Anushruti Singh
There could not be a better time for Indian start-ups than the present.
In the first three quarters of 2021, 371 new companies attained unicorn status. In fact, India added 33 unicorns to its kitty this year.
If we talk about funding, for the first time, funding into Indian start-ups has crossed US$ 10 billion in a quarter (Q3 CY21) across approximately 350 deals, as estimated by PwC. With accelerating digital adoption, start-ups are coming up with newer solutions that fit into today’s paradigm. Thus, making it a lucrative proposition for investors.
Angel investing has grown across many key metrics. Angel investors not only provide quick funding with their own money, but also provide management support. Ankur Mittal, Co-founder at Inflection Point Ventures (IPV), an angel investment platform, is one of them. According to him, there is “buoyancy and positivity” in investor sentiments and the investment outlook towards start-ups, as angel funding has emerged as a viable investment alternative over the traditional modes of investing.
In the last one year, IPV has invested in over 50 start-ups and is now looking to invest in up to a dozen start-ups this quarter. In a conversation with SME Futures, Mittal tells us that angel investing is going hand in hand with the growing Indian start-up ecosystem. “Earlier, angel investing was only for the rich, but it can now be accessed and experienced by most. Also, other asset classes like FDs, gold, and real estate have not given as high returns in the past 8-10 years,” he says.
Furthermore, Mittal advises potential angel investors to analyse all the risk factors carefully before getting into angel investing and to focus on their circle of competence while investing. However, according to him, the appetite for start-up funding remains healthy, and more and more investors are recognising start-ups as viable investment alternatives.
Edited Excerpts
The term ‘Angel investor’ implies that when no one believes in your idea, they come forward to invest in it without requiring any prior proof of its viability or profitability. Despite being a risky investment option, it has currently become a fad and even the aam aadmi with money can become an angel investor. In fact, an IVCA report found out that the number of deals made by angel networks is constantly increasing. What are your thoughts on angel investing taking off, and what factors have buoyed the expansion of this space in India?
The start-up ecosystem in the country is expanding exponentially.
With a lot of innovative start-ups entering the space, the interest of the investors is strengthening. These new start-ups are solving the problems of many, making their lives easier and better, and hence more people are coming to know about them.
While more widespread, start-up investing is still not an aam-aadmi thing due to a lack of information and accessibility. If I talk about IPV, we have democratised angel investing by having the ticket size as low as Rs. 2.5 lakh and improving the information flow. Earlier, angel investing was only for the rich, but it can now be accessed and experienced by most. Also, other asset classes like FDs, gold, and real estate have not given as high returns in the past 8-10 years.
If one is aware and mindful of the risks involved in start-up investing, angel investing as a new asset class gives the most promising returns on an inflation-adjusted basis. People are now realising the returns start-ups are offering and hence the constant increase in the deals made by angel networks.
However, nothing can compensate for the deep due diligence that is required in making an investment decision and that is an area of strength for IPV, and it continues to the strong post-investment support that we as a network provide to all our start-ups.
As you mentioned, wealthy investors are choosing start-ups as an asset class, and those investments, despite being risky, have become a “big thing”. do you think current stock market sentiments are a factor? How many of you have invested?
Start-up investing can be risky if done without proper due diligence. IPV’s two key pillars– strong upfront due diligence and stronger post-investment support help us chip away at the reasons for failure, thereby significantly de-risking the investment.
So far out of 100 start-ups, only in two start-ups, have we not been able to return the capital to the investors. At the same time, there are 10+ exits (realized IRR of > 100 per cent) and another 20+ follow-ons. Earlier this year, we saw BharatPe giving 80X returns to some of its earliest investors, including IPV investors. The public listing of Zomato, Nykaa, PayTm and Policy bazaar has brought start-up investing into the spotlight for the right reasons. Strong returns generated from equity markets are also finding their way into private markets. Every investment has a risk-reward ratio and investors need to understand their appetite and act accordingly.
Also, most of the angel investors are HNIs, but the new angel investor cohort has an interesting mix of HNIs from non-metros, CXOs, and even professional employees. What is your observation?
This is a tremendous shift that has taken place and it is a much needed one. Start-up investing is an important avenue for wealth creation and should be accessible to a wider base. It is amazing to see investors from all over the country, even tier 2 and tier 3 cities, coming together and investing in start-ups, helping themselves and the start-ups to grow.
Also, with IPV, all investments and communications take place online. We have always been digital-first, even before the pandemic so we already have people logging in from different parts of the country and even from overseas. And with the low-ticket size of each investment, many professionals especially those who have worked with successful start-ups, are donning investors’ hats bringing with them the insights and experience that help new entrepreneurs grow.
Another recent trend in angel investing is the emergence of accredited investing portals. What’s the objective, how do they work, and how can start-ups leverage them?
Angel Investing platforms act as a bridge between the investors and the start-ups so that the investors can stay informed about the new start-ups entering the ecosystem and willing to raise funds; and at the same time help the start-ups with a platform to pitch their ideas instead of finding investors and scheduling time with them.
Inflection Point Ventures takes care of investors and founders’ time. We are investor-focused and founder-friendly. We do thorough due diligence of the start-up and present the same to all the investors, post which they take a call to invest in that start-up. We organise quarterly reviews so that the investors and start-up founders can interact well. We also organize meetups of our portfolio start-ups and VCs to create synergies for their next funding rounds.
Geographical proximity is no longer a major investment criterion. Also, market data indicates that more and more angel investing is happening from overseas locations. Can you elaborate on the various implications that can be derived from this development and how international investors are investing in Indian start-ups?
Geographical boundaries are ever shrinking in a digital world. With one of the youngest demographic populations in the world, high growth potential, and a relatively friendly regulatory and business environment, India is bound to be a hot destination for international investors, who see the Indian start-up ecosystem as a good space to be a part of. They are aware of its growth trajectory and are hence active on the investing front.
What are the other prominent recent trends that you are observing in this space and why?
The industry has witnessed a spurt of fintech, healthtech, e-sports, and edtech deals in the initial phase of the COVID-19 pandemic. Investors were looking at deals that would sustain well during a crisis like the pandemic.
Start-ups like SoStronk and Oga which help their customers play and work out online, with the former being acquired by Dream11 saw good interest. The funding scenario is a lot more widespread now with funding across sectors, as every business has developed an operational strategy for the post-COVID world. We have also seen sustainability given due importance with start-ups like BluSmart, Buyofuel, CercleX and Kazam entering the mobility sector.
What are the golden rules of angel investing, or what are the factors that influence angel investors’ decisions to invest?
Investors should realise the constraints in private market investing. They should know their risk appetite well before getting into angel investing and should focus on their circle of competence while investing. When properly done, barely any other asset class can generate the kind of returns angel-investing can.
When selecting the start-up, investors need to do thorough due diligence on the start-up’s founders, for they are the pillars of the start-up. Their business idea should be one for which a good target audience exists, and it should continue to grow. A passionate and visionary founder with a good vision attracts investors’ attention. Along with this, a good management team strengthens the investment conviction of an investor. We believe in investing in great founders, good ideas, and attractive valuations.
