When angels fear to tread


I started making angel investments in 2013 for a very simple reason. I believed that the founders I was investing behind had the vision and tenacity to create powerful brands, and the execution capability to do this in a relatively short time.

I thought my marketing background and experience could offer some value to these young founders. In return, I was getting to participate in India’s startup revolution – because it is nothing short of a revolution. Nearly four years later, my belief and enthusiasm remain unchanged, but there is a discernable shift in the angel landscape.

 The X factor

Mid 2014, at a dinner in Delhi, a well-heeled friend complained bitterly that I was ‘not sharing’ my knowledge of the startup scene. He had already made 10+ angel investments, without meeting the founders or understanding what the company did. He was now waiting for his ‘x-factor’, he said.

The startups would raise a round at exponential valuations and he would get multiplex returns. His grouse was that some of the startups I had invested in were getting headlines in the business papers – a sign to him that funding was imminent. His portfolio companies were not ‘visible’ and that was making him uneasy. He had thought deeply about it and come to the conclusion that startups from Bengaluru grabbed more column inches. And here I was, a friend from the aforementioned city, hobnobbing everyday with startups and VCs and still not giving him ‘tips’.

Cut to 2017. The same friend looked at me sympathetically at a recent encounter and asked if I was OK. He had cut short his losses and returned to the safe fold of his wealth manager. I was still persisting with the ‘startup stuff’, he had been told. Very unwise. He promised to give me tips on some hot mid-cap stocks.

There were many others like my friend who viewed startups as a way to make a quick buck (also calling yourself an angel investor is way cooler than saying you play the stock market or invest in real estate). These angels lost sight of the fact that this new breed of entrepreneurs is only doing what generations before them have done –building businesses in response to new opportunities. That takes time and patience and it means overcoming multiple points of failure along the way. Just the way it always has.

Try some déjà vu

I find it particularly surprising that people of my generation have such short memories. Most of us have lived through a couple of business cycles and should know how they play out.

My father was a refugee who came to Delhi after the Partition and like many others, found his life’s work in helping to build the industrial foundation of a young nation. I have lived through the trajectory of manufacturing industries in the 1970s and 80s. I can remember, as a young child, peering through curtains at a mob from the labour union shouting slogans outside our home. My father was always unperturbed, saying it came with the territory and a resolution would be reached. I don’t know if it helped that he didn’t have to deal with headlines declaring him a failure because there was trouble at his plant.

With liberalisation in the 1990s, came another inflection point. Multinational brands entered India and changed the game, but not all local competition was destined for certain death. Campa Cola and the Ambassador car may have faded away, but Amul, Mother Dairy, Nirma, and many more thrived. Banking, hospitality, telecom, FMCG – there are strong Indian brands everywhere. It hasn’t been an easy ride. These brands went through cycles where they faltered, fell, adapted and then rose to fight another day.

The business cycle that is most widely referenced for today’s startup scene is of course, the dotcom bust of 2000. The many reasons that the two are dissimilar have been discussed widely, and I won’t replicate them here. Suffice to say that there is a fundamental difference between a company that doesn’t have a revenue model at all and one that has miscalculated market size and obstacles to growth. Anyone who lived through that time also knows that it was the period that brought the internet into the center of consumer lives – a new paradigm that unleashed massive opportunity and gave rise to companies like Amazon, eBay, and Intuit.

IT services companies are facing an existential crisis today. Will they survive? No one can answer that question just as much as no one can question their contribution to the economy. My first job was with Infosys and I have seen first-hand the thought and effort that went into creating new models for governance and employee compensation. Today, if we are seen as a cradle for tech startups, it is because the IT majors created a deep pool of engineering talent. Regardless of their final fate, there is no denying that they cemented India’s reputation as a fount of knowledge capital, and changed the way the world looked at us.

Only 12 percent of firms who were on the Fortune 500 list in 1955 were on the list in 2015. More than 80 percent had closed down or been merged or acquired. The rise and fall of businesses is a natural evolutionary process and this dynamic turnover has only become faster in today’s connected world.

Stop the tarring

Am I an advocate for Indian startups? Yes. Am I denying that many of these companies will fail? Of course not. There is no question that many startups and investors have erred in their calculations and the B2C land-grab strategy in India was short-sighted. Have there been cases where founders have mismanaged funds? Certainly. Corruption is a human flaw and it also exists in large businesses.

What dismays me is the irrational attitude towards startups. A few years ago, they were a gaggle of golden geese. Now they are fumbling kids or worse, scamsters who should have never been allowed to start a business. The general perception is that the founders take VC money, cheat their investors and employees, and live a lavish lifestyle. I have met many founders and nothing could be further from the truth.

Most of these young men and women are first generation entrepreneurs. They were not handed companies or capital on a platter. They are learning the fundamentals of running a business ground-up in India and they are doing it the hard way.

Most are highly educated and could command substantial salaries in blue-chip companies. Yet, they choose the relentless, daily struggle and grind of a startup, taking home money that is a fraction of what they could earn otherwise. Tough people sit on their boards and answering to them is an onerous responsibility. Exits take a long time and even if they have multi-million dollar valuations, that is not always equivalent to cash in their banks.

Fanning entrepreneurship 

A few weeks ago, Toshiba announced that it ‘may not survive’. The woes of the company are being linked primarily to the mishandling of its Westinghouse acquisition, but there is a larger factor at play. A report quoted by the Financial Times blames a Japanese culture of ‘reflective obedience’ and ‘reluctance to change status quo.’ Once mighty consumer companies such as Sony, Canon, and Panasonic are struggling. Japan recognises this and reportedly corporations are making concerted efforts to encourage and commercialise innovation.

I bring up the Japanese example to emphasise the importance of fanning the flame of entrepreneurship that has been lit in India, as well as to flag the danger of dousing it. Startup morale today is at an all-time low.

Young entrepreneurs must learn to deal with ups, downs, and trolls, but it is hard when an entire sector is being derided.

Much as Schumpeter’s process of creative destruction is at play, there is also the Darwinian natural selection that will only allow the fittest to survive. This ‘fitness’ is a composite of many complex factors – capital and operational efficiency certainly, but also timing, market understanding, and ability to adapt continuously.

Will Amazon rule the Indian market? Very likely. But do we want a scenario where a Flipkart or a Snapdeal didn’t exist at all? Who knows if only one amongst Uber or Ola will prevail or if they will co-exist? Regardless of the final outcome (and the fact that I am an Uber customer), I will still cheer loudly for a team, which today commands a multi-billion dollar valuation, but in Bhavesh Agarwal’s words, started out as ‘a weekend trip booking service in a 10x12 room’.

What would you rather have? A country where no one is willing to take a risk and start something new, or one that is driven forward by an amplifying spirit of innovation? The Indian entrepreneurial spirit should be celebrated. Entrepreneurs who take a leap of faith and startup, deserve our respect. Let’s give it to them.



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