Angel investing, advising and unicorns - advice for first time founders from an angel investor, Ashish Bhatia.

On, and let's get started and today is a guest speaker.

We do that part, right? And today is a guest speaker. We have Ashish body of software engineer, and active angel, investor and advisory board member of 5 different startups. And Lisa. We'll talk about 1st time entrepreneurs specifically.

What kind of mistakes are they prone to making? What kind of decisions are good, especially in terms of early stage fundraising and how Ashish sees the early stage fundraising going for those 1st, entrepreneurs.

So, Ashish, let's kick it off by giving us some background on yourself.

Well, thanks thanks a lot. Um, I'd say constantly, thanks a lot for inviting me to the show. I'm happy to share my experience and my what I've observed in the process short intro for myself.

I'd say being a software engineer,
all along in my career had an angel in listing as a hobby as something,

which I do on the side being invested in about 40 startups at this point starting from 2014 when I made my 1st investment have about 8,

exits nothing big,

nothing yet still waiting for that big chance that big shot and,

as you said,

setting on advisory board,

primarily as a technical advisor to 5 different startups at this point.

So, and these days, I'm not working full time, just working on working full time on my own ideas are employed elsewhere. So, just working on some of my own ideas right now. That's.

Uh, from my side nice quick background love so yeah, let's start off by talking a little bit about the standard questions.

I asked this question pretty much every single ambassador that comes up on fundraising radio, which is, you know, as an angel investor. Would you like to invest in, in terms of field stage and ever check size?

It has evolved a bit over time, uh, on different dimensions. I would say, check size. I think everyone has their own constraints primarily coming from their own.

Some some people are doing personal funds like me are interesting out of their personal funds. So, in my case, take sizes between 10 to 25 K, some of those who have raised external funds.

I think they end up doing much larger size, depending on the fund size. Any of the amendments end up being anywhere between 25 K to, you know, 500 K or even a 1M dollar.

Uh, in terms of, uh, state size, I would say my preference is always doing early stage. Ideally, post revenue, not Pre revenue, but I'm open to vote where I'm investing.

Ideally, the 1st, or at Max, the 2nd check in, in, in, in a startup that sort of is the stage I come in invest in, in terms of.

What areas I look at I think that has evolved over time with the, as I. Going through this journey as I've learned my own lessons, I think.

There are areas, which are, I think, pretty cool and pretty great. I'll say, like, pharmaceuticals but I understand the thing about those areas. I.

Dabbled into it I spent some time looking into it and then I realized any entrepreneur in pharmaceutical or even in medical devices and then we practically anything and it's very hard for me to figure out.

What's the state of art or cushion and back given my lack of knowledge of that space so over time I have.

Confine myself to, like, you know, my area of competence primarily around.

In terms of B, to B side primarily around SAS targeted right. From, you know, productivity to data storage and these kind of things.

So the full range of thing on B2 B,

side,

their software is sort of the heavy component and on a consumer side I have,

I think,

a fair bit of experience and exposure to consumer Internet given my past employments at WhatsApp and Facebook.

So that's sort of another area which I look for, in terms of investment perspective from time to time, they are new opportunities and social media space.

There's new opportunity in messaging space and there are opportunities of taking some of these experiences from the consumer Internet.

Back towards more towards the professional side of things. So those are sort of the areas I keep thinking about. Uh, and, uh, and, uh, and I'm excited about in general.

I'm sorry in general, I would say 1, 1, key thing, which I really like is, how can you use software to.

Simplify and automate, uh, things in life. I know it's somewhat broad broad but, uh, I think that something is a core team I think across when I'm thinking about investments.

This is perfect and yes, this is perfect. Is working up very much. I feel like old investment. I'm personally interested in as well just like.

How do you automate stuff? How do you not do any manual work whatsoever? I have to love this topic.

So let's talk just a little more about the stuff that you've learned, or that you've seen in the past 6 years, because you've started investing in 2015th as a hobby part time, and through this 6 or 7 years now.

