Sasha Mirchandani Traces the Evolution of Angel Investment in India

“We at Mumbai Angels have shown phenomenal record of exits”There is no better person than Sasha Mirchandani, co-founder of Mumbai Angels, who knows the angel investment scene in India. Having started the first angel investment company in India, he has been successful in that Mumbai Angels have made grand exits, through the unique way of VC fund buying their shares. In this chat with YourStory, he traces the evolution of angel investment in India and feels the ecosystem is just proportioning right with accelerators, incubators, angel investors and seed funds. Like every conscious angel investor, he feels startup tax, proposed by Government of India in the 2012-13 Union Budget, takes angel investing backwards.

Since the time you have launched Mumbai Angels how have you seen the angel investing ecosystem evolve? Now, we also see a lot more angel clubs coming up...

In the early days, it was slow as it took time to convince members. But, I think in the last one year, it has picked up tremendously, because first of all, many more angel clubs like Chennai Angels and Hyderabad Angels have come up and we have ourselves launched our second angel club, Bangalore Angels. And we have also seen many seed funds in the scene like Blume, Kae Capital etc. Now, you also have tons of incubators and accelerators coming up (which are two different things). We have seen Shravan Shroff and Ravi Kiran launch their venture accelerator recently, and there are so many more I am hearing of. On a daily basis somebody calls me and runs me through a business plan for an accelerator or an incubator or gets my opinion. That is also very encouraging for startups, as the market starts segmenting itself, then the entrepreneur knows where he/she needs to go first. Earlier it was a hodge-podge. Ten years back PE and VE guys were also talking to these people, which was like a joke, because the market was so underdeveloped. For any market that develops, the water finds its balance.

Since the last one year, what we have seen happening is that a lot of VC funds have been doing very very early stage deals. What’s your take on this development?

Why not? If there is a deal, and they really like it, then they will come down and do it. But you see the corpus of these VC firms is so large, that a bulk of these cheques have to be between $3-5 million, if not bigger than this. There are truly very few deals that these guys do in the ticket size that we are talking about which is truly angel/seed. The market is very much open for angel clubs, seed funds, individual angels and so on, but yes once in a while a VC will come and do a smaller ticket deal, which is good for the ecosystem. I welcome them.

You have been an angel investor since the past 10 years, how do you see the startup ecosystem evolve in India?

I think its is evolving fantastically, we see better quality of entrepreneurs now coming into the market as they have seen so many success stories and there are funding opportunities. So many entrepreneurs like Deep Kalra and so many others in this decade, whereas in the last decade it was Sunil Mittal and the previous decade it was Narayana Murthy. People have seen that entrepreneurs add so much value to your life, the whole process is so enriching and of course there is money in it as well. For the best entrepreneurs that is probably the last motivator and these are the ones who actually end up making most money. And there is so much to do. I guess people are realizing what the hell am I doing in a job, let me start a company. And the access to capital is very much available, which helps build more confidence you know.

What were the early challenges you faced while setting up Mumbai Angels back then in 2006?

The early challenges were huge, because most of us didn’t understand that it is an asset class. So, I had to go one to one to all the people I knew and respected or people I didn’t know but thought would be good members for Mumbai Angels. I needed to explain things one-one, the value of angel investing, how they could add value, how people have made money from this asset class. I had to do many of these things personally and get them on-board. Also, on the companies front, we had to explain to them that the angels are not going to run away with your business plans. So basically education of the asset class was a big challenge. It was a big effort, but I think it was well worth it for me and Prashant [Choksy] (co-founder Mumbai Angels) my friend and co-founder, between us we just educated a lot of people. And, there is a very good team, led by Anil Joshi, because now more than half of the work goes to Anil and his team. And that was the key for us to set up the best team possible.

What are the challenges now from angel investing perspective?

We at Mumbai Angels have shown phenomenal record of exits, but all our exits have been to the VCs in the subsequent rounds who have bought our shares, which is a very innovative way to exit. This doesn’t happen anywhere else in the world. This is a very unique way to exit. Having said that, we would like to do exits the normal way, which is basically invest in the company, then over a period of 7 years, either do an M&A exit or an IPO exit. I think that is something that will really excite us. I think we can make substantially more money that way as well. So we have to prove to the market that we have the power to make those exits.

Do you see more and more people now looking at angel investing as a profitable investment made?

Yes, I think so. Now, we also see a lot of good angel investors in the market who invest completely on their own, they don’t come to angel clubs, they don’t come to any funds, and that is very healthy for the ecosystem.

What do you have to say on the recent taxation on the angel investments?

Obviously, it is a big setback. However, there are a lot of people in the industry who are very well-learned and are representing us and are talking to the Government. And, Government is also listening. We are also quite happy about that fact. And, I hope that there is some conclusion where our part of the issue is sorted. We are hoping that it would get done. I am keeping my fingers crossed and I am positive. Government should realise that this asset class is very important for the growth of the country, so many jobs are created by these entrepreneurs. If you do this with early stage angel investments, it is like pushing the ecosystem backwards.

Part 2 of the interview with Sasha on his seed fund Kae Capital follows tomorrow.