Seed Capital From Angel Investors: Padmaja Ruparel, President, Indian Angel Network (Part 7)

By guest authors Irina Patterson and Candice Arnold

Padmaja: As another example, there is an entrepreneur who’s doing 46% net profit, and we give him honest feedback: Don’t share equity. You don’t need to. He needs working capital, so we told him we put you on to people who give debt. Maybe that’s a cheaper way for you. Why do you want to share equity?

Even though I think from an investor perspective, it’s a good deal. Forty-six percent could well be a very nice investment, but is it fair to the entrepreneur?

From the Indian Angel Network (IAN) there are two things: One, we believe our customer is the entrepreneur, so you need to be true to your customer if you want to do anything in your organization.

Two, in the long term, IAN is building its own credibility. I don’t think it builds credibility to say, Forty-six percent, here’s money; now give us equity. Whereas, he could well just run the whole thing on debt, and why dilute his wealth?

And then there are those entrepreneurs whom the investors declined for whatever reasons […] and whom we do help, and we’ve connected them to other investors who have invested in them. So, we do give these kinds of referrals.

Irina: You are taking them one step farther along whatever path they’ve chosen?

Padmaja: Yes. My point is also in nurturing entrepreneurs. We have that philosophy.

Irina: Let’s talk exits. What is your preferred exit strategy?

Padmaja: Again, it’s deal to deal. In one, we have a VC coming in as our next round funding. The angel’s got an exit option. In another, there was a strategic investor who came in, so the angels decided to exit in cash and still hold on to equity or a part of it. That’s a partial exit, in some ways.

In a third, there was a complete takeover of a company by somebody, so it’s a takeover exit. An IPO is too far off because the companies are too young. To my mind, angel-invested companies have to up a few other rungs on the ladder. Maybe we can someday see a management buyout. We haven’t seen that, as yet.

Irina: How about generating dividends? Have you invested in deals like that?

Padmaja: Largely, our investors are not very excited about dividend gains.

Irina: What is your usual investment type?

Padmaja: Cumulative preferred shares is what we would do.

Irina: What is your biggest success to date?

Padmaja: Our biggest success is the one I earlier quoted you, an exit giving our investors five times over 15 months. Another is a company where people have gotten back all the money they invested and are still holding shares.

This segment is part 7 in the series : Seed Capital From Angel Investors: Padmaja Ruparel, President, Indian Angel Network
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