“Has that horse bolted” – State of angel investment in India

Sumanth posted this comment on my earlier post regarding 2013 predictions for startup ecosystem in India. The topic interested me enough to write a full post on the subject of where angel investors seem to stand in the ecosystem. I write this post as one member of angel investment community in India.

First, an anecdote – I got a call from a very dear and active angel investor friend couple of weeks back. He is one of the better performing angel investors in the country. The concern in his voice was evident. His question was direct – “I have heard that VCs have stopped backing ecommerce companies in India. What is your view?” I tried explaining to him that Canaan is still keen to look at exceptional ecommerce companies, but this question captured the state and issues with angel investments in India.

1. In relation to the kind of companies angel investors are backing, i.e. companies which will need more capital in the future, not to thrive but just to survive, we remain critically dependent on the health of venture capital. Ecommerce is an extreme case in point, where large amounts of follow-on capital are required. However, even in lesser capital intensive models, requirement of follow-on capital is critical. Hence it becomes very important for angel investors to anticipate the health of venture capital industry 12 months down the line.

2. The venture capital industry in India is relatively small. And besides sporadic instances of “spray and pray”, it has mostly remained tight and focused its resources on one or two bets in a given area. That means that not more than 3-4 companies in any given space get to Series A. Angel investors need to understand this dynamic, and hence not just look at whether a company could build a good business, but also whether it has credible chances of raising the next round of capital to get there. A small VC industry also poses the issue of volatility – couple of VCs talking about an area being over-invested in enough to create a sudden negative sentiment.

3. The angel investment community in India lacks diversity of viewpoints (as does the VC industry, but that is harder to fix and will take more time.) In another discussion with a fellow Indian angel network member (a group that I co-founded and am proud to be part of) my biggest concern with our model has been that in spite of being a 200-angel-strong group, we appear like one to the entrepreneur – we are a monolith as far as assessment of opportunities is concerned. That leaves very few doors and very few perspectives for the entrepreneur to tap into. There are probably 10 other significant angel funds/groups (not counting accelerators and incubators, which tend to supply far lesser capital.) So while collectively, India may have a thousand angels at work, we represent 10-20 decision points. That is too low to trigger innovation.

No doubt, the situation is improving. However, I think of the current period as somewhat of a moment of truth for angel investment community. Is the Indian angel investor ready to lead? Are we ready to step up to the plate and make bets that we know VCs don’t like/understand today? Are we simply going to follow what we expect VCs to do 12 month down the line, or are we going to show them the way? Is our vision going to be just about the next round of financing, or creating truly great companies?

I do not imply that none of the angel investors are doing what it takes – many are, more need to. However, just like entrepreneurs don’t build businesses for angel investors, we can’t back businesses for VCs.

Angels, show me the way.

5 Responses to ““Has that horse bolted” – State of angel investment in India”

  1. Madhu K says:


    Great insights. I think we can also look back at 2012 as the infliction point in angel investing. This was the year angels really came out and started investing aggressively in companies. Yes we’ll see a lot of companies not make it but isn’t that the spirit of early stage investing – to have a multiple entrepreneurs compete and the best ideas & execution win. This would not have happened but for angels supporting these entrepreneurs. So I appreciate all the angels out there including IAN.

    I agree with you that the angel investors and entrepreneurs need to look beyond the 6-12 months and support the companies accordingly.

    On ecommerce I think we are at such a nascent stage vis a vie traditional retail, that the winners in the space maybe companies that are not born yet. I

  2. Brian Cohen says:

    I just came across your post. I’m traveling through India with my family on vacation (now in Agra) and will be traveling here through Sunday.

    Your post is quite insightful and to some degree mimics the conditions in the United States. There is much to understand about this topic that relates to the fearful and amateurish nature of these investors.

    I have found that if you drive angels to get much more serious about their angel investing by improving their smarts about their investing strategy their leadership and professionalism dramatically improves!

    Anyway, happy to offer any insights I can.


    Brian Cohen
    New York Angels

  3. Alok Mittal says:

    Sumanth – so far, that has been true. I do not see a particularly negative sentiment towards that, and in my view those kind of exits may continue to happen. However, those exits might not be the big payoffs, so hopefully over time angels can continue to stay invested and create big outcomes.

  4. Prasoon Gupta says:

    Great post,especially the articulation of thoughts into words.
    As an entrepreneur, I can not agree more with you as a lot of doors for innovation are closed for entrepreneurs when there are limited decision points. Also, the whole process of pitching to angels become less learningful as inputs are either similar or limited.

  5. Sumanth says:

    Thanks for sharing your insights.
    One great take-away from this post is that it seems like Indian angels see their investee companies going on to take a VC round as their primary exit route – is this an accurate way to see this dynamic?
    I know that the success stories mentioned by angel groups usually reference companies like InMobi and Druva who took large follow-on funding from VCs and gave exits to angels at this point of time but I would have thought that these are outliers, where the exit was realized in an unnaturally short period of time since the original angel round, rather than the expected or targeted outcome for an angel investment.

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