Part 17 of 21 in A Guide for the First-Time Indian Angel Investor← Part 16Part 18 →
This chapter focuses on the types of investment deals that first-time Indian angel investors should avoid. It helps investors recognize red flags and make informed decisions.
- Avoid deals with unverifiable promises or unclear institutional leads.
- Be wary of valuations based on private comparables.
- Refuse investments with undisclosed financial details or compliance issues.
- Understand preference stacks and avoid those with complex terms.
- Reject investments that fail the 'sleep test' or are driven by obligation.
A refusal list is worth more than a sourcing network. Most of the damage is optional.
- Any promise of a multiple, a timeline, or a “almost closed” institutional lead you cannot call.
- A valuation justified only by a comparable that is itself still private.
- A founder who will not share a cap table, a bank balance, or a statutory compliance status.
- A round that is mostly previous investors selling, described as a primary.
- Preference stacks you do not understand, especially multiples above 1x that sit quietly above you.
- A vehicle whose annual cost is a large fraction of a small cheque.
- A sector you cannot explain to a practitioner in that sector without blushing.
- An obligation to a relative, unless you have labelled the cheque a gift and sized it as one.
- Any investment that fails the sleep test, however small it looks beside the flat.
- A follow-on whose only new fact is that the company will die without it. That is information. Use it.
Refusal is the Indian angel’s edge, because the supply of pitches now exceeds the supply of judgement. You will be told that a pass is a missed Flipkart. The arithmetic of 'You have to be lucky' is the answer. Missing a winner is survivable inside a portfolio. Buying a procession of fashionable zeros, expensively, is how the decade disappears.
Frequently asked questions
What is a refusal list in angel investing?
A refusal list is a set of criteria or red flags that guide investors on which deals to avoid, helping them make better investment decisions.
Why should investors avoid deals with unverifiable promises?
Unverifiable promises, such as uncertain timelines or institutional leads, can lead to poor investment outcomes due to lack of transparency and accountability.
What are preference stacks in investment deals?
Preference stacks refer to the order and terms in which investors are paid back. Complex terms, especially those with multiples above 1x, can disadvantage new investors.
How can missing a winner be survivable for an investor?
Missing a successful investment is manageable if the investor maintains a diversified portfolio, avoiding the risk of investing in multiple unsuccessful ventures.