The New Angels of Technology Entrepreneurship

Hierarchy of Needs for Early Stage Technology Start-Ups

Following my post on “The Show Must Go on” where I did a take on the recently held Proto Event in Pune,I’d like to talk about the New Angels who are especially relevant for early-stage Technology Start-Ups

The role of Angels in nurturing Technology Start-ups in particular has been critical – not just in “funding” them but also in helping them accelerate their value propositions, helping them navigate the proverbial “valley-of-death” or “idea-to-prototype” stages and even guiding and validating the beliefs of the founders who have demonstrated skin-in-the game by bootstrapping their venture.

So when we think about what early stage start-ups need most, I’d say they are:

1. Validation of their idea which can come from individuals and communities – Market feasibility, Technology Strategy, Differentiation through Product features or Business Model
2. Sound Advice (it is therefore an absolute imperative that a few of these angels have hands-on experience in the relevant areas of technology and their go-to-market nuances)
3. Platforms supported by communities of like-minded people who can help fund those ideas with their skills and efforts in return of some equity.
4. A little money

Most often than not, the market feasibility does not receive the share of the right-brain (that it deserves) that result in failure of left-brain led products, that can be costly and fatal. I am of the view that having decided to go after a Product value proposition, it is an imperative that the founders adopt the Discipline of Market Research and put their dream-product to test against the findings that emerge. Additionally, some help is required in the business plan, legal and accounting areas. Physical workspace and funding, some have argued are important but I’d say this really depends on what kind of product the Founders are trying to build. And, especially for early stage Product Start-Ups a little money can go a long way.

The New Angels

Micro-Venture funding as a viable alternative to more traditional channels of funding has come of age. What is encouraging is the growth of such funds, whose philosophy of “spare-the-love-and-save-the-startup” seems to have augured well for those they have adopted.  What characterizes most of these Micro-Angels are :

1. Time Bound fixed cycles in which they choose start-ups, mentor and fund them
2. Small amounts of Funding (Spare-the-Love)

Here are some of the successful Micro-Venture Funds that are currently operating in the US and Europe, some with very distinct flavors:

Possibly one of the earliest in the game of seed and micro-funding, YCombinator combines deep insights of its founders, a great process of seeing through the possibilities and potential of new ideas, a 3 month cycle in which pretty much prepare the founders to a stage where they can present to potential investors. Their goal is tobe the preferred source of seed funding.They make small investments (rarely more than $20,000) in return for small stakes in the companies (usually 2-10%). The Founding Partners of YCombinator include Paul Graham, Trevor Blackwell, Jessica Livingstone and Robert Morris. Disqus & Posterous and several others companies were born out of YC.

TechStars is a mentorship-driven seed stage investment fund, operating currently out of Boulder, Colorado and Cambridge, Massachusettes, USA. Very selective in its approach, its accepts about 20 companies each summer (understand there were 397 applicants last season). They fund upto US$ 6K per founder, that is US$ 18 K max per company in return of 6% equity.

TechStars brings together the best and the brightest mentors in one place. Additionally they provide introductions and connections to potential partners and customers. Each company also has the opportunity to pitch during an investor event that we organize. Usually there are more than 150 VCs and angel investors in attendance.

Sproutbox presents a refreshingly different approach to funding start-ups. The team takes four start-ups at a time and pump around a quarter of a million dollars into each one over the course of ten months. In addition they also invest teams and resources and this is really different from the rest, as they are also a band of coders who are just not behind-the-scene but in-front-of-the-screen. Launched in 2009, they plan to start a new cycle every three months.

And there are several others which one can look at viz. SeedCamp, RemarkableWit, LaunchboxDigital

Back home, there has been some activity in the micro-funding area and a lot more needs to be done.

iAccelerator, an initiative by the Center for Innovation Incubation & Entrepreneurship (CIIE) at IIM Ahmedabad offers a program to incubate and mentor  entrepreneurs.It says that it requires “the founding teams to live and work near their location in Bangalore from December 1, 2009 to April 1, 2010.” They invest upto 5 Lakh in participating companies and typically ask for 5 – 10% of equity in return for our investment of time and money. iAccelerator is an initiative by Center for Innovation Incubation and Entrepreneurship [CIIE] at IIM Ahmedabad. The 2009 Winter Edition shall be run jointly by CIIE and UpStart.in, a micro-venture fund based in Silicon Valley.

Originally Bangalore based and now Chandigarh based Morpheus Venture Partners has been visible and active. Sameer Guglani & Nandini Hirrainiah now been joined by Indus Khaitan. A slightly dated (September, 2008) post on Mashable.com titled MVP – “India’s YCombinator” – Announces 7 New Startup Investments“, will tell you what they do.  I do not have an update of their current funding model and I will ask Sameer to fill this void.

Pune Tech Angels

Still in its formative stages, Pune Tech Angels Protagonist, Freeman Murray has a refreshingly different view to his new fund. He founded Upstart.in and is currently engaged with the i-Accelerator Program out of Bangalore. Hear what he has to say about Pune Tech Angels

What Freeman is talking about is funding to the tune of Rs. 3-5 lakhs per venture, and bringing down the threshold level of Rs. 50K per investor. He is also a firm believer in the process involved in selecting and bringing up early stage start-ups and already has significant experience.

Aikon Labs has been helping early-stage ideas transform to products though community funding of efforts and skills.

Freeman says, “it would be great to feel out how we can use your tools to help connect and organize young entrepreneurs with early stage angels who are interested in working in a specific field … I think your tool could be nice for helping manage the process at a more fine grained level which I believe angels at least would like”.

Early stage start-ups require several iterations, in multiple areas be it their idea itself, business plan, marketing strategy, product architecture and by enabling them to connect, collaborate and co-create innovative solutions using an online platform, we help not only bring down the costs but also provide visibility and sustainability to ideas . By stage-gating ideas through defined processes, their work flows can be dovetailed with those of the product-life-cycle-management, resulting in superior outputs.

The other key ingredients for success I see for Pune-Tech Angels is the involvement of Mentors who understand technology, people who have been there, done that. The investor community has already seen what kind of ideas and talent reside in the city of Pune. This coupled with availability of technology professionals with skin-in-the-game, if leveraged intelligently could be a win-win for all stakeholders.

So next time you have as little as 50K to invest, think twice before calling your stockbroker – the stocks start-ups you’ve been waiting for could well be right here in Pune.

Freeman can be reached at freeman@pobox.com.

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MVP – “India’s YCombinator” – Announces 7 New Startup Investments