MUMBAI: Angel investing – affluent individuals providing capital for startups – has been the preserve of serial entrepreneurs. But increasingly, wealthy businessmen and senior executives from a diverse range of industries are joining them and, in the process, reinventing this high-risk investing segment.
Anand Ladsaria, 53, exports spices and fragrances through his company, Everest Flavours. He has invested Rs 10-25 lakh each in around 20 companies operating in new-age sectors like education, mobile application development, and retail services. “This started with curiosity,” he says.
“But later, I realised the dreams of these entrepreneurs mirror the possibilities for the Indian economy.” On the tenth floor of Dalamal House, a swish office at Mumbai’s Nariman Point, Karan Singh, the director of ACG Worldwide, a packaging products maker, is overseeing a shift in the investments made by his company and him personally.
The 30-year old has made 20-odd investments under the ACG brand and five personally. One of them, Apalya, a white label mobile video aggregator, was a “wildly successful” exit, he claims, and that has made him hunt even harder for similar blockbuster deals. The other companies in his personal portfolio include Onward Mobility, a mobile application developer, and Asiatic Clinical Research, a clinical research organisation.
Nascent Ecosystem in India Gopinathan Padmanabhan spent three decades in the IT industry before trying his hand as an angel investor. The executive vice-president and head of global delivery for MphasiS, an IT services outfit, has invested in three companies, including one producing streaming media content for mobile phones.
Rafique Malik, the chairman of Metro Shoes, claims to have exited mKhoj, mobile value-added services vendor, with a 25-fold return on his investment. This has emboldened him to hunt for more deals, including outside his areas of strength. “I spend one day a month with my portfolio and am open to new opportunities,” he says.
He has also invested in Serial Innovations, a provider of defence technology products, and Asiatic Clinical Research.
Angel investors, typically, invest as little as Rs 10 lakh in start-ups and also spend time mentoring entrepreneurs in their portfolio. Typically, They bet on the pedigree of an entrepreneur and the growth rate of his or her business.
In the United States, angel investors have mainly comprised serial entrepreneurs or venture capitalists who can help wannabe entrepreneurs flesh out a business plan to reach target markets and groups. In the US, there were about 61,900 angel investment deals in 2010, according to the Centre for Venture Research.
In India, that number in the same year was barely 500, says Sasha Mirchandani, founder of Mumbai Angels. Groups such as Mumbai Angels often pool their monies and invest in promising start-ups. This yawing gap can be attributed to India’s nascent entrepreneurial ecosystem, where there are few serial entrepreneurs to guide greenhorns.
Alok Mittal, managing director of Canaan Partners, a venture capital fund, and an active member of IAN, says the immature start-up ecosystem is driving the growth of the angel investor network in a different direction. “In the US, successful entrepreneurs dominate,” he says.
“In India, it’s a mix of entrepreneurs and executives. “Angel investment clubs such as the Indian Angel Network or Mumbai Angels are seeing a flood of senior executives signing up to fund and advise an assortment of startups. They are hoping to cash in on the promise of a segment that, for the moment at least, promises higher returns than conventional asset classes such as equities and real estate.
This growing interest in joining the angel investing bandwagon can be seen with the demand for membership at Mumbai Angels, which had 80 member two years ago and today has around 120 members. The forum is now taking a breather in new membership to organise itself better, by grouping its members by industry or by verticals, and by providing expertise to its portfolio.
Mirchandani says there are 120 people waiting in line to become members. One of them is advertising industry veteran Ravi Kiran, who first approached Mumbai Angels in December 2010 to become a member. “I have attended three meetings of Mumbai Angels and informally advised four companies,” he says.
The former Lintas and Starcom honcho would like to leverage his two decades of industry expertise to guide start-ups. Over at IAN, membership has swelled to around 170; its Pune chapter, launched a few months ago, already has over 20 members.
The growing interest among professionals in angel investing has convinced Ravi Krishnappa, a VC industry veteran who cofounded Erasmic Ventures (later taken over by early-stage VC Accel) to assemble a loose coalition of professionals to take a crack at angel investing.
The group is trying to break away from the conventional VC business model: keeping 2% of the funds raised for administrative expenses and 20% of returns for partners and analysts at the firm. It is looking at a leaner business model, where Krishnappa and his associates do their own due diligence on a small number of deals.