Start-up pay cheques, ESOPs are creating a new breed of angel investors

The profile of the typical angel investor - someone who bets on early stage start-ups - is changing. It was always an HNI or founder or CXO of a start-up who had made money on big bang exits. Now, a new breed of angel investor is emerging - start-up employees who earn fat pay cheques or are rich from ESOP buybacks.   

MyStartupEquity, a technology platform that allows start-ups to manage their cap table and ESOPs, told Business Standard that in 2020 alone, it saw about 3,000 start-up employees benefit from up to Rs 85 crore of ESOP buybacks. 

The figures for the entire start-up ecosystem, given this year’s funding rush, are estimated to be much larger - Rs 3,200 crore of ESOP buybacks have happened since July 2020, according to equity management platform ESOP Direct.

“The current market dynamics are such that engineering and product team leads are getting Rs 25-50 lakh and vice presidents are attracting packages in the Rs 50 lakh-1 crore range. This excludes ESOPs which might go as high as one per cent of the company,” said Abhishek Poddar, CEO and co-founder of insure-tech start-up Plum HQ, which is backed by Tiger Global.

These high-earning start-up executives generally invest cheque sizes of Rs 2-5 lakh and are drawn to companies in the seed stage. But in some cases, they go further, up to Rs 10 lakh and beyond.   

“Even junior operators, people who may be two or three levels below my level, are becoming angel investors now in several early stage start-ups at a time. It is no longer something that very rich people do,” said Anuj Rathi, senior vice president of growth at foodtech major Swiggy. 

Rathi himself started angel investing last year and said he does not consider these bets from a purely financial perspective. “I try to keep away from food-related companies. This has helped me learn about other spaces and also contribute from my experience of what works and does not work.” 

Brijesh Bharadwaj, who leads product and growth at neo-bank Fampay and was earlier one of the directors of product at Google-backed, hyperlocal, delivery start-up Dunzo, wrote his first angel investment cheque in April and has since then invested in five more start-ups. 

The ticket sizes of his investments are in the range of Rs 2-3 lakh and he hopes that a Series A or B round in one of his portfolio companies will deliver a large exit over the next couple of years.

“The important thing is not the money that I bring to the table for these start-ups. They want me as an investor because they cannot hire me as an employee at my compensation level. My USP is that I can help them with my skills,” said Bharawaj.  

He added: “A lot of start-up operators are able to become angel investors now because disposable incomes have shot up due to higher salaries and ESOP buybacks.”

Naman Gupta, an assistant vice president working for foodtech major Swiggy’s cloud kitchen business, agrees that the rise in compensation packages has helped fuel the trend of operators turning into investors. While he had invested in a couple of start-ups from 2018 to 2020, he has made close to 10 such investments since the pandemic started. 

“When Covid lockdowns happened last year and there was nowhere to go out on the weekends, I thought why not use my time fruitfully? I am not the kind of person who would spend the entire weekend watching Netflix,” explained Gupta.

Perhaps the most important impact of this trend is that early stage start-ups, who cannot hire top talent, are now able to pick the brains of people who have been there, done that.

ROUTED BACK

• The new breed of angel investors are routing the money back into early stage start-ups
• Typical cheque sizes of their investments are Rs 2-5 lakh; can go up toRs 10 lakh and beyond in a few cases
• Start-ups are drawn to such investors not because of the money but the time they spend with the company  

“There is no deal about time commitments set in stone. Generally, I am just a call away if any of the founders need help,” said Bharadwaj who spends a few hours every weekend with his portfolio companies solving product, design and growth problems.

Abhishek Agarwal, head of revenue and growth at Sheroes, a social media start-up, said that angels like him help out across a range of issues such as business development, hiring, and networking for a fundraise, among other things.

“My mantra is that I will be there 100 per cent when you need me. But I will not be butting my nose into what a founder is doing every now and then. Sometimes, I might even end up speaking with a founder two or three days in a row, but I do not like to set expectations,” said Agarwal.

Although he has been investing in a few angel rounds as part of a syndicate since 2016, Agarwal started writing cheques individually in mid-2020. Most of his investments are in the range of Rs 1.5-7.5 lakh.

Prasun Jain, head of product for growth, monetisation and platforms at fintech unicorn Razorpay, has a similar approach to investing as an angel. “I look for companies that I would have liked to be a founder of. And if the stars align, the transaction usually goes through,” he said.