The Age of Shark Tank & Angel Investing in India

By Prashant Choksey, Co-Founder, Mumbai Angels

Prashant Choksey, Co-Founder, Mumbai Angels

Started in 2006, the Mumbai Angels provides a unique platform for startups and very early stage companies by bringing them face to face with successful entrepreneurs, professionals and business executives who are interested to invest in startup companies.
 
Entrepreneurship has never been celebrated like this before. And with success, we are also celebrating failures, innovation, and investing. And this is mirrored in the mainline Television shows like Shark Tank in India, which incidentally, airs not on a business channel but on a general interest channel! Entrepreneurial finance has changed more in the last five years than the previous 100. Globally, there can’t be a more exciting era for entrepreneurship and early stage investing than today.

In India, early-stage funding took a new turn in 2015 as investments by Angel and venture capital funds rose sharply, both in value and volume terms, driving overall private investments to a new peak. The spur in early-stage investment comes at a time when established Indian startups are continuously raising money, acquiring other firms and are slowly joining the still small but growing list of unicorns. 

As per NASSCOM report, India is the world’s third-largest startup hub where 3-4 new firms are born every day. India currently trails the U.S. (47,000-48,000 startups) and UK (4,500-5,000 startups) in terms of overall startup count.

With the announcement of a dynamic Start-up India policy backed up by RBI monetary policy measures, Startup activity is going to skyrocket. To keep pace with this frenetic entrepreneurial activity and to cater to the capital & skills needs of these exploding pools of Startups, Angel Networks are going to play a pivotal role.

Angel Investing in India has picked up steadily and the number of investors aware of the dynamics of the asset class is far better now than around the time when Mumbai Angels was founded in 2006-07. The number of people aware of this asset class and understanding the nuances is also going up. The successes that keep getting reported in the media also tends to get investors interested in this asset class. The approach to Angel Investing in India is still anchored firmly in prudent financials and betting on risky ventures purely on the promise of proverbial pot of gold are few and far between.

Beyond cash, Angels play an often overlooked but crucial mentoring role for new business owners as successful entrepreneurs themselves, offering hands-on experience and a network of valuable contacts. Also by pooling smaller sums together into big funding rounds, these groups are able to spread the risk of betting on promising ventures in less hot sectors. While VC/PE firms target less risky late-stage business startups, Angel investors are nearly alone in backing young, fast-growth companies.

Angels are also more prone to support entrepreneurs in their own back yard, with typical funding rounds ranging from $25,000 to $500,000.  At the same time, they're less sensitive to ups and downs in the economy and tend to invest in a ‘much wider range of innovation’.

Angel Investing is transforming now into a more formalized process, complete with more rigorous due diligence to ensure returns to investors on the one hand & growth capital for portfolio companies on the other. At Mumbai Angels, we lay a lot of emphasis on Portfolio Management. It is something that can potentially differentiate why investors will flock to a particular fund or Angel Investing network. The debate that usually emerges is around how much really is assistance and how much is interference. No two businesses and founders are the same and there cannot be a cookie-cutter approach to Portfolio Management. However, one thing is clear that Portfolio Management is certainly a pre-requisite to prudent investing.
 
While IT tends to be an investor magnet for decades, Angels are now even foraying into sectors like biotechnology, healthcare, education and social impact sectors. So many more investors and entrepreneurs are seeing the value of companies that lead to financial returns and also make a positive difference in the world. There seem to be more Angel groups, platforms and accelerators focused on different aspects of social impact, from environmental products to helping businesses in Africa.  Because Angels invest their own money, they can choose to invest in what is most important to them. This creates a nice intersection with impact investing, which brings a special satisfaction to many Angels and entrepreneurs who want to work together to drive social change.
 
The biggest challenge going forward in India for all Angel Networks is going to be how to educate & engage with investors and entrepreneurs, considering we are one of the youngest startup ecosystems in the world.
 
Investors come from a diverse set of experiences and backgrounds. These results in different priorities and expectations from the Startup in particular and the asset class in general. While the investors are entitled to their expectations, applying governing or interaction practices of other assets class to Angel Investing can be disastrous to say the least. Sometimes entrepreneurs need to blend unbridled passion with fiscal prudence and be respectful of the expectations of the investors.

Education, provided without it appearing to be a formal education, is likely to be far more effective tool to bridge this divide and it will translate into more realistic startup valuations and stronger exit strategies
Angel investors in India have firmly established their role in jump-starting and sustaining India’s economic growth and they continue to build on the momentum needed to create more companies and new jobs. It is crystal clear that Angel Networks are integral to India’s ability to script its winning story – a fact that is amply backed by global learnings and success stories. Entrepreneurship is being democratized and with it, innovation & investing. Failure is no more a taboo. Can't wait to see how this entrepreneurial revolution shapes India. 

 

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