The dinner-party investment

Part 2 of 21 in A Guide for the First-Time Indian Angel Investor← Part 1Part 3 →

This chapter explores the allure and risks of angel investing for Indian high-net-worth individuals (HNIs). It highlights the social pressures and financial realities involved in making such investments.

Angel investing is being sold to Indian HNIs as a personality. It is a decade-long, mostly losing, illiquid bet.

A certain kind of Indian dinner now has a fixed third course. After the market view and before the school admission, someone mentions a startup. The founder is “cracking.” A syndicate is “closing this week.” A wealth manager has “a small allocation, minimum twenty-five lakhs, and you will be in the same round as a known fund.” Heads nod. The person who has not yet written a cheque feels briefly behind. The person who has written one feels briefly ahead. Neither feeling has anything to do with the investment.

High-net-worth families are fascinated by startups, and many of them want the title of angel investor. The fascination is understandable. India has produced companies that went from a spare bedroom to a listing, and the stories are true. It is also a sales environment. Syndicates, platforms, relationship managers, and founders are all paid, in fees or in dilution or in status, to make the cheque feel urgent and the absentee investor feel sophisticated. Some HNIs do it because the asset class is real. Many do it because it is sexy, and because sexy is easier to explain at a club than a dull index fund.

The fact, which the pitch deck will not linger on, is that these are very illiquid investments. A serious holding period in India is not three years. It is ten to twenty. You will mostly lose money on the individual companies. The few that work have to pay for the many that do not, and even those few may not pay you, because you may be diluted, you may miss the follow-on, you may be locked in a special-purpose vehicle with no information rights, or you may simply not be offered a buyer when you want one. That is why the only honest rule is the sleep test: invest only the money you can afford to lose without losing sleep.

What “sexy” is charging you

Sexy has a price, and it is not on the term sheet. It shows up as a valuation set by the last WhatsApp forward rather than by the next round’s likely buyer. It shows up as a founder who has optimised the pitch for HNIs and has never been told no by an operator. It shows up as a sector that was on the cover of a magazine eighteen months ago: another D2C brand, another “Uber for” local services, another edtech with a celebrity tutor and a cash-burn plan described as community. The 2015 graveyard — Stayzilla, PepperTap, TinyOwl, and a dozen hyperlocal clones — was full of cheques written because the category was fashionable. The investors were not stupid. They were early to a story and late to the unit economics.

Byju’s is the later, larger version of the same pattern. For a while, being in that cap table was a social fact. Paper marks climbed toward a reported peak near twenty-two billion dollars. Then the marks were not cash, the governance was not the pitch, and investors who could not sell discovered that a unicorn on a portfolio statement is a sentence, not a bank balance. The lesson is not that education companies are bad. The lesson is that status is a sell signal, and a markup is not an exit.

The three sellers

Most first cheques in India arrive through one of three sellers. A syndicate lead, who has sourced the company and will take carry, sometimes a setup fee, and sometimes a second bite on the follow-on. A wealth manager or private banker, who needs a product that is not a mutual fund and who is rarely paid to tell you to do nothing. A founder, or a founder’s uncle, who needs the round closed before a festival, a visa, or a payroll date. All three can be honest. None of them is your fiduciary unless the document says so, and even then the incentive is to deploy.

Maher’s American angels already knew a version of this. The people buying lottery tickets in their slippers, clicking into deals they would never visit, were not doing the work. India has industrialised the slipper. A platform can show you forty companies a month. A relationship manager can wrap five of them into a “venture bucket” beside your PMS. The click is easy. The decade is not.

If you cannot explain the company to a sceptical friend without using the founder’s adjectives, you are not investing. You are attending.