Significant Competitive Advantage Attracts Angel Investors

By Benjamin Joffe, General Partner, Angel Investor & Startup Advisor, HAX

Benjamin Joffe, General Partner, Angel Investor & Startup Advisor, HAX

Headquartered in Shenzhen, HAX is the leading hardware & IoT related startup accelerator involved in seed investments and is often known as the trigger to 'Hardware Renaissance’.

Q. What opportunities do you foresee in India in the space of Angel Investing?

Ans: I denote myself not completely as an angel investor but an early stage investor and venture capitalist. So, it’s not personal money investment, it’s the fund. We are looking for two types of opportunities, one is Indian startups that have global ambitions and second is -potential opportunities for some of the existing startups for future investments in the Indian market.

Q. What are your policies for investment?

Ans: It’s quite simple. Essentially we are looking for great team that has the right background, the right experience & skills and targeting a large enough market. They must have a proof of concept and not just the ideas. There should be actually a prototype and lastly have a competitive advantage, which is significant. We would like to talk about 10x advantages, at least from one parameter. Generally, it means that they have done some scientific research that led to an invention, or they have developed a particular technology. That’s basically what we are looking for.

Q. Do you fund additional rounds to the startups?

Ans: We do. For part of the startups when they raise follow-on funding, after angel rounds, we also invest in them. So, first investment we do is of $100000, part of the angel round. Then they come in Shenzhen to work with us for four months to take advantage of the supply chain, and then if they raise follow-on funding, we typically invest above $200,000.

Q. What is your exit policy?

Ans: Like most investors, we are also waiting for M&A (Mergers & Acquisition) or IPO (Initial Public Offering). At the moment we are favoring IPOs, even early IPOs because that’s something we don’t talk about a lot in software where companies grow enormous but still don’t have revenue or profit.

Q. What are the pros & cons of fund raising v/s bootstrapping?

Ans: Fundraising is one option for financing your company. There are other options; you can find customers, win contest, get grants, and there is non-dilutive equity. In some cases you get loans from banks, but that is generally at later stages. The disadvantage of fundraising is that, it is not easy. It takes typically months and full time effort, during which you should not build a business. It will be a distraction. At the same time, it is also dilutive, which means you are actually giving away a part of your company. These are  the two major disadvantages. Third is that, because of dilution, venture capital is the most expensive form of equity.

Advantages on the other side is that if you have the right timing, you tend to find the VCs who have something that matches the interest, then you can actually get funding to accelerate development, that’s the whole purpose. The purpose of funding is typically to reach the next big milestone for your company that could mean finalizing your products, scaling distributions; those are typical milestones investors want to see.

We enter in a much earlier stage where things are risky and teams don’t have a product yet. But, because we have a good process to get them there, everything is not that risky for us. And at that time, a very few professional investors would invest because when you have an early prototype, it doesn’t look great, you don’t have customers yet, the team is very small, even the product is sometimes questionable whether it is a right one or not. We have long term perspective, but we have also the ability to create some of the key early milestones.

Q. How does a startup know that it is ready for angel funding?

Ans: One way to know is when angels ask you if they can invest after you talk about your business. There are different levels of development that will attract different kind of people and your job is to understand what makes your company attractive and should know what type of people you are talking to. If you talk to late-stage investors early, you are wasting your time as well as their, partly. You understand when you are ready typically when there is some technology that is already working or you have great team or you have good customers. Those are all different proof points that reflect that people want what you are making and you know how to build it.

India is at the beginning of the IoT boom. There are so many capabilities in terms of software development that now, when combined with devices, there is really a very interesting landscape that is developing, and this is evident from the growth of IoT startups. In conjunction to this, there is really interesting uniqueness to India because of the challenges around agriculture, infrastructure, and energy. So, all those opportunities demand for startups that might become successful in India even before anyone in the world. Interestingly, we are finding the startups that are crossing the bridge and entering the emerging markets or even to advanced markets. So, we are pretty much excited about this industry vertical. We have made our 1st investment in an India IoT company called Ray IoT Solutions, and are looking forward to lot of startups to invest in.

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