Angel Investing 101: The Indian Story

Sushanto Mitra, Founder, Lead Angels Network
Sunday, November 6, 2016
Sushanto Mitra, Founder, Lead Angels Network
Headquarterd in Mumbai, Lead Angels provides a platform for angel investing and supporting to early stage companies, the entity's members consist of top notch entrepreneurs, successful angel investors and consultants who have been advisors to high growth companies.

That India is a land of wealth and opportunities is now a fact few will dispute. Yet India continues to be a country where lack of money keeps many interesting business ideas to flounder. In the USA, there are over 900 angel networks and almost a million people who invest in early stage companies. Even in smaller countries like Finland, Israel and Estonia whose population is fraction of our metros, the numbers of angel investors are almost equal to their estimated number of 2000 angels in India.

Angel investing is a phenomenon which started off in Silicon Valley in the sixties where entrepreneurs of technology companies started invested in upcoming startups as well as providing them mentoring support. Companies like Google, Yahoo and Uber are among many who got funded by angels and have become icons of their times. In essence, angels leverage their unique expertise to evaluate value and provide post funding support to their investments. Angels make money when the companies they invest in are acquired or subsequent investors wish to buy them out. Studies have shown that over the long run returns from such investments are similar to that of other alternative funds such as venture funds and private equity funds. Given the high mortality rates of startups, risks of angel investing are high but with a portfolio approach and through business evaluation, risks can be managed. At the same time, most investors in startups make sure that such investment forms only a small part of their overall financial assets with a larger share of other asset classes such as debt, listed equity and real estate among others.

Apart from pure returns, angels also look at angel investing as a means of educating themselves of the new business practices and also giving back to society by helping entrepreneurs who are creating new jobs and contributing to the economic growth of a country.

As the individual angels noticed that it was a huge task of looking for startups, evaluating them and then mentoring them, groups of angels got together to form angel networks to co-ordinate their activities and also to delegate some of the administrative functions to the secretariat. Slowly but steadily, individual angels have now given way to majority transactions being done by networks. Of course, there are individuals who continue to invest on their own but their numbers are not growing as benefits of an angel network far outweigh the lone angels.

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