Most founders pitch what they have built. Investors listen for something else: a real problem, a defensible edge and a believable path to an exit.
In this episode, Manish Johari, a 25-year veteran of private equity, venture capital and angel investing, shows how investors think from the other side of the table, including the maths behind angel portfolios.
How do investors think about startups? Manish Johari’s core view
Manish Johari has worked with Agility Ventures, Lead Angels and Maple Capital Advisors. His view is that investors back startups that solve a real problem, stay focused and can exit at a meaningful multiple within a few years.
He also argues that founders overestimate how much funding and glamour define a startup. Plenty of strong businesses grow on their own capital, while the ones that raise money are signing up for a treadmill of rapid scaling.
- Solve a real problem. He prefers companies that serve genuine needs, such as vernacular-language learning for kids and inputs for marginal farmers.
- Look for a moat. An unfair advantage, such as customer lock-in or a community people stay in, matters more than a clever idea.
- Stay focused. A single-purpose company is easier to scale, to fund and to acquire.
- Know the exit maths. An angel investor typically looks for an exit in four to five years at a minimum of 10x.
What are investors actually looking for in a startup?
Manish says the first filter is whether the founder is solving a real problem for a real customer segment. He points to investments aimed at the base of the pyramid, where the problem is obvious and the demand is hard to fake.
The second filter is a moat. He refers to the unfair advantage box in the lean canvas and says it does not have to be a patent. Lock-in with customers, such as the way users rarely abandon an email account once their storage fills up, can be just as strong.
- A problem that customers feel strongly.
- Market size and scalability.
- A defensible advantage that competitors cannot copy quickly.
- Healthy repeat behaviour: customer repeat rate, churn and usage patterns.
Does a startup need high margins and a community to attract funding?
Manish says investors tolerate losses only when something else is building up. He uses the razor and blade model as the example: a product that brings customers back to buy something else.
He also describes how platforms like WhatsApp, Facebook and Prime became valuable by hooking a community first and monetising later. His takeaway for founders is to ask whether the community or user base would be exciting to a larger buyer.
Why margins still matter
He recalls that at Lead Angels a business with a gross margin below about 70 percent would not get a look. Thin-margin delivery models only work, in his view, when they sit inside a larger ecosystem.
Why is focus so important for founders?
Manish says resources are limited, so a startup has to concentrate on one thing and deliver real value there. He cites the odds he quotes: roughly 90 percent of startups fail, and of those that succeed, more than 60 percent changed drastically from their original plan.
His advice is to move from plan A to a plan that works before the runway runs out.
- Set fixed parameters for your product and stay flexible only within them.
- Do not chase every customer request. Apple dropping the headphone jack is his example of a firm product call.
- Indian founders, he says, often over-please customers and forget why they built the product.
How should founders think about fundraising and runway?
His blunt answer is that a founder is always raising. He recommends raising enough to last around 18 months, then starting to talk to investors again well before the money runs low.
He also advises staying in touch with investors who say no. Update them on progress, since many will come around once you have hit your milestones.
- Raise enough capital for roughly 18 months of runway.
- Prove your milestones during that window.
- Keep investors updated even when you are not formally raising.
- Start the next round while you still have months of cash left.
How does angel investing maths work?
For an angel, Manish looks at a four to five year horizon with a minimum 10x target. Investors can start from as little as 10 lakh rupees a year, and he suggests spreading it across four to six investments.
Over about three years he suggests building a portfolio of 15 to 20 companies, because many will fail. In his example, around 40 percent of a 15-company portfolio dies, one company returns 20x and the rest return around 2x, which is enough to return the fund.
- Allocate roughly 5 to 8 percent of your investable portfolio to startups, and no more than 10 percent.
- Expect a high mortality rate even with careful due diligence.
- Due diligence should cover compliance too, such as unpaid taxes that become a liability.
How does an angel network or VC firm work inside?
Manish describes several teams: investor relations to bring in new limited partners and angels, curation of deals, and portfolio management. After investing, the network helps with hiring, funding and marketing expertise.
Lead Angels also has an arm that helps portfolio companies raise follow-on rounds from external funds.
Further reading and sources
- Lead Angels
- Angel investor (Wikipedia)
- Venture capital (Wikipedia)
- Razor and blades model (Wikipedia)
Frequently asked questions
How much money do I need to start angel investing in India?
Manish Johari says you can start from around 10 lakh rupees a year. He suggests spreading that across four to six startups rather than concentrating on one.
What returns do angel investors expect from a startup?
He looks for an exit within four to five years at a minimum of 10x on each investment. He expects many companies to fail, so a single 20x winner is what returns the fund.
How much of my portfolio should go into startups?
He suggests 5 to 8 percent of your investable portfolio, and no more than 10 percent even for higher risk appetites. Startups are a high-mortality asset class.
Conclusion
Investors reward founders who solve a real problem, build a moat and stay focused. They also think in portfolio maths, so your job is to show how you could be the 20x outcome.
Before your next pitch, check your margins, your repeat customer behaviour and your runway plan, and keep your investors updated between rounds.
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