So, it says, 2021 now, what are the major changes that you've seen in the start field in general? So, what is the thing that you're looking back in 2014 and comparing it to what you're saying now? What's

the major thing? What's the major difference? You see there.

I think, um, quite a few trends have, uh, occurred in the meanwhile, I would say, uh, and and those are also correlated with, uh, availability of all the other changes in underlying technology.

I think overall engineering has become.

Easier it has become over time, I think, easier to build things, test things, test your ideas, deploy them.

It has become easier to charge people,

be it through to app stores or be through,

you know,

much more standardized payment solutions,

which you can easily invite,

like,

Stripe payments and all that.

So.

1 key, I think 1 key outcome of all of that is that Sass has emerged as 1 key major trend where, rather than selling software, you're selling software as a service as a subscription.

And the payment rather than being 1 time is is a recurring payment that I, I would say is 1 major key team on on the enterprise side on the consumer side.

It does seem like that for, for a while. Um,
consumer Internet,
sort of like,

disappeared and now it is slowly appearing where the target is not to build a mass market product where the target is to build a focused product on.

Very specific set of users, like, your target market might be, like, on the 10 200M users, but you think you can really monetize that. Really, really well so some of those products I think are emerging now with time.

Mm, very true. And.

Very much agree with you here. So, this is the question that I haven't asked for quite some time, and I've got a few complaints from my listeners and now I'm going to start asking it once again to pretty much all of my investors speakers. So, where do you get most of your deals from?

So, how can a founder gets into your vision without actually reaching out to you? So.

Yeah, I think it's, it's complicated. I think, uh, uh, I think it's, uh, every investor has their own approach to getting a flow I think, ranging from.

I would say for me specifically, I would say that 3 sort of sources 1 is direct reach outs on LinkedIn. This I would say is has a very low signal to noise ratio. The noise. It's just too noisy.

Yeah, but I do look at those direct details from time to time the 2nd, with a slightly higher signal to noise ratio is events.

Uh, I, I do get invited to different events as, uh, as as a judge, or as a panelist and, uh, I think.

Given that there is some vetting going on it at least to slightly higher signal to noise ratio in terms of coming across startups and I think the best 1 and that and this 1 has the highest signal to noise

issue.

But this is relatively rare enough, which is, I would say infrequent enough. I, I only get a few deals like this, which is through my network, which is.

Someone in my network, someone, ideally, I know really that person is making an investment and they reach out to me and they say, would you like to participate? Would you like to be a CO investor or would you help us do a diligence of this?

I.

And I worked with a few reasons on an informal basis where I do tech diligence for them. And in return, I get a chance to go invest with them on the same terms.

If, you know, if they decide to proceed and do an investment.

Nice. That's cool. I personally love this kind of partnerships and yes more and more of those are actually appearing and this is a great, you know, involving.

Smaller checks, angel investors into. I feel like that's a big trend is going somewhere.

To the right place. So my next question was actually, how can founders get in touch with you but you've kind of answered this quick follow up on that what.

Has any founder it has any founder reached out to you and really?

Weird format, so I have, has it ever happened to you that, you know, a founder just approached you in a public place like kind of a bar or some other place, and just start pitching you their idea or something like that?

Yeah, I think occasionally that has happened too, I think, uh, uh, and and I'm, I'm not a big.

Fan of those kind of settings because, um, you know.

Uh, I, I think the, that the act of, uh, raising an investment is an act of selling and I think it's a.

Best to do it with a more explicit intent in a more explicit setting like you are meeting someone well, there no physical events happening.

At this point, they're all virtual, which is your meeting someone at a pitching event or something, and then someone introduces themselves and they start pitching. That's perfectly okay. I go in there, knowing that a lot of people would be engaging in the act of selling.

I think outside of that,
I'm not a fan of that sneaky approach sometimes where people reach out and say,

I just want your opinion or feedback on the product and I know deep down. They want money.
I say, you know, why don't you just say you want any investment.

