There is a time to guide and invest and then there is a time to gather up your fruits and make a graceful exit. A good Angel Investor knows when to make that graceful exit and how to strategize it. Yourstory found out firsthand about how exit strategies are conducted from Padmaja Ruparel.Padmaja Ruparel is the current Vice President of the Indian Angel Network. Her experiences at Xansa India Ltd as Vice President – Corporate Communications and de facto Executive Director of TiE Delhi from 1999 and over 8 years have been instrumental in aiding the Indian Angel Network. She has also served as Executive Director at TiE Asia and revived the Indian Venture Capital Association.
Is there a standard exit strategy that you use or do you customize?
Again, it’s deal to deal. In one, we have a VC coming in as our next round funding. The angel’s got an exit option. In another, there was a strategic investor who came in, so the angels decided to exit in cash and still hold on to equity or a part of it. That’s a partial exit, in some ways.
In a third, there was a complete takeover of a company by somebody, so it’s a takeover exit. An IPO is too far off because the companies are too young. To my mind, angel-invested companies have to up a few other rungs on the ladder. Maybe we can someday see a management buyout. We haven’t seen that, as yet.
Do dividends attract you to certain deals? What is your best investment so far?
Largely, our investors are not very excited about dividend gains.
Our biggest success is the one I earlier quoted you, an exit giving our investors five times over 15 months. Another is a company where people have gotten back all the money they invested and are still holding shares.
What is your take on Angel investing essentials in India? How does it compare to other countries?
That’s a tall order. I must first say this with a bit of a rider. Angel investing in India is very young. It’s not as old as what is happening in the United States or the United Kingdom. So, keeping that in mind, I think per se, angel investing is a new phenomenon for people here. There are very few angels invested in the true sense. So, one thing that does happen – because the VC industry is a decade and a half or more older – the VC lens is sometimes used more than the angel lens.
If you’re a VC coming in with let’s say a $5 million to $10 million investment, you’re obviously looking at a company that’s got a history, that’s got some traction, that’s got some success. So, a VC would invest, looking at the past, and also taking a punt on the future. On the other hand, if you go to a bank that is giving a debt, or any debt financing agency for that matter, it largely looks at the past of the company.
But angel investment, if you think [about it, is] a little is different and is based on the venture’s future. I think that’s where the risk lies. Other than the team, you may not have anything else to take a punt on.
I think that may be what in India – and I’m being very specific to India – is where for angel investors, there’s a bit of a learning curve that needs to come. And I think it will come. It’s probably experience and exposure that is required. Also the entrepreneur ecosystem in India, though the traction is high, is in its very early stages.
The United States is a brilliant example, but think about how many years and decades of entrepreneurial activity have been going on there. India it’s almost the first generation, middle-class entrepreneurs largely from IT industry about two decades ago. And they started off and it was only about a decade later that we had icons coming out … sort of exited the companies, made money out of the entrepreneurial ventures. So, that, I think, is something which we would gladly move into, taking a little more risk on a few more unknowns.
What is the best way to learn about angel investing? Is joining you a good start?
I would say, yes, of course. Because I think, if I look at the Indian angel investing scenario, we probably have the most experienced angels in our network and we have the most varied domain expertise. And those are two things which only help to risk your hedges, de-risk your investments, create a higher probability when you are talking to a network which is spread across the country and overseas.
A good example is last year when we invested in one company sometime in April, they came to us with four clients. By December, they had 65 leads. Whether they convert – they did convert quite a few – but to have 65 solid leads in eight months is not mean.
What was your network like when you began? What are you heading towards?
We were very entrepreneurial in how we started. I don’t think there was much thinking at that time. We didn’t realize it would be so big, to be honest. So, we just started with a private, limited company which is for more administrative purposes, just so that payments can be taken in and expenses can be pushed out.
There isn’t a plan to create a value in the network. It was conceived as a not-for-profit, no loss/no gain kind of a scenario, and we still work on that. Having said that, we just instituted a section 25 company, which is a true not-for-profit company. So we will migrate to that. What we started was very entrepreneurial, but we have grown it well into a professional organization and becoming the largest player in the early-stage entrepreneurial ecosystem in India.
How can angel-backed ventures guarantee success or at least increase its chances?
Apart from doing what they have to do, I think they should be able to leverage the angel network very well. They have the fortune of being in touch with people who built companies from the ground up.
Angels bring not only investments, but also huge operational savvy, which is not embedded implicitly in the VC system, for instance. Unless somebody brings on a successful entrepreneur on the VC board or fund or whatever, it’s not embedded in the system.
Here, largely there are people who have been successful entrepreneurs or successful intrapreneurs – people who changed their own corporate space successfully. I think that’s a huge, huge opportunity to leverage and take advantage of to build their strategies, to change things, be open to it. So, mentorability and leveraging the investors network, I think, could make the difference.
Do you exhort them to interact and speak to the rest of the network?
Yes, we do. In fact, in many of our invested companies we tell them, here is the network, you can see it on the website, tell us who you want to engage with. And we do those proactively; we connect people and set up meetings.
Second, we send out the entire proposition to the network so that all investors, irrespective of whether they invested in that deal, do come forward and help. We create visibility for our invested companies so that they get a bit of a stage to stage their show. We do all of that. As a part of nurturing, I think it’s important to nurture our invested companies before we go out.
Yourstory thanks Padmaja Ruparel and the Indian Angel Network for all the insights into their inner workings wishing them many happy years of Angel Investing. We are grateful for their cooperation and willingness to share their knowledge with our readers.