Angel investing in India is broken. Here’s how AngelList wants to fix that.

Photo credit: AngelList.

Angel investing in India has grown popular in recent times, but it’s still a scattered process. Unlike in the United States – the mecca of all things tech, startups, and funding – very few angels in India are themselves tech entrepreneurs, which means they are often in the game only for the money. China has its own problems as well.

AngelList, founded by Naval Ravikant in 2010, is hoping to change that. The Silicon Valley-based company helps entrepreneurs and investors connect, building a network where they can collaborate with peers and experts across the world, drawing on each others’ expertise and experiences. It also has a jobs service where companies and candidates can connect directly, without middlemen.

“Angel investors in India are not happy because they aren’t seeing good exits,” says Utsav Somani, AngelList’s India head of operations. “That is the primary concern most of the people have. About 60 percent of the angel investors of the current crop in the country have only been investing in the last two or three years in a super accelerated way, and they are waiting for liquidity.”

In August 2016, the company announced that it will let accredited investors create funds to invest in Indian startups. (Accreditation works differently in different countries: in India, the Securities and Exchange Board of India (SEBI) defines the terms).

Angel investors are not happy because they aren’t seeing good exits.

AngelList hasn’t officially rolled out its syndicate in India yet, but the country is already the company’s second biggest market in terms of numbers for talent searches, Utsav says. There have been 500,000 “matches” so far on its sites and apps. A “match” is when a company and candidate connect; it doesn’t necessarily mean someone was hired.

Utsav says the company is still working out the legalities of operating in India, but that it’s on track to launch officially this year.

More than 4,000 angel investors from India are registered on its site. There are 750 active angels and about 450 VCs, Utsav says.

A standing criticism of the Indian startup ecosystem is that there aren’t enough investors around. This means that, once startups are rejected by major VCs, they have few options left. Most entrepreneurs don’t think of going to the bank at all, for various reasons. If AngelList’s business model is successful, it could provide a healthy alternative to entrepreneurs. The company’s product lets any accredited investor create a “pop-up VC fund”.

See: Can’t eat paper profits: India’s startup ecosystem has a vital cog missing

This works best for an investor who may find an interesting startup or a particular sector that she wants to invest in but only wants to place a relatively small amount of money into it. She can then act as the “lead” in a syndicate and pitch to other potential backers – individuals with investable money – to pool in. It will be her responsibility to figure out whether the startup is worth it and to find extra money – but AngelList will carry you through the financial aspects of the process.

Learning from peers

Photo credit: dedivan1923 / 123RF.

Angel investing has always been fraught with risks and heartbreak. In India – which lags the United States by about 10 years in startup maturity, the challenges are greater, Utsav adds. That’s compounded by a global cooling off in investing and a wave of valuation corrections taking over the startup world.

See: Why I stopped angel investing (and you should never start)

“We don’t have US$10-20 million cash exits and IPOs that are happening in the US. There, people are actually happy investing and seeing their portfolio turning around,” he says.

“[In India] we don’t have many big companies coming up and acquiring small companies, and even if they do, they are stressed out M&As which are happening only in stock. So you actually end up owning stock of a startup that is struggling. This does not give you comfort as an angel investor.”

Utsav, who was formerly with startup funding platform LetsVenture, and an angel investor himself, says the plan for AngelList is to build a community in the country, rather than chase deals by the numbers. Founders can learn from global peers who have built, run, and exited companies.

“There’s so much for angel investors too,” he adds. “If an investor here can co-invest with someone, say from the US, who has made a similar deal, they can learn and discuss best practices in terms of negotiating term sheets, and getting access to other knowledge.”

See: AngelList is bringing its syndicate funds to Indian startups – but there’s a catch

New model

Photo Credit: David Joyce

AngelList’s model would make it an alternative investment fund (AIF) under India’s securities regulator, the SEBI. AIFs are separate from public investors and creditors (entities like venture capital funds and private equity firms).

Anyone who operates as an AIF has to register for a license from the SEBI. But startups in India have always worked as a club of sorts, where introductions and personal ties are arguably the best ways to open doors. Moreover, scores of accelerators promise the same thing to young entrepreneurs – guidance, help with fundraising, teaching them how to scale, help with making connections.

AngelList’s challenge will be in cracking into that club, and convincing Indians of its open networking model. Utsav seems optimistic.

“We don’t want to steal someone else’s bread. The best leads will come to the best lead investors, and we just want to work with the top lead investors. We have 5,000 companies active in recruiting [on the site]. No accelerator is that richly connected,” he says.

What about the feared downturn?

“There are startups which will be built in this so-called downtime, which will be more realistic in their valuations, and also in their business strategies. Those are the companies you want to get into. We will see experienced angels still hunt out and select companies that have a solid business,” he adds.

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from Tech in Asia https://www.techinasia.com/angellist-india-plans
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