More Than Just An Angel

What happens when new-age investing meets age-old Ayurveda? You create a new formula for success. Ameve Sharma has been able to do just that with Kapiva. The third-generation scion of one of the country’s oldest business houses, the Baidyanath family, is running an over ₹100-crore business in less than five years. “We found the need for a lifestyle brand, rather than the traditional Ayurveda approach of Baidyanath that is built more on curing ailments,” says Sharma.

The 34-year-old has been able to create a niche for himself thanks to the rise of angel investors. In 2018, Kapiva managed to raise seed funding from former Infosys chief financial officer T.V. Mohandas Pai, the Gilani family of Gits Food and former Reliance MF chief investment officer Madhusudhan Kela. “I was very clear that I did not want to run a typical business but a more professional one. Getting outside investors brings in a lot of accountability and governance, I was very keen on that right from day one,” explains Sharma, whose start-up has raised over $16 million in three rounds of funding thus far.

Angels And Start-ups

The likes of Ameve have been able to give wings to their dreams, thanks to the proliferation of angel investors. From just a handful of individual investors more than a decade back, India is now home to a 26,500-plus bustling angel investing community, comprising successful entrepreneurs and private investors. A long-term game, angel investing is now becoming mainstream in India — partly owing to the successful listing of startups in the capital market, but largely on account of a maturing ecosystem.

While the universe seems large, to get a sense of who the active investors are, Fortune India sourced from Traxcn, an analytics platform that covers start-ups, the top 100 active angel investors by the number of rounds they have participated in, along with the cumulative amounts that the start-ups have raised (See: The Top 100).

Interestingly, a look at the top 100 angel investors’ portfolio reveals investments in 3,231 start-ups, of which 634 are common, which means some of these angel investors would have participated in the same company. But what’s pertinent to note is that these start-ups have cumulatively mopped up close to $13 billion in investments. That angel investing is in turbo mode can also be gauged from the fact that ₹746 crore was raised in seed funding deals in CY21 alone, an all-time high.

“Fourteen years ago, start-ups were seen to be strugglers, not creators. But today founders of start-ups and their teams are seen as creators and that is a fundamental change from the past,” says Kunal Bahl, co-founder & CEO, Snapdeal.

Even wealth managers no longer need to explain to their clients what private equity or angel investing is. Instead they are being hounded with the question: Is there a good unlisted company to invest in?

“When I first started Waterfield, we probably didn’t see more than 1 or 2% of family money being invested in unlisted equity, today that number is almost 20%. Of our total assets under management [AUM] under advisory of $4.3 billion, 20% is invested across assets in the alternative space,” says Soumya Rajan, founder and CEO, Waterfield Advisors, a boutique wealth management advisory firm.

Currently, India is home to over 50,000-plus start-ups spread across the country, and the count is only growing. More pertinently, CY21 saw a record 44 start-ups becoming unicorns. Bahl points out that there is a pressing need for angel investing or seed investing in the country amid a mushrooming of start-ups.

“I believe that the first money into a start-up is often the most important since it determines whether the egg even hatches or not. After going through our own experience, we felt the need to support, with capital and mentorship, the next generation of founders,” says Bahl.

Not surprising that the most active angel investors are successful start-up or unicorn founders, right from India’s early unicorns, including Paytm and Flipkart, to more recent names. For instance, according to publicly available data, Kunal Shah of Cred has invested $7.1K to $55.8K in over 10 start-ups at the seed stage for stakes as low as 0.11% to 6.51%. Similarly, Snapdeal co-founder Rohit Bansal has invested in 37 companies at the seed stage, cutting cheques in the range of $13K to $100K. Anupam Mittal, founder and CEO of Shaadi.com, has invested in over 19 companies for stakes between 0.3% and 5.36%. Then there are professionals such as former Google India head and current MD of Sequoia Capital Rajan Anandan, who has invested in 22 start-ups in his personal capacity. Infosys co-founder Kris Gopalakrishnan and former CFO Mohandas Pai have been active angel investors as well. Pai has invested in 26 start-ups, including the likes of meat brand Licious and Kapiva.

The Next Stage

But, while the buoyancy in the ecosystem is evident, not all investors are cutting cheques at the seed stage.

Pai, for instance, has stopped investing as an angel investor. “My last investment as an individual investor was around 2006,” he says. The reason behind the approach is that too many small investments make it difficult for investors to keep track. “In a lot of cases, founders don’t update on what is happening with the company and then you end up with a mess in your books, where you have to write off investments,” says Pai, who is also the chairman of Manipal Global Education.

While word of mouth and ringing up friends and relatives to invest is a common practice in angel circles, Pai believes the most professional way is to invest through a fund. “You can always say I have 100-200 investments by putting in ₹5-20 lakh. You could have some investments clicking, but the right way would be to pool all the investments into a single fund and have professional managers oversee them,” says Pai. Agrees Rajan. “By pooling money into a fund, the leverage that an investor can get is much better compared to what one can get as an angel investor.”

Bahl, however, believes it all depends on the investing philosophy, and there is no one solution that can fit all. “Between me and Bansal (Rohit), we have invested in over 200-plus companies. We think of ourselves as entrepreneurs rather than investors. Our prime motivation has always been that we just want to help other founders, and by lending our name if it helps them in the journey, then what’s wrong? In our mind, we actually write off the amount and that way you can be completely unshackled in the objectivity of your advice to founders,” believes Bahl.

While the feeling of helping their fellow brethren is stronger for startup founders versus professional investors, what is common to the investing ilk is that entry level valuations are no longer cheap. “To be honest, it’s gone up quite a bit. I remember, seed-stage investments, five-seven years back, used to happen at ₹5-10 crore premoney. Now they are happening at ₹50 crore, pre-money. So they’ve gone up by a factor of 5x-10x,” says Bahl.

Pai agrees. “Investing has become more complex and because there’s a lot more competition, angels are not getting the best deal. If there is a good proposition there are a lot of people to give money,” he says. Even as angel investing seems to be getting competitive, the more evolved investors are moving up the curve — by investing in late-stage deals.

“Many investors, like family offices, have realised rather than adopting a spray-and-pray allocation approach, it makes sense to go for Series B and Series C, which is really your early stage growth. They are looking to support companies where business models are better established, and can see the growth all the way up to the IPO. One may not get 10x-15x multiples that you can get as a seed investor, but at 3x-5x, the proposition is still compelling,” reveals Rajan.

For instance, while the top five angel investors’ portfolios have 120 seed-stage deals, the same set of investors have also participated in Series A to Series H deals.

The other reason for moving beyond seed investing is that not all start-ups make the grade. “The problem today is that mortality among start-ups is very high. When it happens on the seed side, how do you write it off? So, it’s better to have a focused fund where you really invest in companies,” feels Pai. Eleven companies — BucketBolt, CareOnGo, Cozo Pet, Dazo, EmployeeSocial, GoPlannr, HushBabies, MadRat Games, Singulariti, Truce and WizenWorld — in the top five investors’ portfolio are deadpooled [startups that go bust after failing to raise extra funds]. The cumulative exposure of angel investors in these companies, as per Traxcn, stood at $7,12,100.

But then die-hard entrepreneurs know the journey is far from easy. Bahl knows it better as Snapdeal has gone from the boom-to-brink-and-back cycle. “The hardest point of a founder in his journey is when they’ve never raised any money before. Our focus has been and will continue to primarily be the first investor in companies. It’s a philosophy that goes beyond investing — it’s about keeping the spirit of entrepreneurship alive.”