Angel Investing in India: Things Get Real in the Startup World

While some pessimistic notes are being struck, some of the most active angels in India are bullish as ever. This year, however, startup funding will get tougher as the demand for early stage funding far outstrips the supply. 

“Cautiously optimistic,” is the word you will hear from most industry watchers, if you quiz them on the growth of angel activity in India.

More startups are in the market to raise funds than ever before. Which means competition for angel money will get tougher and the need to learn the art of bootstrapping becomes more pressing.

“This year is likely to be as active as 2013 for me,” Rajan Anandan, who made 10 new angel investments in 2013 told NextBigWhat. “It’s the most active investing year I have had since moving to India in 2006,” he said. Anandan, the head of Google in India, has backed over 40 startups so far.

Angel Investor Shutterstock

With over 500 angels, dozens of angel networks and over 10 active seed funds, the real constraint now is quality deal flow, he feels. Since 2006, out of the 40 companies Anandan has backed, five are dead, over 10 have raised follow on capital and he’s had 5 exits.

“Returns on exits are in line with normal angel returns: 2x to 20x depending on the deal,” he said. The biggest driver of angel activity will be quality of deals, adds Rajan.

Optimism Gives Way to Realism

So far this year, the Indian Angel Network has made one investment. Two more deals are set to be announced this month, taking the total to 3 deals in the first month of the year. If it maintains the run-rate, it might end up doing over 30 deals this year as compared to less than 20 deals in 2013.

“Things aren’t taking a turn for the worst,” says Sharad Sharma, who backed companies like UnBxd, Stayzilla, Eventifier and Birds Eye Systems last year. “I don’t see a pull back from the angels,” he says.

According to him, the difference between now and before, is that the “Irrational exuberance,” or misplaced over optimism is gone now. Sharma has invested in over two dozen companies so far.

“At one time, many people were expecting 50-100% growth. It will be about 20% growth,” he said.

Valley based accelerator 500 Startups, known for the large number of early stage deals it has made at a rapid pace, also seems to be turning a bit choosy when it comes to India as there are more options to choose from.  “As the quality and the number rise, investors can be more choosy because more great options exist,” said Pankaj Jain, venture partner at 500 Startups.

“We are going to be very, very selective this year, in sectors and in investments,” Jain told Mint. In India, it has backed 7  18 startups so far. Update: In an e-mail to NextBigWhat, Jain said that the accelerator has no intentions of slowing down in India. “We do not expect to do less than last year where we did 9 direct investments (both seed and accelerator),” he said.

New Angels Are Coming In

Manav Garg, the founder of  CEO & Founder Eka Software, is one of the new angels in town. Binny Bansal, the co-founder of Flipkart, Navin Tiwari, co-founder & CEO of InMobi and a few others have also started investing in early stage companies.

Rahul Garg, Sanjay Singh, Manoj Agarwala & Tarun Upadhyay, founders of GlobalLogic which was recently acquired for $420 mn, are planning to float an angel fund to invest anywhere between $300k- $500k. It all means that there is a slight uptick in the number of angel investors coming in. But the fact remains that the demand for early stage funding remains high.

Where are the big exits?Exit Business Shutterstock

“Where are the big exits? redBus was an exception,”  asks Sanjay Anandaram of Seedfund. The early stage fund made neat returns on its investment in redBus when the company was sold to Naspers. Sanjay feels that the quality of deals in India need to improve a lot for new early stage backers to get excited about investing.

The bottom line for a majority of startups? Bootstrap. Many successful companies weren’t made with investors in their mind.


Recommended Read

Angel Investing In India Is Broken, It Needs To Be Fixed Fast

Angel Investing in India: Where Did the Money Go? It’s a No-brainer Really

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