Networks such as Indian Angel Network equip first-time entrepreneurs best for the next stage of VC funding
The first and the fastest-growing angel investor network in India, Indian Angel Network (IAN) has tweaked the classic proverb ‘Time is Money’. Time and money to enable success seems to the conviction of this 100-member network.
In an enterprise life-cycle, angels can equip first-time entrepreneurs best for the next stage of VC funding and the presence of angel investors is near ‘divine’ at the seed/idea stage.
Angel investors create the first layer platform for VCs by investing in early stage companies and start ups.
The enterprise lifecycle has four broad phases-the idea stage, prototype/product stage, scale-up stage and finally, the expansion stage. The concept stage is when the business is an idea; at best, one that is backed by a prototype. Usually, devoid of clients and products and, typically, characterised by depleted personal funds (from traditional sources such as friends and family), President of IAN, Padmaja Ruparel says, “Angel investors create the first layer platform for VCs by investing in early stage companies and start ups”.
Angel investment is a common round of financing for high growth start-ups and accounts in total for almost as much money invested annually as all venture capital funds combined, but in more than 10x or more companies. In the US in the year 2007, USD 24 billion was invested by VCs in 4000 companies in the US while USD 30 billion was invested by angels in as many as 60000 companies. For first-time entrepreneurs in India too, seed funds are not easily available as VC firm’s valuation requires the entrepreneur to have a sizable income and growth potential and/or display a threat to existing players. Networks such as the IAN try to bridge the intimidating gap in funds- between funds that come from family and friends to start-ups and those that they could get from VCs-thus, enabling a smooth transition from the seed stage into the VC stage.
Time and money: Illustrating this, IAN’s Ruparel explains, “On an average, an angel has about USD 50000 to invest per annum. We have about 100 members therefore the investment pool at IAN is USD 5 million”. Convinced that angel investors spearhead economic development, Ruparel mentions that, “IAN is a co-investor platform, an active network that connects entrepreneurs & investors with tangible outcomes. We started three years back and since then IAN has invested in 18 companies across diverse sectors such as robotics, healthcare, IPR, hospitality, online education, Knowledge Management and telecom” also revealing that, “In the next three years we will do about 20 investments”.
Formerly known as the Band of Angels, this largest network of high net worth individuals also provides quintessential business mentoring to start-ups. Raman Roy, co-founder of IAN feels, “In the Indian market place, IAN fulfils a big gap that exists between mentoring and angel investing” and that, “Demonstrated capabilities together with some capital can act as a catalyst for a start up business”.
|IAN investment has been a significant value add for Karmic in its journey as a young and upcoming start-up in multiple ways.
Raman Roy places the network’s mentoring as a crucial support, “IAN came into being to mentor. We realized that people don’t get help and not many entrepreneurs have had the opportunity to work in all spheres of business”. Unlike a few years ago, most start-ups are launched by younger entrepreneurs with a great idea but limited experience. In most cases, they lack the knowledge or resources needed to set up and run a successful business. “What they need is expertise and experience of successful entrepreneurs who have been through the grind”, asserts Roy, who is also the founder of BPO firm Quatrro, recalling that, “in my father’s time, mentoring was there but mostly at the family dinner table.”
A recent example of effective mentorship is reflected in the case of two entrepreneurs, Jaspreet Singh and Ramani Kothandaraman who started Druvaa Software a year ago along with a partner. Druvaa developed an enterprise-level solution for data backup and protection — one that offered up to ten times faster enterprise PC backup. Singh and Kothandaraman introduced themselves to IAN which put them in contact with mentors like Rajan Anandan, Rehanyar Khan and Saurabh Srivastava.
With the help of mentors like Rajan Anandan, Rehanyar Khan and Saurabh Srivastava, the business took better shape. “Rehan helped with the business plan as well as to get the marketing and sales strategy right. It was his idea to start free product initiatives for companies with less than 25 people,” says Singh of Druvaa Software. Anandan introduced them to a number of CIOs and channel partners who they could never have approached directly. “What needs to be changed or tweaked to make it a scalable model? Is a big question,” explains Anandan. Adds Kothandaraman, “With the help of our mentors, our company achieved in 3-6 months what would have otherwise taken at least three years for it to get to. After Singh and Kothandaraman received mentoring cum funding support from the Indian Angel Network, they were able to refine their business plan and make it work.
|IAN came into being to mentor. We realized that people don’t get help and not many entrepreneurs have had the opportunity to work in all spheres of business.
