10 Trends in Angel Investing in India

While it is still a long road ahead for India to reach the size and vibrancy of Silicon Valley's angel ecosystem, the desi angel community may be slowly coming of age. With nearly 250 angels registered with India’s two dominant formal networks, Indian Angel Network and Mumbai Angels, compared to rather humble beginnings four years ago, there is growing interest in angel investing. Besides the organised angel networks, there are hundreds of successful executives and entrepreneurs who have taken to angel investing. VCCircle spots key trends that are evolving in the dynamic Indian angel investing space:

Growth of Formal Angel Networks: “The interest in angel investments is increasing and as an asset class it is creating its own niche in the portfolio of investors in India though it is a new one in its own right,” says Padmaja Ruparel, President, Indian Angel Network. IAN has grown from 12 members in 2006 to the current 140 members and is growing exponentially. Anil Joshi, Member, Mumbai Angels affirms that more people have started joining organised networks and this has led to a larger deal flow. “Three years ago, the ecosystem was non-existent – it was very difficult to get access to a good deal. The flow was just a trickle. Now, we have access to ventures that are in the concept stage to three-year-old firms,” he says. Members of IAN have invested in 23 companies, including 4 overseas. Mumbai Angels, the other formal network, began with just two people, grew to 20 in 2006 and now has some 100 members, and 20 announced deals to boot. Similarly Chennai Angels has 15 members including top city entrepreneurs like Gopal Srinivasan, R Ramaraj, Suresh Kalpathi, K Pandiarajan, HR Srinivasan, KB Chandrasekar, and N Kumar.


Institutional early stage investing:  “There's already a shift in paradigm. VCs are allocating a small part of their funds for seed stage funding,” notes Pallav Nadhani, cofounder, FusionCharts and Partner at Seeders Venture Capital Pvt Ltd. The entry of Sequoia and Nexus into angel space bodes well for the community. Entrepreneur and angel investor Rehan Yar Khan says, “In the next 2-3 years, the number of deals will definitely increase with VCs exhibiting angel-like behaviour.” The gap between angel and VC deals, however, continues to exist. Hemant Kanakia, member of IAN, observes that with VC deals rising to $3-5 million range, there is a gap of available capital between $50,000 and $3 million currently. Accel Partners, IDG Ventures and Seedfund compete with angels in making early stage deals.

Top Sectors: Technology continues to be a hot favourite while mobile applications, software products, clean technology, hospitality, education, retail, food processing and Internet plays are blipping on the angel investor radar. By and large, Ruparel feels, angel investments are still sector-agnostic and more dependent on the proposition and size of the company involved.

Serial investing gaining currency: The number of serial angel investors are going up, and a failure or two do not deter them. For instance, Sasha Mirchandani, Managing Director, BRV India and Head of Corporate Affairs at Deeya Energy and co-founder of Mumbai Angels, has made close to a dozen angel investments. Ex-Microsoft India MD Rajan Anandan has backed 17 startups. Theirs may be a rare tribe, but it is likely to get more members with many startups getting follow-on funding. “There are too few ‘A’-grade angels in the country today, those who really understand the market, go in early and work with startups to build them well,” said Khan. But that is the current situation, which will change.

Don't look at the numbers: The number of angel deals, according to data from research platform VCCEdge, grew from 18 in 2006 to 20 in 2007, 25 in 2008 and then fell back to 20 in 2009. Last year or 2010, it recorded only 15 deals, according to the database. But the fact is there are tens of angels deals which are not announced. Only the formal angel networks are forthcoming on announcing angel deals, while many individual investors and startups keep them under wraps for competitive reasons. The same goes with institutional early stage investors who are cagey in revealing investments.

Valley may be a tough catchup, but do we need to?: India has a long way to go before it reaches the size and vibrancy of Silicon Valley's angel ecosystem. But then, the Valley does have a headstart of 20 years. "Let's be honest about it, you can't cut short two decades into two years," says Ruparel. Also, a majority of the investors in India are averse to risk taking and are not as aggressive as their counterparts in the Valley. “The Valley is a far more evolved ecosystem. It’s a small, highly concentrated, high energy area. I am not sure such an area can ever come to being in India,” opines Sunil Kalra, Member, IAN.

Angel exits are real: Exits are getting real in India for early stage investors. Mumbai Angels members got one of the best recorded exits in India from Inmobi, when Kleiner Perkins and Sherpalo cam in as investors. The angel investor in One97 Communications got a great exit from the company in a pre-IPO deal where PE funds bought him out. Sequoia Capital entered JustDial by buying out the angel investors' stake in JustDial. There are several exits to show for angels, and that is getting real. IAN members have 4 exits with one giving investors 5x return over 15 months. The Chennai Angels exited two companies last year, just to name a few.

Big Business is getting in: The large Indian business families such as the Tatas and Reliance are late in the game but they are associating with the startup ecosystem. The Tatas joined hands with the National Entrepreneurship Network (NEN) for creating innovation awards. They are however yet to get into early stage investing. Mukesh Ambani has set up a fund with former CSIR director general RA Mashelkar also on board to make early stage investments. Anil Ambani has Reliance Technology Ventures which also makes early stage venture stage investments often competing with angels.

Expertise Over Money: The characteristics of angel investors are also slowly changing. From being merely purse-strings, there are now more entrepreneurs as well as industry experts not just investing in startups but offering advice too. Then there are startup accelerator firms like Morpheus Venture Partners who invest Rs 5 lakh in a startup plus a lot of handholding.

2011 Outlook: Diversification and the rise of new opportunities for startups, that sidestep traditional IT, in fashion, mobile, healthcare and rural plays will result in more deal activity this year. Investor expectations from Indian entrepreneurs are also on the rise. “Companies that seek investment are unclear about what they want from an angel investor. They also need to add value,” said Kalra. This year, Nadhani hopes, entrepreneurs will understand business concepts deeper and from a wider angle, rather than just being passionate about one aspect of the idea. Khan suggests that entrepreneurs follow the Baazee.com model – search for gaps in the portfolio of large existing players and position their startup to plug the gap. “Baazee was built to be sold to eBay. This kind of thinking has not yet reached the Indian community,” he said.