And then I'll look into and I'll say whether I would invest or not, and at least we'll have a productive conversation. It's not that you're going to somehow sneakily convince me to write a check that they just never happens. It's not a great use of your time.

Yeah, for example, if you if, you know, if there's a startup that is based out of, of, of an area where I have like little understanding, let's say a startup based out of Japan I think.

The country, I just don't know the ecosystem in Japan enough to make to to easily make a direct investment and.

Uh, if if, you know, and, and, uh, this happened, right? Last month, reached out and I told them that.

Just just say explicitly that you want an investment, and I'm sorry I, I don't understand the ecosystem well enough to consider an investment and I don't think it's the best use of.

Your time to spend time pitching to someone like me, who is almost certain not to make an investment in your startup.

Very sure and yeah, that there is a saying, like, if you ask for money, you'll get feedback if you ask for feedback, you'll get money. I used to believe in that.

And now, I've recently I've changed my mind, because I just don't feel like it's working if you asked for feedback and then slowly, but surely, you're trying to steer the person to invest in your company. They definitely they definitely feel as nice as you said.

You know, it feels like a sneaky way of raising money and that's not cool. You're right. I've heard the same thing too. And I think that thing might not be fully incorrect, but I think that's probably more relevant when you're talking to.

Big pieces who are going to cut 500 a 1M dollar check.

In your startup, so, in that case, you know, if you're even if you're reaching out for advice and.

There is a little chance that they might it might convert into an investment and if that happens, you know, that's pretty great. Uh, like, you converted a small opportunity into something big, but I don't think this the right States even you're approaching.

Checks ranging from 25000 dollars to 100000 dollars, you will end up spending a lot more time. Uh, for for not so clear, in my opinion.

Sure, you got to be careful. Everything is very individual. Every single fundraise is unique. So look at your specific situation, try to think of pros and cons, you know, make a list of pros and cons.

If that helps you, but definitely think about it before you do something. So now let's talk about mistakes that founders frequently make. So you've seen time and time off early stage startups.

What do you think is the most common mistake that especially 1st time entrepreneurs do while starting a company.

While starting, or while fundraising of what's new while fundraising, because it's like fundraising radio got it again. So I think.

So so I end up mostly, uh, interacting with founders who are doing fundraising for the 1st time in their life. And I think it's, uh.

It's hard and complicated. 1st time I think 2nd time fundraising becomes hard and.

Uh, simple so, it, it, it remains hard, but I think it, it became simple during when you're doing it for the 2nd or 3rd time. 1st time. I think you don't know how to really go about it. And I think.

1, sort of mistake, which founders make is, I think they end up, like, starting from, uh.

Or pitching to the best ones to the best companies they are, or to the best firms that they want investment from. And I don't think that's a great idea.

You shouldn't want to, like, start from the top of your list because your pitch is going to refine a lot over time. So, 1, good strategy is.

Create a list of, let's say, 25 or 30 target VCs angels you want to raise money from.

Don't start from the top of the, let's start from the bottom of the start from the least desirable angel or we see in your list. Okay. Don't don't let them know that they are at least desirable, but start from the bottom.

So that your pitch refines as you go more towards the top, you have 1 pitching opportunity to someone.

In like a year or 2 when, when, when an angel or ABC says no most likely, you won't get another chance to pitch to them the same thing for another year or 2. so don't.

Miss on that opportunity. So, like, if your if your 1st, which is to segue out.

Probably not the best idea. You're going to fumble in your gonna most likely, not get the funding to hire.

Common strategy that a lot of people ignore. They're like, oh, I've been following this and for 2 years I know them pretty well. I know what they're up to. I know how they think. So I'll just start with them.

No, definitely just full Ashish advice here. Reach out to investors who are at least likely to invest, but who are still open to a meeting beach them practice, get used to talking to vc's.

Actually talking to them and having a normal conversation. Once we use this once you stop sway on those means. Then, yeah, reach out to those bigger vc's that you really want to see on your cap table, and then most likely just going to go really smooth.

