India's angel networks are increasingly creating their own funds, tapping into the surge of domestic capital to institutionalise early-stage investing in the country's startup ecosystem.
To streamline their investment focus, these networks are shifting from deal-by-deal syndication to closed-ended funds, capitalizing on the surge in domestic capital available.
“Failure rates for individual angels can be very high, and coming together to structure their investing is a way of addressing that failure rate,” said Ranjeet Shetye, a deeptech angel investor and a mentor at YourNest Venture Capital.
Veteran networks like Indian Angel Network (now IAN Group), Hyderabad Angels, and Rajasthan Angels have launched their own funds. These networks have successfully identified enough winners, encouraging investors to supply capital for early-stage bets rather than engaging directly in deal-making.
Hyderabad Angels Fund (HAF) launched their maiden fund last year, but it is relatively small at ₹150 crore. The firm is fundraising and has already raised ₹85 crore. Its four investments include two in aerospace, one in gaming and another in enterprise.
“Generally, while networks have their own benefits, there are limitations in terms of the deals they can attract, the process of funding a round and the predictability of whether a fund will go through or not,” said Kalyan Sivalenka, managing partner at HAF. “For Hyderabad, it was also time to institutionalise the capital here because there's a lot of capital available here from founders who have had great exits.”
Mahavir Sharma of Rajasthan Angel Network leveraged the network's 30 operators to launch his own ₹150 crore venture fund.
IAN Group was, in fact, the earliest angel network in the country to set up its own fund. The maiden investment vehicle was launched in 2019 and was sized at ₹375 crore with institutional and high net worth individuals pooling money, including Sidbi's Fund of Funds, India Infoline, Infosys co-founder Kris Gopalakrishnan, and Kanwal Rekhi. The investment network's second fund is even larger, sitting at $100 million and was launched late last year.
Regulation changes forcing a shift
For many angel investors, the shift is being led by Sebi's decision to revise the accredited investor framework. Regulations require angel funds to have at least five accredited investors before their first close. The designation requires investors to have a certain net worth and have a chartered accountant sign off on their financials.
Sharma, chairman and co-founder of the Rajasthan Angel Network, acknowledged that while angel investors have lost capital due to a lack of robust rights compared to venture funds, current regulations have made the investment process overly complicated. "I wouldn't have been able to be an angel investor if these regulations had existed back in 2011-12."
Domestic LP creation
Unlike individual angels, formal fund structures professionalize due diligence and reporting while providing a diversified portfolio that hedges against single-startup failures and secures the board-level influence usually reserved for larger VC firms.
India's large venture fund houses, such as Peak XV, Kalaari Capital, Blume Ventures, and Nexus Venture Partners, have raised funds from a mix of global and domestic institutional investors. But as angels look to formalise, there's also a need for general partners (GPs) with a track record of picking the right bets.
"We are seeing more Indian funds come up, led by GPs who have built their credibility at global firms and are now venturing out to set up their own funds in India," said Sanjiv Bhatia, president and head of multinational corporations, new economy and financial sponsors at Axis Bank. He added that the number of angel investors has grown significantly, driven by a sharp rise in India's HNI population.
The numbers back this up. A report from Anarock projects that India's HNI population will double to 1.65 million by 2027, while CareEdge Ratings attributes this growth to economic liberalisation, startup wealth creation, and intergenerational wealth transfers. "The growth of demand from HNIs and a steady supply of GPs are feeding into each other," Bhatia said.
- Angel networks are shifting to closed-end funds to improve investment focus.
- Institutionalizing capital helps mitigate high failure rates inherent in angel investing.
- Successful founder exits are a primary driver of new domestic capital.
- Sebi’s revised accreditation framework is forcing professionalization but adding administrative burdens.
- Growing HNI wealth is creating a sustained demand for formal investment vehicles.