Are angel investors getting less angelic?

Ajeet Khurana

Angel investors as the name indicates have been benevolent souls who bless new start-ups with their first injection of capital – their seed money.
However, my experience has made change the way I look at these angels. I have personally made 8 angel investments in the past 10 months, and know dozens of other angel investors who have cumulatively closed over 25 deals in the same period, totaling an investment of more than Rs. 30 crores. My observation is that angels are losing their halo. At least from the entrepreneur's point of view, it does appear like angel investors are getting less angelic.
 
Let’s look closer. One expects that:

> An angel investor comes in at a very early stage of a business, often at the idea stage. This is why he is called an angel – he comes to your rescue when no one else will.

> Business plans, due diligence and terms of agreement tend to be easier with angel investors than with venture capitalists (VC)

> It takes less time to close an angel round than with a VC

The reality is that these expectations are usually not met.  Here is how angel investing works in India:

Angel Investors Invest Pretty Late in the Game

Unlike an angel who by definition comes to your rescue in your time of need, the Indian angel typically parts with capital when you have ALL of the following in place – your team, your product, proof of concept, pilot customers, some paying customers and cash flows.
 
If you’re in shock, imagine the poor entrepreneur, who has read online articles about angel investors and approaches them with a “business idea”!
 
Term-sheets and agreements look just like those for Series-A

The novice entrepreneur usually does a double-take when he first receives a term-sheet from an Indian angel. What used to be a simple listing of terms has become indistinguishable from a VC's Series-A term-sheet. The uninitiated entrepreneur has to deal with a strange new vocabulary that reads something like this – tag-along, drag-along, put-option, liquidation-preference, anti-dilution, right of first refusal, restrictive rights… I could go on… Although not common, there are angel deals that fall through at the term-sheet stage simply because the entrepreneur found the terms ‘draconian’.
 
They usually take 4-8 weeks to close just as VCs do