What does angel investing have to do with Broadway, the theatre district in New York City? It is where angel financing of start-up entrepreneurial initiatives started. In the 1920s, patrons of art started financing the first Broadway plays; now, people from across the globe opt for pilgrimages to Broadway.
Through the past decades, angel investing has assumed wider dimensions, leaving firm footprints on different sectors of the economy. In some countries, most notably the US, this has unarguably become the most important source of supporting exciting business ideas of first-generation entrepreneurs. Had angel investors not been hand-held, many ideas that germinated in the minds of fresh graduates, as well as college dropouts, and which later became successful business ventures, would have perished. Their other engagements, however, haven't led angel investors to abandon art and culture. Academy award winner Goldie Hawn was an angel investor in Private Benjamin, a 1980 film in which she played the lead role.
Like other financing agencies, angel investors are selective about ventures to support, going through the routine drill of project evaluation and due diligence. It is clear angel investors want good returns on their investment in start-ups and their support in helping businesses mature. All such investors have done well as businessmen and professionals, and they are driven by a sense of benignity.
Angel investors from the US, where they are seen as a major growth engine for the economy, investing in India, where they are seen as a movement, nurse a passion to enrich the entrepreneurial base; they find accomplishment in the success of the next generation, says Usha Martin Group Chairman Prashant Jhawar, who embraced angel investing. After gaining ground in the north, west and south, the movement is set to take roots in India's eastern and northeastern regions.
Though India's large young population is a demographic delight, it throws up the challenge of creating at least 100 million new jobs in the next 10 years. Though one can't expect the government and major industries alone to create 10 million jobs a year, if these jobs aren't created, instead of reaping demographic dividends, India would face a demographic disaster.
Saurabh Srivastava, co-founder of India Angel Network (IAN), says in the US, new businesses are by far the largest job creators, with a share of about 70 per cent. After the outlook for the US economy was mauled by the 2009 recession, it has started improving. And, angel investors and venture capitalists (VCs) have again become proactive as incubators of new ideas and, as a result, as creators of jobs. As the US is the world's most innovative country, it is only natural that incubation of ideas and taking these to viable business stages before angel investors and VCs seek exits with profits is so popular.
Unlike angel funding, which involves mentoring and strategic support for scaling up nascent businesses (from concept to value), VCs are seldom found providing funding for new ideas to start-ups; these prefer associating themselves with ventures at a later stage. Typically, angels support start-ups with their own money. VCs, however, manage funds pooled from multiple sources, including college endowments and pension funds. This gives them the fiduciary responsibility of earning good returns from investments, a reason why VCs insist on board positions in ventures seeking funding, along with powers to direct the course of business. A Harvard research paper says the chances of survival and success of angel-funded start-up ventures are higher than those of enterprises relying on other forms of initial financing. The reason could well be the fact that angels come with a package, and funding an idea is the most important aspect of this.
IAN has funded start-ups in segments such as information technology, healthcare and education. Here, angel investing is seen at early stages. Some angel investors should look beyond urban centres---into farm and dairy operations---to start funding ideas relating to value addition and marketing. Agriculture, which accounts for about 14 per cent of India's gross domestic product, deserves the attention of investors who claim to be motivated by factors other than commercial returns. Migration to urban centres could be checked by creating rural jobs that fulfil the aspirations of the new generation from families involved in agriculture.
Isn't Amul playing the role of an angel investor, motivating the youth not to abandon traditional family professions by enabling a transition into commercial and scientific dairy farming and securing for them rewarding procurement prices for milk? Industrialist Sanjiv Goenka says, "Funding and mentoring are about believing in ideas. Capital will, all the while, be chasing ideas, irrespective of where they originate." Though Goenka has a "legacy to protect and a heritage to enrich", he could be a perfect foil for angel investors by asking his group companies to buy services and products from start-ups without compromising the quality of procurement. He could be a trailblazer for other major groups.
CALLING ALL ANGELS
- In countries such as the US, angel investing has become the most important source of supporting exciting business ideas of first-generation entrepreneurs
- Angel investors are selective about ventures to support, going through the routine drill of project evaluation and due diligence
- A Harvard research paper says the chances of survival and success of angel-funded start-up ventures are higher than those of enterprises relying on other initial financing
- Agriculture, which accounts for about 14% of India's GDP, deserves the attention of investors who claim to be motivated by factors other than commercial returns
