Mumbai/Bangalore: Sateesh Andra, venture partner at Draper Fisher Jurvetson (DFJ) India, is often faced with a dilemma. He has to turn away some start-ups even if they have a promising business model.
“There are a lot of funds willing to write $2-3 million cheques, but not before some parameters such as minimum revenue and a certain number of clients are met,” said Andra, who is based in Hyderabad.
To help out such ventures Andra decided to become an angel investor. About six months ago, along with several other Hyderabad-based serial entrepreneurs and high networth individuals (HNIs), Andra started the Hyderabad Angels which has already made two investments.
Andra is not alone. Angel investing in India, until recently, was driven by two dominant networks—Indian Angel Network and Mumbai Angels. But over the past one year several such networks have spawned across the country.
Prominent ones include Pune Tech Angels, Business Angel Network of Kerala and East Angels, which caters to entrepreneurs from leading educational institutions in the country such as IIT Kharagpur, IIT Guwahati and IIM Calcutta.
Angel investors are affluent individuals who provide capital for micro start-ups, that are not usually backed by venture capitalists (VCs), in exchange for an equity stake. These investors usually organize themselves into angel groups or angel networks to share research and pool their investment capital.
It gives HNIs, mainly serial investors or entrepreneurs, an alternative investment conduit.
In India, angel investments start from Rs25 lakh and go up to a few crores.
“This network gives an opportunity to HNIs to diversify their investments,” says Srini Koppolu, a member of Hyderabad Angels. Koppolu was the former managing director of Microsoft India Development Center.
Karanvir Singh, one of the founding members of Pune Tech Angels, attributes the rise in the number of angel investors to the success story of Mumbai Angels and Indian Angel Network.
Since its inception, the Indian Angel Network has invested in 23 companies and has already made five full or partial exits. Mumbai Angels has made over 35 investments with seven exits. One of its most successful investments was in InMobi, a mobile networking start-up, in 2007. It invested $500,000 and sold its share in January 2010 to VC investors. Since their investment in 2007, the valuation of the company has risen more than 25 times.
According to Anil Joshi, who heads operations at Mumbai Angels, it’s important for angel networks to follow “certain basic principles like due diligence”.
The biggest challenge for angel networks is getting the right people to join the network and investing at the right valuation, said Kris Nair, founder of Business Angel Network of Kerala.
“Building a company is hard, and mentoring is harder. More than just capital, entrepreneurs are looking at high-touch mentoring from the capital-partner,” Nair said. Business Angel Network of Kerala, which started in 2010 with five angels, has backed more than 12 start-ups. “If the way they (angels) value and scale the investee company is wrong, it blocks the second round of funds,” said Nair.
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