This article is written by Bhavna Hemrajani, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho.com.
For any Startup to stay afloat and grow it will require funding, either from external or internal source. In a narrow sense, the term ‘fund’ signifies ‘capital’. Funding is the fuel on which a business operates. The first round of funding from an external sources includes funding from angel investors. Angel investor may invest in or fund those Startups where it will see a growth potential. Currently, there are various groups and individuals who have identified themselves as angel investors and their efforts are resulting in various success stories. Through this article, the author shall shed light on the top angel investors in India.
The SEBI (Alternative Investment Funds) Regulations, 2018 defines an angel investor as a person who proposes to invest in an angel fund and satisfying the following conditions:
- An individual investor having net tangible assets of at least INR 2 Crore excluding the value of principal residence and how has experience at an early stage or as a serial entrepreneur or a person having at least 10 years of experience as a senior management professional;
- A body corporate with a net worth of at least INR 10 crore; or
- A registered Alternative Investment Fund or Venture Capital Fund.
The investment by an angel investor is subject to conditions provided in Chapter III of SBI (Alternative Investment Funds) Regulations, 2018.
- Indian Angel Network
The Indian Angel Network is a network of angel investors who invest in early stages businesses having the potential to create disproportionate value. The members of the Network are leaders in the Entrepreneurial Eco-System as they have had strong operational experience as CEOs or a background of creating new and successful ventures and have been investing since 2006. They choose to invest in all types of startups ranging from agriculture, lifestyle, ecommerce and internet.
They believe that choosing IAN is beneficial as they can provide financially strong investors with entrepreneurship and operational background along with tailored investment feedback at different steps. Till March 2020, IAN has invested in more than 140 startups including WOW! Momos, Druva, Box8, consure, Faballey, Little Black Book etc. As a platform, it has encompassed about 470 investors under its umbrella from 11 countries. Looking at their past investments and range of investors, it can be seen that they are boosting funding for home-grown brands and allowing them opportunities to grow. Its working has been categorised as a typical offline angel network and is found to be an interesting case due to the large amount and extent of documentation available on their website.
- Venture Catalyst
Known to be Indian’s 1st Integrated Incubator, Venture Catalyst entered the market of angel investors in 2016 with 87 investments in BharatPe, Nupay, Blowhorn, jumpstart etc. Their uniqueness stands as being an incubator and offering services to work as part of Innoworks. Additionally, it helps startups raise money from HNIs and then supports and develops them for a period ranging from 6-12 months. This platform can be said to be blooming and has made sure of the survival of startups during COVID-19. Since January 2020 Venture Catalyst has invested in 14+ startups and is marching towards closing many more deals. With such a number of investments, Venture Catalyst is surely making the headlines. They aim is to bridge the gap between metropolitan and semi-urban areas of India with a focus on Tier-II and Tier-III. Furthermore, they have facilitated Small-Medium Enterprises to manage their supply chains and any type of leakages. Venture Catalyst is working with a bigger goal in mind and the same is reflected in their recent choice of investments.
- The Chennai Angels
From identifying startups on the bases of their proposals to providing funding support and mentorship, the Chennai Angels (formerly known as the Chennai Entrepreneurship Trust Fund) do it all. Till now, they have invested in 50 startups with 10 exits and have provided funding approximately upto INR 90 crores since 2007. They aim to stand out from other competing platforms by ensuring high quality mentoring throughout the life cycle of the fundraising for the startups.
- Mumbai Angels Network
Another known platform which has gained quite the reputation is the Mumbai Angel Networks. It was founded in 2006 and its framework displays 60-70 curated investment to its members chosen from a group of 800-1000 companies which it reviews on a monthly basis. Its key investments have been in Fitpass, Purplle, Myntra, Ketto etc.
- Let’s Venture
Founded by an entrepreneurship and a super Greek Innovator, Let’s Venture is an experienced platform enabling startups to raise seed/ angel money and getting them connected to accredited investors. Their uniqueness stands in their process of execution investments by executing Packages which includes care of closure of term sheets & shareholders’ agreement along with legal and financial due diligence. Amongst all of the other, they reflect an efficient processing mechanism which attract a large number of investors under its flagship. They mean when they say that they are here to make a difference and indeed, they are as reflected from their position. The platform witnessed 10 deals being closed in January 2020 alone.
- The Collective
The AngelList, a US-based curated closed marketplace for startups and investors launched an India focused fund – The Collective in 2019 which will be investing about INR 1 Cr each in 60-80 startups annually. This fund will also give quick capital access to AngelList’s Syndicate leads. It promises to invest up to US$150,000 per deal into syndicates led by angels and VC to help grow larger while following the legacy of AngelList. They aim to provide diversified access in Indian startups along with faster investments with fund administration.
Benefits of angel network platforms
Depending upon the jurisdictional legal restrictions, administrative burdens and the financial position of the formal capital market, the structure and development of angel investments market has varied drastically. They are believed to improve the flow of operations with the increase in funding for a startup while bridging the gap between individual angels and institutional venture capitalist. They are bringing such wholesome evaluation process to ensure a high level of efficiency to deal sourcing which in a traditional format is known to be “notoriously inefficient”.
Such platforms have various ways to ensuring funding and it is not necessary that one single investor will be chosen but Angel Investor Platforms undertake several routes such as creating their own pool of capital or investor directing investing as an individual. It has been stated that investors particularly they can add value to Startups in various ways, namely:
- Ensure smooth operations by leading company board.
- Provide assistance in recruiting high-quality human resources for the job.
- Provide aid in achieving efficiency and effectiveness.
To boost such platforms and investments taken by them, Startup India Initiative was launched by the Modi Government in January 2016 to provide support to entrepreneurs and ensure sustainable economic growth in India. Under the initiative, one of the key pillars of support to Startups is ‘Exemption on Income Tax & Capital Gains Tax for all eligible startups’. The Startups are exempted from tax liability imposed u/s 56 (2)(viiib) of Income Tax Act i.e. on considerations received for issue of shares that exceed the face value of such shares. This provision is called the Angel Tax exemption provision.
In the opinion of the author, such platforms are the reason for the startups to make it through the first stage and see its actual potential of survival in the market. Securing the first round of funding without any goodwill but solely on the proposal is the standalone test of survival. The biggest advantage that such platforms provide over individual investors is that in a pool the risk is divided and even the riskier investments are undertaken which can lead to fruitful results in the future for all parties. However, there has been some sceptic views as it has been observed that only a few participants are fully able to understand the nuances of angel investing concerning the rate of return and balancing a portfolio. The trend which has been observed that where there is a glut of a new angel investor, industry veterans are trying to restrain their investments accordingly.
The Indian scene for startups and funding has drastically grown and has tried to bridge the gap between the capital market until the development of the VC and private equity industries. The major benefit available to the macroeconomy as a whole is the promotion of entrepreneurship in the nation and therefore, the Modi government has introduced schemes or provisions to faster the procedure.
Each platform discussed above exhibits something new and unique either in the terms of its procedure or pool of investors or investment mechanisms. Indian Angel Network, Chennai Angel Network or Mumbai Angel Network are some which have been around the block for some time and now with the launch of The Collective, all eyes have been on this. Startups have been patiently waiting to see the success of this platform because of the goodwill gained by AngelList.
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