So, speaking of.

Trying to make a nice transition here, but no, it did not happen. So let's just move on to the next question and talk about mistakes that 1st end boundaries, make while actually starting the company not fundraising, but actually, you know, running their companies.

What do you think is the most common most standard mistake that pretty much all founders do.

I think there can be probably be a whole list, but I would say 1, 1, 1, key thing, which I think just happens more often than not is getting a bit too lost in the mechanics. Okay.

Figuring out, whether I need an LLC or figuring out, should I register in California? Or should I register in Delaware?

Figuring out spending too much time trying to think through the legal structure or trying to spend too much time getting the.

Unnecessary pieces right. Which, you know, you could have gotten right?

Uh, much later in the game anyways, I guess.

1 core thing, I think, which really matters, uh.

To an early stage investor, or I think I would say even the success of founder it for a founder as well, which is.

Figuring out and validating the idea as quickly as possible. And verifying and getting the traction piece in that proves.

That, you know, your idea is worthwhile and worth pursuing. I, I've seen cases where founders have been.

Unfortunately, spend 6 months, 6 months pitching, and even sometimes succeeding in fundraising only to realize that the idea they were working on.

Doesn't have legs on its own product market fit is not there. And I think the product market fit is the hardest part and the hardest thing to get. Right and and.

You don't see that at later stage, because most of these companies unfortunately fail right? At the early stage.

So, by the time you meet start, who are in the later stages, they have already figured out, at least some semblance of product market fit if not a proper product market.

True. This is very true. And that's actually extremely unfortunate.

And, I mean, there are multiple tools that help you create the company and figure out if you can see if you need a C Corp if you need to establish it in Delaware or if you need to establish it in your home, you're homes worth.

So, in the state where you leave, and all these done, pretty much, automatically takes half an hour, 2 hours, Max and.

I've seen people spend, like, 5000 on this stuff and then they're like, oh, sure. Spend my budget on this. So yes, definitely. Good advice. Definitely. Common mistake. I mean, you can spend an hour on this, or you can spend days reading about it.

I think it's, it can just look sometimes it looks easy compared to, you know, product market fit as a harder thing.

So, it's easy to get distracted towards something that looks easy and gives you a higher hit something, which is much more difficult thing. Very true.

Documenting getting document is extremely important of course, but it's a document in this particular case you feel like you've accomplished something by creating. They'll see by establishing all this stuff and it's not that big of a deal.

So, by the way, on this note, I'll make sure to leave a link to 1 of those to make.
Company creation tools in groupings episodes. I interviewed the founder and myself and.

The company's really cool. So, check it out. If you're having problems with the starting your company from a legal perspective. Definitely. Check the description. If this episode is going to be in there. So now, let's talk about your advisory role.

So you are an advisory board member I'll 5 different starts. Can you tell us a little bit more about what you're doing there?

Yeah, I think, and I would make a generic remark regarding advisors, which is that look at your founding team and see what skill set.

You are either missing, or you want to have someone to.

Uh, on so, uh.

You can have if you think that 1 of the key aspects by your startup to succeed as sales,

and you have a founder who is good at sales,

but want to have an advisor to wants to have another person to bounce ideas off to have a sounding board then get a sales advisor in the same day.

If your startup is.

Thinking that having another tech person on the team, another person on the team, with whom you can Ideate, you can bounce off tech ideas then get a tech advisor and that that's where I come in where I tell you haven't started to reach out to me.

I tell them that I, you can easily find a person who can help you with. Sales or marketing easily find a person better than me. Sorry?

But I think I'm fairly confident that if you want to Ideate debate or find a sounding, will find a person with whom you can debate tech ideas, then I'm fairly confident that you can use me as a resource.

So so that's where I come in where I usually have to sit here and the product team with with those and I tell them that, you know, I'm not going to provide you any magic. What I'm going to tell you in an hour long meeting.

