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Indian Angel Network (IAN) is one of Asia's leading business angel investors' networks, with about 225 business angels investing in start-up and early-stage ventures. IAN has funded 47 start-ups across multiple sectors such as IT, mobile, healthcare, and education. In 2011, it invested $8 million in 11 start-ups. In 2012, it funded 14 companies, totalling $11 million. Padmaja Ruparel, president of IAN, speaks to Reghu Balakrishnan on the company's initiatives to support start-ups in India. Edited excerpts:
How did the concept of angel investments take shape in India?
While entrepreneurship has been encouraged for the past couple of decades in India, they have been handicapped by the fact that no seed or early-stage capital was available. After the initial round of money (raised from the 3Fs - family, friends and 'fools' or those willing to take the risk), no banks or very early-stage funds provided capital to these first-generation, middle-class entrepreneurs.
This is the gap angel funding fills. It brings the first level of seed funding, ranging from Rs 5 lakh to about $1 million (about Rs 5 crore) to these ventures, and rides the same risk as the entrepreneur. Angels, who are majorly first generation, provide mentoring, strategic thought leadership, bring credibility and leverage their networks for the growth of these enterprises.
How did the changes reflect in entrepreneurships in India?
Angel investment has encouraged many to take the entrepreneurial path, as they now have an avenue to raise the first round of non-collateralised funding that was not available earlier. Entrepreneurs can now leverage angel groups or investors for their networks to build hockey-stick growth companies (firms experiencing massive user growth in a short period of time). Also, banks are now providing debt funding to angel-invested companies, a clear recognition of the value of diligence, mentoring and credibility of angel investors.
Which are the major changes you have seen in entrepreneurship in India?
Young entrepreneurs are confident of trying their hand at creating high-growth companies and many have succeeded in creating globally recognised companies like Hungryzone and Druva. We are also seeing that gradually the acceptance of failure is increasing - this is critical for entrepreneurship, as failure is part of an entrepreneur's journey. Finally, we at IAN are seeing the entrepreneurship bug permeate to Tier-II and Tier-III cities. That Aurus Network started in Bhopal, Vayayvya labs bred in Belgaum and Rankjunction was based in Nagpur, all IAN investee companies, endorse this point.
Are more ideas coming from students or drying up?
We at IAN have witnessed a huge upsurge in the number of inquiries from students seeking funding and mentoring for their ventures. In the past year, we have interacted with over 2,000 students, with diverse academic backgrounds. Incubators and angel investors are also associating as angel partners for student contests of various academic institutions like IIT Bombay, IIM Lucknow, IMT Ghaziabad and many others. We have observed the quality of such business ideas coming from the student community is high. Some of the ideas are credible enough with relevant IPs (intellectual property rights) in place.
What's the concept of an IAN Incubator and how does it help an entrepreneur?
Innovative entrepreneurial ideas have to be fostered and developed in a supportive environment before they become attractive for funding. The IAN Incubator helps entrepreneurs or start-ups to sharpen their business proposition, identify their customers and markets, and tweak the technology to be user functional.
This helps pivot the venture to a more investible one. IAN believes the mentor is key during the seed/early-stage of the venture and has modelled its incubator to make this central to its incubation. IAN established this in partnership with the department of science & technology, Government of India.
What major hurdles do angel investors in India face?
Angel investing is critical for the country and is a free-flowing activity around the world. Incubation is critical to breed new ventures. However, the angel tax/Sec 56 ruling will hamper the fledgling industry and entrepreneurs.
While the government has suggested that angel investment can gain tax exemptions through the Securities and Exchange Board of India's alternative investment funds (AIF) category-I rules, it is still unclear how angel investments, individual investments, and category-I AIF rules, which relate only to pooled investment managed by the asset manager, will reconcile. Long-term capital gains (more than 12 months) on publicly listed shares are at zero per cent, while unlisted early stage companies are taxed at 20 per cent. Angels invest at the highest risk stage of companies and are paying tax. It is necessary to align gains from angel-invested companies to gain the same benefit of zero per cent of listed companies.
What's your view on the new angel groups - Mallu Angels, Biotech Angels?
This is great. We do need more and more angels as they will increasingly breed new and better entrepreneurs. Sector-focused angel groups will bring deep domain expertise for the entrepreneurs. IAN is very supportive of new angel groups and happy to support new groups as it has done in the past.
