the sports tech industry with an asset-light, tech-driven model, reaching an ARR of
₹18 Cr. By leasing and upgrading private sports centers without CAPEX, Machaxi boosts revenues by 1.5 to 2x. Their area dominance strategy and high repeat rates—70% for Learn and 50% for Play—create significant market barriers. Partnering with Olympian Nisha Millet, they train over 2,000 kids monthly, setting new standards in sports training. Their app, integrating Learn, Play, and Shop, doubles center revenue within six months.

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