Recapping IAN’s support, President of IAN Ruparel notes, “IAN helps to evaluate first-time entrepreneurs’ business plans and helps them structure and validate their business ideas. The vetting of propositions and review of business model and strategy is done by the investor members themselves”. A sustainable support provided, Ruparel reiterates, “IAN hand holds investees right through the investment process and offers help if needed even post investment”.
The IAN model: Typically, a group of individuals who are members of the network pool their resources and invest in a startup, creating enormous value for all stakeholders. “All our deals are based on pooled funds and shared deal flows”,explains Ruparel, “and the network of angel investors looks at investing USD 100,000 to about USD 1 million, exiting over a 3 to 5 year period through an IPO, M&A or strategic sale. The Network may consider investments over a million dollars but is likely to do so through syndication”.
IAN member Sunil Kalra agrees that, “As an investor, IAN brings immense value by giving me an option to look and evaluate business plans from across sectors and hedge my risks along with co-investors”.
Undeterred by global recession, IAN has had no perceptible change in the deal flows. In the past six months, this network of angel investors has completed three deals, one of them being that of Kwench Library solutions in which a few IAN members have invested. Kwench’s value proposition is that it will enable companies to provide their employees access to thousands of book titles - with no capital expenditure, no administrative effort and no physical space.
Mitesh Damania, co-founder of Kwench speaks about IAN’s investment, “It is smart money for Kwench. It is an investment that comes with a wealth of experience, huge potential for building our client base and most importantly, brings valuable guidance as we build this nascent venture. Working with IAN has helped us access the “distilled” wisdom of our investors who are themselves successful entrepreneurs. Factoring in their rich external perspective, we have been able to crystallise our thoughts better”.
|It is smart money for Kwench. It is an investment that comes with a wealth of experience, huge potential for building our client base and most importantly, brings valuable guidance as we build this nascent venture.
Experience of investee companies such as Druvaa Software, Kwench and Karmic Lifesciences brings out IAN’s value proposition clearly. IAN addresses common pain points of most first time entrepreneurs by providing the first tranche of money for their entrepreneurial journeys to take shape, and to grow these ventures for VC investment. Added to this, their first level of professional money is from people who have operationally been very successful. In Ruparel’s words, “These angel members are signing a cheque and this is no selfless act of giving. This, in turn, is invaluable to new entrepreneurs particularly during the vetting process when they get direct, constructive feedback and suggestions from domain leaders that are investing in their start ups”.
Angel investor Sunil Kalra’s views further reiterate the success of IAN. Kalra avers, “IAN is a unique proposition which, unlike other funding networks, provides extensive mentoring and handholding in business operations”.
IAN’s investment parameters: IAN members look for businesses that have high barriers to entry and considerable growth potential. The quality of the team that possesses multiple skills is a differentiator and rated higher than their business idea. And finally, entrepreneurs who can provide evidence of the validation of their concept and particularly those who have begun to engage with the market have a stronger proposition. Needless to mention, IAN members are likely to invest in business ideas where they have the ability to add value, given that this network seeks to add value not only through financial investments but by providing strategic direction.
Future of angel investing: Sharing a recent experience with IAN’s business idea campaign, Ruparel says, “When IAN organised an idea campaign, our guesstimate was that we would be approached by 5000 ideas. We were astounded to have 12000 business plans presented to us in a period of just 32 days! I am convinced that in the next 5 years we should see many more angel groups in the country and an exponential growth in the number of entrepreneurs in the country. Angel investing would be a well established alternate asset class in investment portfolios and hopefully the government will formulate policies to encourage investments in young start-ups, which are, as such, excellent employment generators. Angels invest in innovative companies and going by the way IAN’s membership has grown across the globe, India promises to be the next innovation destination”.
Given IAN president Ruparel’s experience with angel investments, the entrepreneurial ecosystem in India is expected to witness exciting times ahead.
With her rich media background, Irawati Gowariker has led strategic communications for the IT arm of HSBC and ANZ in India. Irawati now ‘dares’ to go beyond large multinationals to tell the story of some Indian entrepreneurs.
Philip Anderson is INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Centre for Entrepreneurship and Director, 3i Venturelab
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