Trends in Angel Investing in India
Businesses were obliged to reconsider their business strategies in the wake of the pandemic and discover new methods to stay relevant in the new environment. Following the initial shock, economies throughout the globe showed remarkable recovery, and 2021 has been the greatest year for the Indian startup ecosystem, with more firms becoming unicorns in the past year than in the previous five years combined. In 2021, Indian businesses such as Zomato, Nykaa, and others went public, reflecting the significant interest of both public and private investors in the Indian startup ecosystem.
The opportunities for entrepreneurs are expanding every day in the face of a booming economy. However, the most difficult aspect of beginning a firm is getting finance. In India, it is common to see 50 percent of new firms fail within five years of their inception. The main explanation for this is that improved fund management is not feasible in these institutions. Fortunately, there are a number of venture capitalists and private equity companies around the nation that may be able to help. Taking their assistance, by the way, places an additional load on businesspeople. In this sense, the phrase "angel investment" has exploded in popularity in recent years. Angel investors are a group of investors who make early investments in a company. Instead, they buy a little piece of the company. These individuals are either entrepreneurs or senior executives from global corporations. It might, however, be a collection of regular individuals who wish to put their money into a firm. Across the nation, there are several similar networks. Angel investors such as Mumbai Angels, Indian Angels, and Hyderabad Network are well-known. Angel investors usually invest over a period of eight to ten years. They maintain track of the company's progress and keep an eye on its finances on a regular basis. They may also take their hands out of the firm if they are displeased. This is why firms in which Angel Investors invest do better than others.
Angel Investing and why?
When opposed to investing in the public markets, angel investing is a sort of private equity investment in which high net worth investors aim to make larger returns by taking on more risk.
Angel investors usually fund a company beginning while it is still in its infancy. These firms may not even have clients or earn any cash – they may merely have a good business strategy, a beta test performed, or a minimal viable product developed. Angel investor capital is typically used for research and development, as well as to assist a firm in developing its product and service offering, developing a corporate strategy, and identifying its target market.
Venture capitalists often join the scene at this juncture to give the next round of investment as the company expands and scales its manufacturing, operations, and marketing.
An angel investor does not have a defined investment minimum or amount. The sum might be as little as $5,000 or as high as millions of dollars. It all depends on the circumstances. In return for the cash investment, the business normally grants the angel investor a set number of shares or the ability to acquire shares at a later date.
When you start investing in angels, you enter a microcosm of investors, advisers, venture capitalists, banks, accountants, attorneys, colleges, and entrepreneurs who are all connected in a shadow economy. Angel investing is full of tales of amazing triumphs and terrible failures, but it's also full of innovative ideas, exciting business initiatives, and fascinating individuals.
In India, there is no regulatory body that oversees angel investors. Given India's demand for informal equity capital and entrepreneurial culture, the approach to angel investing in terms of due diligence and valuation has to be improved.
Start-ups and Angel Investors of India
From a handful of individual investors, a decade ago, India currently has a thriving angel investing ecosystem of more than 26,500 successful entrepreneurs and private investors. Angel investment, a long-term game, is now becoming popular in India, thanks in part to the successful listing of companies on the stock exchange, but mostly due to a developing ecosystem.
An examination of the portfolios of the top 100 angel investors finds stakes in 3,231 start-ups, 634 of which are similar, implying that some of these angel investors may have invested in the same firm. However, it's worth noting that these start-ups have amassed a total of about $13 billion in funding. The fact that 746 crore was raised in seed capital agreements in CY21 alone, an all-time record, indicates that angel investment is on the rise.
India now has over 50,000 start-ups dispersed around the nation, and the number is steadily increasing. More importantly, 44 start-ups became unicorns in CY21, a new high. With the proliferation of start-ups, Bahl believes there is an urgent need for angel or seed funding in the nation.
From India's early unicorns, such as Paytm and Flipkart, to more recent names, successful start-up or unicorn founders are among the most active angel investors. Kunal Shah of Cred, for example, has invested $7.1K to $55.8K in over 10 start-ups at the seed stage for interests ranging from 0.11 percent to 6.51 percent, according to publicly accessible data. Similarly, Snapdeal co-founder Rohit Bansal has put money into 37 startups at the early stage, with checks ranging from $13,000 to $100,000. Shaadi.com founder and CEO Anupam Mittal has invested in over 19 firms with shares ranging from 0.3 percent to 5.36 percent. Then there are experts like Rajan Anandan, the former Google India head and current MD of Sequoia Capital, who has personally invested in 22 start-ups. Kris Gopalakrishnan, co-founder of Infosys, and Mohandas Pai, former CFO of Infosys, are both active angel investors. Pai has invested in 26 start-ups, including Licious, a meat brand, and Kapiva, a social media platform.
Expectations for the year 2022
We've seen new challenges/opportunities develop as the influence of COVID-19 has began to fade. We have yet to define the new normal, even as economies begin to recover. The hybrid working model is gaining traction and will continue to do so in 2022. We've seen Software-as-a-Service (SaaS) firms come to the rescue as the traditional operating model has undergone significant adjustments. Many firms have developed in the edtech, healthtech, fintech, consumer, and data privacy sectors, using digital as an unifying thread.
Though some angel investors were concerned about the epidemic, many others were unconcerned. They began investing more in startups, taking advantage of the chance to locate excellent firms at reasonable prices. This phase was even more important for investors since it provided them with an extra criterion for evaluating startups: the ability to survive amid unfavorable situations, such as a pandemic. In 2022, this criterion will remain a component of due diligence for all companies being assessed.
Inflated valuations and the potential lack of alignment between these and exit values, an increase in VCs becoming involved in earlier-stage deals, including former Series A funds that are now focusing on seed and pre-seed rounds, and the continued challenge of filtering out the best companies were identified as the key challenges ahead in 2022 by investors.
Future of Angel Investment in India
While it is encouraging to see new Venture Capitalists investing corporate capital and micro-funds opening offices in India, the importance of angel investors in a well-funded start-up ecosystem remains undeniable. We are at a crossroads as a nation, and as we go forward, technology companies have the potential to become the most important catalyst in India's growth trajectory. Indians have made appearances in a range of fields in recent decades, ranging from traditional businesses to utilizing cutting-edge technology. It is critical that the depth of expertise of these well-turned individuals be passed down to the next generation, which is attempting to disrupt sectors with technology at their heart.
Overall, the notion of angel investment is gaining traction and popularity. With this seismic change in the startup environment, investors are partnering with inventive and creative entrepreneurs, assisting them in achieving success, and profiting from their exponential development in terms of both cash and expertise.
Without a doubt, India is a unique country, and its angel investing characteristics may differ from those of other countries. As a result, ongoing efforts and endeavors are necessary to map the growing advances in angel investment that are unique to India.