[2022 Outlook] Indian startups to gain as angel investor community set to grow

The combination of fund inflow and exit options for investors into startups is expected to see the size of angel community only getting bigger in 2022.
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The year 2021 was like no other for the Indian startup ecosystem — be it in the volume of fund inflow or the number of startups entering the coveted unicorn club.

Experts say that this momentum is likely to continue well into 2022 — at least for some time — and the value of angel investors in the ecosystem is only set to increase.

An important part of the system, angel investors are the ones making early bets into startups that may or may not have a very promising future ahead.

In 2021, there was certainly a lot of positives for the angel investor community and an increase in their investments.

“We saw a 20-22 percent overall increase in angel funding for 2021,” Padmaja Ruparel, Co-founder of Indian Angel Network and Founding partner of IAN Fund, tells YourStory.

Startup founders, especially of unicorns, were keen to put their faith back into the ecosystem and prominent entrepreneurs like Kunal Shah (Founder of CRED), Ramakant Sharma (Founder of Livspace) or Anupam Mittal (Founder of Shaadi.com) who emerged as leading angels in 2021.

According to Padmaja, last year, angel investors bet on newer segments such as drone tech, 5G, biotech, and other spaces that seem quite risky.

Attraction of exits

However, the biggest positive for the angel investor community were the many initial public offerings (IPOs) and secondary exits they got from various startups. Some even made returns 50x, 60x or even 100x of their investments.

Ankur Jain, Founder of Hostel fund, says, “There are lot of senior executives at unicorns and soonicorns who are putting their money back into the ecosystem as angels. There are also a lot of individuals from the traditional businesses who want to invest as angel as they do not want to miss the bus.”

This has also seen the pool of angel investments getting bigger. In fact, the earlier funding range was between Rs 50 lakh and Rs 2 crore, which has now gone up to Rs 3 crore, according to industry estimates.

Additionally, 2021 also saw the entry of venture capital firms enter early-stage funding rounds with programmes like Surge by Sequoia, or Atoms of Accel, and more.

V Balakrishnan, Co-founder, Exfinity Ventures, says, “The early ones have a higher chance of capturing value; I think [eventually,] all large VC funds will come into this space.”

Sustained interests

Agility Ventures, an angel investor platform, aims to increase its network of angel investors to 4,000 from the current level of over 1,500 this year.

“We are hopeful that 2022 will be yet another year full of gainful exits and of Indian unicorns,” says Prashant Narang, Co-founder, Agility Ventures.

The sentiment about Indian startups remains upbeat across various classes of investors, which is expected to sustain the fund inflow in 2022. Also, the developments in China where its new rules to regulate the internet companies has led to the global investor community reducing their exposure to startups in that country and this has led to some part of the money coming into India.

Cred founder Kunal Shah emerged as the leading angel investor for 2021 with 61 investments according to data from Yourstory

Venk Krishnan, Founder of Nu Ventures, says, “There is going to be a lot of opportunities for startups to scale this year and one cannot do that without the support of angel investors. We are pretty optimistic about the future ahead and see a lot more angels.”

An interesting aspect of the growth of the Indian startup ecosystem has been its expansion beyond the metro and Tier-I cities, going into Tier II and III towns. This has further given rise to angel investors in these destinations.

“The year 2021 saw a lot of people from Tier II cities and beyond joining the angel investment bandwagon, though not necessarily actively investing, but we expect more cheques from them this year,” says Padmaja.

Role of angels

The competition of investing in startups is certainly going to become intense this year as investors seek to come in as early as possible to capture the value. This could lead to an interesting interplay among the angel investors, micro VC funds, and traditional venture capitalists.

Balakrishnan feels that there will be some jostling for space and angels will have to carve a niche for themselves or they may want to co-invest along with the VCs.

Livspace co-founder Ramakant Sharma made 32 angel investments to become the second most active investor in 2021 as per data from YourStory

In such a scenario, if history is a guide, then the current situation seems like a replay of the past. As Padmaja says, after the 2007-08 financial crisis, there was a certain shift in the investment priorities from VCs looking at smaller size deals. However, they later went back to their traditional route.

“There is going to be competition given the money flowing into the ecosystem and emergence of new startups but angels bring much more beyond just the cheque,” Padmaja says.

This is the biggest USP of angel investors who perform multiple roles for the startups — a sounding board for the founders, getting into operational roles, helping entrepreneurs make key hires, connecting with others in the ecosystem, among other things.

“Traditional investors look at startups who have traction or founders with pedigree but it is the angels who are investing into the business or mere ideas on paper,” adds Venk.

The consensus among the investor community is that the current momentum or euphoria for the Indian startup ecosystem is going to last for some more time, and this is expected to make the angel investors community bigger.

“Generally, the mood among the investors about the Indian startup ecosystem is very good,” says Balakrishnan.

Here, angel investors will continue to play a very important role whose inputs go much beyond bringing in just the cheque.

“It is going to be the quality of money that will make all the difference,” signs off Padmaja.

Edited by Saheli Sen Gupta

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