You can probably easily figure out on your own in next few months. So, the question is, do you want to cut short that time use my experience? Or do you want to learn and figure these things out on your own?

There's no magic here. You can take these things out on your own as well. It's just going to cost you sometime.

It's always like that, honestly, I mean, you can learn literally any freaking thing that you want, but sometimes, you know, having 1 on 1 conversation with someone experienced in the field can save you days and days of pure research.

So, if you have an option to find someone who can just give you some January advice, definitely reach out to them. Definitely try to get their advice instead of wasting your time on the Internet right now that we've covered the advisory role.

Let's talk a lot more about you and records and investing in those unicorn. So you mentioned on our you mentioned that you believe that some fields are just more prone basically to.

Given birth to those unicorns can you tell us about what what you believe those fields are? And what do you think are the fields that are not likely to produce any.

Oh, man, it's, it's always hard thing. You know, I see I see a few things today and, you know, 3, 4 years from now, I'm proven completely wrong. How wrong you were Ashish on these, you know, what?

If you're going to be wrong, I'll go back and personally delete this part of the episode and then republish it. And then everyone's like, he knew. So go for it. Thank Thank you very much for that. So I would say.

Some fields,

I think are just like,

huge,

relatively speaking,

I think,

and the question is,

how do you capture more of more of the market in those areas of course,

pharmaceuticals,

which I don't invest in,

I think is a great example.

I think big companies. Huge companies are created in that another I would say.

Area which, um, you know, I like looking at, which is.

In terms of like, enterprise enterprise spending or enterprise spending on.

Various, uh, technology gadgets and and I'm using the term godly, like, ranging from hardware to software uh.

Ranging from software for day to day, use.
Like, a better for sales to data lake softwares. I think those paintings are not only huge.

But are growing as, you know, more and more of the world gets digitized. So I think that's definitely a huge market.

In my opinion that siding is a market where you can definitely create unicorns. I, I wouldn't say it's easy, but I think it's definitely doable compared to that. On the other hand.

Their markets I would say, like, you know.

And taking the United States looks like a market, whereas it just somehow is not big enough. It's just hard to.

Get huge revenues or build a huge.

Company a unicon at tech space I think I think it's a great space from a social impact perspective from a value add to society perspective,

but it,

it's just hard to build a build something in a educational technology,

which can ends up being a.

Huge, we can end up being a unicon.

Here I disagree with your ad tech. I think it's huge. It's growing I believe that it's 1 of those fields that will actually produce a massive amount of a unique course end.

We'll see, we'll see. Who's right now now I'm curious to see who is right here, but now that we've covered all of this, let's move on to the last question if today's opposite, and it's going to be a call to action.

So, Ashish, what do you want at least heard too as soon as the episode is over. And I presume by listening, you mean someone who is a startup? Yeah, exactly. Yeah,
I would say,

uh,

if,

you know,

1 thing,

which I would say to an early stage startup founders,

someone who hasn't raised any funds,

or has raised some funds some friends or family round,

I think would be really useful is to figure out the product market fit part,

which is,

do you have.

A product market fit and a.

If you don't, how can you get to that as quickly as possible, eliminate everything else from your startup journey and focus fully on just getting that product market fit and I think.

And while going in that journey, I think it's easier. It becomes easier when you're more aligned on that journey to, uh, do fundraisers. That's 1 thing. I would really recommend early stage startup founders.

Perfect yeah. Great call session. I will recommend everyone listening to this episode checking out the

descriptions. This episodes I'll leave a links to Ashish LinkedIn. I'll also leave to a link to.

Something else I think there was something else that we mentioned. Oh, okay. I will also leave a link to the tool that will help you actually, you know, start your own company in terms of legal structure in terms of creating the, um.

Structured that suitable for investor, specifically, understanding all these topics and also a link to something else. Most likely.

I'll check back with Ashish to see if there is anything else you want to include in the description, but whatever is going to be.

Check out the descriptions as episodes there is gonna be something good. So do that and as usually have a good day.