JOIN USAngel investment in Indian startups hit a five-year high for the year 2015-16, as venture capital firms and existing angel investors pumped in cash to back the next wave of entrepreneurs. Angel investment in India in 2015-16 stood at Rs 113.6 crore, across 69 deals. In 2014-15, about Rs 70 crore was invested, across 47 deals.
The number of deals has been on rise with 27 in 2011-12, 32 in 2012-13 and 47 in 2013-14. While in value terms the investments have increased from Rs 34.49 crore in 2012-13 to Rs 38.31 crore in 2013-14, according to a report ‘India Angel Report 2016’ that seeks to provide some understanding of the trends within angel investing in India.
Impact of rise in HNIs
The positive trend in investment is because more high net worth individuals (HNIs) are appreciating angel investment as an asset class. Today more people are considering it as a viable investment opportunity. This has increased the valuation in angel rounds.
During the last financial year 2015-16 the angel investments touched a high of Rs 41.19 crore in the first quarter (Q1), then slumped to Rs 20.19 crore in the second quarter (Q2) and Rs 18.9 crore in the third quarter (Q3). But the investment activity picked in the last quarter when Rs 33.36 crore was deployed. Incidentally, the fourth quarter (Q4) recorded 21 deals, the highest for a quarter in 2015-16 as against 17 deals in Q1, 15 in Q2 and 16 in Q3.
The report states that an average pre-money valuation (the valuation of a company before the fund-raise) of startups increased each year from Rs 5 crore in 2012-13 to Rs 6.68 crore in 2013-14 and Rs 9 crore in 2014-15. The pre-money valuation touched Rs 9.96 crore in 2015-16 with about 24% of the portfolios being valued at anywhere between Rs 20 crore and Rs 30 crore.
Top destinations
The National Capital Region (NCR) had emerged as the preferred destination for entrepreneurs, followed by Bengaluru. The NCR and Hyderabad have been receiving a lot of attention of the angel investors in the last three years, over other cities, namely Mumbai and Chennai. These two cities have witnessed a drop in investments by value in the last three years. The NCR accounts for 36% of angel deals during 2015-16 followed by Bengaluru (20%).
Reflecting India’s place as one of the largest consumer markets in the world, business to customer (B2C) startups attracted over two-thirds of angel group investments, with consumer internet, food and ecommerce as top sectors. In the business to business (B2B) space, startups in IT / ITES and marketing / advertising sectors received majority of the investments.
Emphasis on revenue
A strong preference for revenue generating startups observed in recent years continued in 2015-16, with 71% of the start-ups backed by angel groups such as Mumbai Angels, Indian Angel Network, Chennai Angels, Hyderabad Angels and Calcutta Angels, generating revenues. Some of other sectors that have attracted interest among angel investors include healthcare and life sciences, consumer services, education, financial services and social network.
According to the report the average startup had two co-founders, and one-fourth of all start-ups in the sample had at least one female co-founder. Interestingly, the average founder had eight years of experience prior to starting up and 28% of all founders were found to be serial entrepreneurs. Looking at academic backgrounds, 67% of founders were engineering graduates and the majority of them had a post-graduate qualification, most commonly an MBA. Around 46% founders had an MBA whereas 15% had a post-graduate qualification in a technical subject. India’s elite academic institutions were well represented amidst founders — 23% of all engineering graduate founders were from the IITs, while 16% of all founders with an MBA were from the IIMs.
At an overall portfolio level, an analysis of over 150 investments made by angel groups between 2004-05 and 2014-15 reveals that of 2015-16, angel groups had exited 18% of investees, while 7% had wound down, with the remainder still operational, but not exited. More than 50% of these companies have raised follow-on rounds of funding within which 22% raised multiple rounds. Historically, almost 40% of investments made in companies in any given year have gone on to raise further equity eventually with 5% of the portfolio companies having raised more than five rounds of capital.
(The author is the Group COO and CEO India at InnoVen Capital)