Sanjay Mehta is one of the most respected and successful angel investors in India. Having invested in many startups, he tells us what ideas he will not fund
Media has made entrepreneurship glamorous.
As an angel investor currently I am getting around average of 200+ pitches a month either through networks or direct. I have now built filters of what ideas I would not invest in. This helps me as I can look at the rest of pitches that pass the filters with active interest.
Below are the ideas, startups which I will not invest:
#1 Market Places: I will not invest in market place models even if it is a niche segment. The cost of customer acquisition is growing exponentially in these models. It requires tons of capital to keep the business alive . Most are copy cats with zero innovation in technology. Marketplaces which will solve the real inefficiencies, have sustainable revenues & have complete network ownership will survive.
#2 Farm to Home: Selling fresh items from farm to home directly. Indian demographics does not allow to standardize processes for product procurement, supply chain & logistics which can be scaled to make this into a large profitable business.
#3 Job Portals: Recruitment problem statement is so visible to every entrepreneur that every third deal pitch is solving the same problem with some differentiation either with their data algorithm or building resume database repository for a segment.
#4 E-commerce: It is a big NO for obvious reasons that India has established giants which are growing at rapid pace with backing of large sums of capital.
#5 SME Software Products: Indian SME does not spend on IT. The market size is very small. Focus on productivity is low due to manpower availability. Growth is limited for products designed for India market.
#6 Manufacturing Units: It is an asset heavy business which best can be developed with bank loans. Investment in factories and machinery do not qualify for angel capital.
#7 On Demand Services: Startups that provide home repairs, labour, food, taxi etc on demand using mobile app is an idea which is ahead of time. Lot of funded startups will find difficult to get follow on rounds of funding & will fold up or consolidate.
#8 Developer Products or Platforms: RAD tools have not been successful with the programmer community. Components selling or developer utilities is a very competitive market.
#9 Travel, Coupons, Deals, Food & Entertainment: A decade ago mere discovery was valuable, hence mobile apps aggregating offers and selling third party products, services saw success. Baring a couple of firms, in a few years we will see maximum failures in this space, as these firms neither own the end experience nor take true accountability for the transaction.
#10 Real Estate: Developing land, build real estate, investing in properties does not qualify for angel investments.
#11 Software for Schools, Students: Selling to schools is a long selling cycle. Students are influenced by personal tutors — hence very little scope for multimedia, online education to get successful.
#12 3D Printing: It has interesting use cases but mass adoption should start only after year 2020. Currently 3D printing remains more of academic & exploratory interest only.
#13 Advertising Revenue Driven Ideas: Startups build technologies, apps, networks & communities with an assumption that brands will come & advertise. In current scenario, technology portion is easy but getting brands to spend on the platform is extremely difficult. This space is plagued with failures.
#14 Online Grocery: FMCG product profit margins are wafer thin and do not justify cost of transaction with logistics. This business can make money only when product brands are created and marketed for online sales.
#15 Agriculture: It takes long time to build business of scale in this sector or allied businesses. Also it has limited exit opportunities.
I try to invest in unique ideas which are solving large problems wherein seed capital idea can scale multi-fold. I do not run a fund. I am not getting paid for the time to evaluate, review and engage with startups. Not all businesses are investable.
So request all entrepreneurs trying to raise funds to read this article before pitching for seed capital.
I will love to see a startup success story that overcomes hurdles to build a large boot strap company.