Ashish Sharma, chief executive, Innoven Capital India.
Ashish Sharma, chief executive, Innoven Capital India.

B2B start-ups see growing interest from angel investors: Innoven Capital report

B2B investments contributed to 40% of total angel investments in the 15 months to June 2017compared with 25% in the previous year, says Innoven Capital report

Mumbai: Angel investments in business to business (B2B) start-ups have seen an uptick, with B2B investments contributing to 40% of total investments in the 15 months to June 2017, according to a report by venture debt provider Innoven Capital.

B2B investments contributed to 25% of total angel investments in the previous year, the report said.

The Innoven Capital: India Angel Report takes into account investments made by five major angel groups—Indian Angel Network, Mumbai Angels, The Chennai Angels, Hyderabad Angels and Calcutta Angels.

“B2C (business to consumer) space by definition requires a lot of cash. Getting customers and customer acquisition is fairly expensive in such business. A lot of money is spent on branding, advertising etc. and now most of the angels have realized that in such business mortality rates are much higher unlike B2B space. Which is why angels have started investing in B2B space especially enterprise technology," said Ashish Sharma, chief executive, Innoven Capital India.

Marketing and advertising are the other B2B businesses that have attracted angel investors this year, he added.

Overall, enterprise technology, consumer internet and consumer services emerged as the top sectors of investment for angel investors.

However, total angel investments saw a downward trend in the period with angel investors committing Rs101.1 crore across 54 deals.

Lack of clarity around taxation issues and a more cautious investment approach by angel investors are some of the reasons for the slowdown in angel investments, said Sharma.

“I keep hearing about the grey area around the taxation which poses challenge to angel investments. But the main challenge is more to find a good idea. Angels have become more disciplined and critical when they evaluate new opportunities therefore they become selective. They are just being cautious in terms of taking the right risk-return call," he said.

According to the report, the median pre-money valuations increased to Rs15.35 crore, up by 54% over the previous year’s Rs9.96 crore, with angels looking to back more revenue generating startups.

“One of the reasons for increased pre-money valuations is that angels are now funding revenue generating companies instead pre-revenue ones. There are also some follow on rounds that we can see. Ticket sizes to the start-ups have gone up both in the overall numbers and the sample size that we did," said Sharma.

Angel groups are also displaying preference towards start-ups which are in existence for a longer period of time, with median age of a funded start-up being 3.8 years compared to 1.8 years last year.

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