The changed landscape for angel and venture funding in India

I got mixed responses to my post on What should you really have ready before approaching me as an angel investor? yesterday. The comments on my blog and email (yes, I get email responses to my blog posts) were mostly from entrepreneurs who understood the changed landscape. The comments on my facebook stream from entrepreneurs indicate that my post was bordering on being a venture investor. So, I thought I’d clarify.

The landscape has dramatically changed from a year or two ago when companies got angel funding in India (and I suspect all over the world).

What’s changed you ask?

a) Accelerators and Incubators have increased startup quality. Friends Nandini & Sammer (Morpheus), Pranay Gupta (CIIE), Vijay Anand from India and Dave McClure (US) are doing such an excellent job with accelerating startups that angels are spoiled for choice. A company after having been through their program is a lot more ready and further along the process than others.

b) Angel List, VentureSutra, etc. have made an opaque, fragmented market more open. I get proposals from Israel, US and India for angel investing from companies at various stages now much more efficiently than used to 5 years ago. Previously finding good entrepreneurs was mostly relegated to networking at events or through word-of-mouth. No longer. I took myself off these lists (lack of time) because of the number of requests I got from very high quality entrepreneurs..

c) Global competition from higher quality companies. Fellow angel investors such as Pallav and Abhishek (Seeders) and Ravi Trivedi are seeing this also. We get proposals from companies in the US (started by Indians or native Americans) or from Israel (started by locals) a lot more. Indian entrepreneurs (and angel investors) are competing on a global scale. The quality of entrepreneurs is tremendously high and the bar has been forever raised, I believe.

If you are an entrepreneur competing for funds, you no longer are competing against other startups in your domain or geographic area.

So, what is the difference between an angel investor and venture capitalist now is the next question?

I believe there are 3 things:

1. Quantum of funds: If you are an entrepreneur who wants to dilute less and needs less money to grow (for any number of reasons), and your ticket size (amount you need to raise) is less than <$500K, you are more likely going to an angel. It does not stop you from going to a Venture Investor, but the size of the funding means the VC is less likely to give you significant time.

2. Size of market opportunity: There are several opportunities to get exits via smaller acquisitions in the range of $5 to $50 Million. These dont excite most VC’s, but might excite an angel investor.

3. Ability to provide you relevant network and connections. Angels’ who have domain expertise in your startup’s area of focus have depth of relationships which VC’s might not (they have breadth instead).

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2 thoughts on “The changed landscape for angel and venture funding in India”

  1. Mukund, I have been a recent reader of your blog posts and find them very interesting. Thanks for sharing your candid opinions.

    Being an entrepreneur, I am often intrigued by relatively sad state of angel investing in our country. While one often comes across stories of startups raising couple hundred thousand dollars in angel investing in US, this is rarely the case in India. [Angel investing in US topped $ 20 billion in US in 2010 – http://nyti.ms/oTkj17%5D.

    While I agree with various arguments including yours of global competition (which may be particularly true for angels like yourself and few others but not really for everyone), lesser cost of go-to-market in India, presence of incubators & relatively fewer entrepreneurs who really understanding the e-commerce space, I really think there is more to it. In my view, it is perhaps also because of lack of social security or trust in our country. It seems really hard for people to trust someone else with their money (an entrepreneur who they personally don’t know already). I don’t know if it is true in US but all entrepreneurs I know who’ve received angel rounds in India have either had great exits before (proven track record) or known investors prior to startup or leave an exceptional room for anyone who has seen crazy amount of initial traction. Most successful ecommerce startups in India had to rely on strong financial support of their friends & family instead of angels, something that is rarely true for their US counterparts.

    Would love to know what you think but personally to me, it feels like the the social structure or money mentality of our society also has an impact on angel funding scene.

    1. Hey Simran, Very good point and I think you capture the gist of most conversations that I have with other angel investors. This and the fact that many have alternate investment choices which offer more predictable rewards with less risk. Thanks very much for the comment.

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