On a hot summer day at the Indian Institute of Technology, Bombay (IIT-B), a group of 35 kids aged between 11-15 years are engrossed in learning the ropes of mechanical engineering, electronics and computer programming, hardly the stuff one would think summer vacations are made of. But the task at hand — building a remote-controlled car — is fun for the children to get the basics of these difficult topics. TRI Technosolutions Pvt. Ltd, a Mumbai-based start-up conducting the robotics workshop, found its idea of teaching complex subjects through practical and fun methods appealing to kids, so much so its week-long workshops were overbooked despite little marketing.
Paving way: (foreground, left) Gagan Goyal and Abhishek Biswal, directors of TRI Technosolutions Pvt Ltd, at a robotics workshop in Indian Institute of Technology, Bombay. Photograph: Ashesh Shah / Mint
In addition to the summer workshops, TRI, started by two IIT-B graduates, Abhishek Biswal and Gagan Goyal, has provided career-oriented training in embedded systems to 15,000 people in 25 cities. The IIT-incubated start-up is backed by angel investor Seedfund. In the last two years, the Mumbai-based fund has invested small amounts between $500,000 (around Rs2 crore) and $1 million in eight other companies, ranging from rural health care to an online marketplace for cars.
Along with Bangalore-based Erasmic Venture Partners and networks, such as Indian Angel Network and Mumbai Angels, Seedfund represents a breed of investors that have come up in the last two years here to give a leg-up to start-ups at their infancy — a stage considered too risky for typical venture funding of $2-5 million. These outfits were born out of the dearth of high networth individuals who could provide mentoring and initial capital to young entrepreneurs here. Between them, the four have funded about 40 start-ups.
And, now, Seedfund and Erasmic are looking to raise their second funds by the end of the year after completing their first cycle of investments.
While it is too early to measure their successes, the kind of investments made and their involvement in these start-ups is a fair indication of their differentiation from VCs. Erasmic has invested in 14 start-ups so far, in businesses as diverse as Internet (Chakpak, HolidayIQ), retail food chains (KaatiZone), furniture design and manufacturing (Dovetail) and biotechnology (InBioPro).
For start-ups, angel funds not only supply the initial capital, but act as validation for future rounds of funding. And, for VCs, it creates a pipeline of companies that are venture-ready, having been through due diligence once and mentored on business building. “At times, we co-opt and work with later stage funds on companies they may like, but are too early for them,” says Prashanth Prakash, partner, Erasmic Venture Partners.
These angel investors have funded several start-ups that are little more than a team with an idea. Mobile advertising firm mKhoj Solutions Pvt. Ltd, the first company backed by the Mumbai Angels, is one such. “At the time, we only had a PowerPoint presentation,” says Naveen Tewari, mKhoj’s founder and CEO. Over the next year, mKhoj, which began with SMS advertising, changed focus to Internet advertising on mobile phones, built up ad inventory and advertiser base, and turned cash-positive.
There is also more hand-holding during the early days. TRI, for example, initially wanted to sell robotics kits similar to the popular Lego blocks, but found that children lacked fundamental training required to build the units. Seedfund mentored the company for several months prior to funding, helping them change focus from a toymaker to a niche educational institute. “Sometimes, you have a good team but the idea is not perfect and vice-versa, which a VC will typically reject. In these cases, we work closely to get their economics right,” says Mahesh Murthy, managing partner, Seedfund. Several angel-backed start-ups have got first round VC funding. Some examples are: mKhoj (KPCB and Shepalo Ventures), Printo Document Services Pvt. Ltd (Sequoia Capital) and Perfint Engineering Services Pvt. Ltd (IDG Ventures).
On the flip side, an angel network or a fund does not offer nearly the same flexibility as an individual angel. A one-on-one relationship with a mentor is usually more casual, and the capital comes in the form of a cheque written out over a living room conversation. In the Silicon Valley, some of the most successful companies had angel investors who were successful entrepreneurs themselves and decided to back a team they liked. These include early investors such as Ram Shriram in Google Inc. and Paypal co-founder Peter Thiel in Facebook Inc. With the angel funds and networks here, a start-up still has to make presentations, undergo due diligence and sign legal term-sheets, just as in a round of venture funding.
“Start-ups make an elevator pitch. Later, the group of angels interested will get into a discussion with them on valuations and term sheets,” says Saurabh Srivastava, co-founder, Indian Angel Network, which has more than 70 members including Mphasis Ltd co-founder Jerry Rao and Canaan Partners’ Alok Mittal.