Band of angel investors in Indian startup ecosystem grows and with it, angel investments hit new record
For long, angel investments in the Indian startup ecosystem have largely been driven by the bets made by successful entrepreneurs and tech executives, as startups were viewed by many potential investors as a risky asset class. Today, that’s changing and leading to a spurt in angel investments in Indian startups, say experts.
Despite the high risks associated with startup investments, the ecosystem is now witnessing more entrants coming in as angel investors, say industry experts. These include high-net-worth individuals, professionals of various organisations at levels below that of CxOs, and business owners of non-tech companies, they add.
The number of deals each year. Source: IVCA
One founder of a Bengaluru-based tech startup says, “I have friends who are professional employees asking for my advice on whether they can invest in a particular startup. This is a trend I did not see earlier.”
Indeed, this trend is reflected in the surge in the number of angel investments in Indian startups. According to a recent report by the Indian Private Equity and Venture Capital Association (IVCA), startup investments by super angels and angel networks rose 24 percent to hit a new record of 341 in 2020 from 275 a year earlier.
Much of this, experts say, have been buoyed by several factors, including the maturity of Indian entrepreneurs today, the kind of innovative ideas, solutions, and products being built by them, and the appeal of startups as a viable asset class.
According to Indian Angel Network Co-founder Padmaja Ruparel, entrepreneurs today, unlike in the past, have become bolder in taking risks, starting new ventures, and have turned India into an innovation hub.
Founding a new venture has also become a natural career choice for many, as startups are now viewed as growth engines, she says, adding “…money will always chase opportunity.”
Angel investments, she further adds, have gained centre stage and are creating a space for itself in the ecosystem.
Role of angel investors
Backing this view is Vinod Shankar, Co-founder and Partner of Java Capital, an investment syndicate that typically invests at the Pre-Seed stage.
Vinod says, “Today, there are enough professionals willing to bet on startups as an asset class. If you look at the ideas that are being bet on, you will see that there is a lot more maturity; the founders have clarity with their vision about the product and the market they are going after.”
For Vinod, every angel investment he makes is strategic, he says. As an investor, Vinod ensures startups in his portfolio are able to get the next round of investors on board; likewise with customers.
Padmaja Ruparel, Co-founder, Indian Angel Network
To be clear, angel investors can play a critical role in the growth of a startup as many new companies may find it difficult to raise capital from VC firms right away.
Unlike equity investors, angel investments typically average between Rs 3 lakh and Rs 20 lakh per investor but can run into several crores when pooled in collectively as a group.
Venk Krishnan, Founder of NuVentures, says, “I believe India has several good ideas that can scale and need not necessarily be unicorns. There will several good companies that will scale up to Rs 30-50 crore revenues in five years and founders also want to work with angels due to several values that they bring to the table.”
Startups as a viable investment
Risk-averse investors, who would have traditionally put their money in gold or real estate, are now eyeing startups as a viable investment. In fact,
angel investors today believe startup investments are the next ‘big thing,’ says Ankur Jain, Founder of
Hostel Fund, which focuses on student ventures.
Vinay Bansal, Co-founder and CEO of Inflection Point Ventures, which has a group of over 2,000 angel investors, believes the uncertainties in the stock market have led investors to now seriously consider investing in startups because they offer better returns.
He adds, “Of course there is a risk because they believe that only one in 10 startups succeed. We have changed that mindset for them. We tell them that our due diligence will ensure that eight out of the 10 startups they invest in will get good returns.”
Indeed, when it comes to angel investments, the most important element for an angel investor in making their investment decision is the reliance on their networks. The other thumb rules for angel investors, Ankur says, include the market size, product-market fit, and team.
The new entrants into angel investing also include HNIs based out of non-metros, say industry experts.
Apoorva Ranjan Sharma, Cofounder of Venture Catalysts & MD of 9Unicorns Accelerator Fund, says, “It is our endeavour to create a robust network of angel investors beyond the top metros. At present we have several HNI investors from locations such as Surat, Raipur or Seoni who are willing to invest in high-growth tech startups.”
He cites the example of fintech startup BharatPe whose angel investors from non-metro locations saw the valuations of their investments rise 80x.
Founders as investors
So far, the surge in the pool of angel investors in India has been marked by one dominant trend — founders of startups and CxOs of tech companies willing to invest their personal wealth to bet on the next big idea.
According to IVCA, the largest investment involving angel investors in 2020 was the $110 million Series E round in edtech startup Unacademy, led by a mix of private equity and venture capital investors, with participation from Flipkart CEO Kalyan Krishnamurthy and Udaan Co-founder Sujeet Kumar.
Today, the long list of startup founders investing in other ventures include the likes of Kunal Shah of Cred, Kunal Bahl of Snapdeal, Naveen Tewari of InMobi, with participation from Flipkart founders Sachin Bansal and Binny Bansal, among others.
Many of these successful entrepreneurs have turned investors as they look to give back to the ecosystem, investing both their time and money to help younger ventures grow.
In addition to these tech entrepreneurs and CxOs, the Indian startup ecosystem is now seeing professionals from traditionally non-tech industries investing more seriously in the startup ecosystem.
This trend has been fueled by the pervasive impact of technology being felt across sectors such as education, healthcare, agriculture, finance, manufacturing, and logistics, among others.
Key decision-makers from these sectors are keen to understand how technology and the latest innovations in it would benefit their areas and are willing to invest in such ventures as well as apply their learnings in their businesses.
“These kinds of investors understand their own sector but they also want to engage with the innovators,” says Padmaja.
The COVID-19 pandemic piqued the interest of a new set of investors as they are now keen to learn from startups as entrepreneurs managed to navigate through this crisis much more efficiently than others, unlike popular belief in the initial days of lockdown.
According to industry participants, the pandemic led several startups to create new business models to survive and grow, and others are keen to adopt these practices.
COVID-19 also bought in other positive changes in the startup ecosystem.
Suresh Narasimha, Founder of CoCreate Ventures, says, “I think the pandemic has given space for people to think a lot more and motivated them to become an entrepreneur. We have taken some very interesting bets around weather tech, deep tech, SaaS, among other things.”
Venk adds, “The pandemic has changed the narrative for the better founders as they believe in managing cash better and want customer traction.”
According to Vinay, IPV has built the trust for its group of angel investors, where it invested in 40 startups in 2020 with the aim to take this number to 60 this year.
“Last year was a good run and it will continue to get better," he says.
As the startup ecosystem in the country emerges from the challenges of the pandemic, experts are expecting the pace of innovation and growth for these companies to pick up and with it, the number of investors willing to bet on them. This, despite the risks associated with angel investments.
Padmaja sums this up. She says, “Early-stage investment is high-risk and it is good that many are coming in, but we expect this will only expand further.”