Indian Angel Network (IAN), one of the largest angel networks in Asia, recently marked the first close of its maiden fund at Rs 175 crore ($27.3 million). The fund, which has a target of Rs 350 crore ($55 million), aims to make early-stage investments in 150-160 companies in the next few years.
Established in 2006, IAN has close to 450 members across the world. With investors from 10 countries, IAN’s presence spans seven locations, which includes cities in India and UK. The network is sector agnostic and has funded startups across 17 sectors in India, including education, e-commerce, healthcare and hospitality. Between 2014-2016, IAN invested over $32 million in 60 deals.
In an interview with DEALSTREETASIA, IAN president Padmaja Ruparel talks about the rationale for setting up the maiden fund and plans for it.
What is the rationale behind introducing an early-stage fund?
When IAN started, it was the pioneer in bringing angel investment into this country. At that time, entrepreneurs were finding it extremely difficult to raise Rs 2-3 crore (around half a million US dollars). At the time, family and friends were putting in angel money and the next round of money was not there. VCs would typically invest $9-10 million, which was much higher than what was required by these nascent companies. Also, bankers were not available. So, IAN started with angel investing in the country, with typical investments being around half a million dollars.
Today, it is really nice to see angel investing take centre stage. It has established itself as an asset class in the HNI portfolio.
What we are now seeing in the ecosystem is that once companies have raised half a million, they next need funds in the $1-4 million range, which is a challenge for them. And many companies are falling off the cliff because they are not getting that next round. It takes too much time — around 6-9 months — to raise the next round, and they lose out on their runway.
So, IAN came together once again to respond to this ecosystem need. The idea of the IAN fund is to cater to this $1-4 million kind of need and to invest in startups so that they become stronger and have a hockey stick kind of growth curve.
More importantly, these companies are are still at a nascent stage and need mentoring and handholding. So with the IAN fund, they also get to leverage mentoring and market access that IAN provides while also enabling them to raise higher amounts to grow. We can help them raise anywhere between Rs 50 lakh and Rs 50 crore and this is what we believe will bring about a paradigm shift in the startup ecosystem. It will not only help them raise money faster but it is also quality money that they will get.
How do you view competition in the VC space?
We are not competing with VCs. IAN has always been very collaborative and as we invest $1 million and above, we would actually invite VCs to co-invest with us. Once we pick up a company, we would say to VCs, ‘Look this is an IAN portfolio company and it’s a good company. Would you like to explore investing?’ VCs think that if IAN is recommending it, then it must be a good company.
What is does for VCs is that it gets them high quality deal flow. For companies, half of the funds come from the IAN fund and half of it from the VC so it gives them a longer runway for money and they don’t have to spend much time fund raising. So, they have a larger bucket of money which they can draw from if they perform well. And for the IAN fund, it’s extremely good because it creates a risk mitigated investment because now the fund will be able to invest in many more opportunities. It’s a three-way win situation.
What do the next few years look like for Indian Angel Network with the addition of this new fund?
We invested about Rs 125 crore last year and on the IAN platform we are likely to invest around Rs 500 crore over the next four years. This fund has come in with around Rs 400 crore, so between the fund and the network, there is about Rs 1,000 crore. And then the VCs will come in with about Rs 400-500 crore. So in the next four years, we will see around Rs 1,500 crore investment getting added into the ecosystem. And then over the next eight years, we should have a new fund and there will be about Rs 3,000-4,000 crore more enabled in the system. And for seed and early stage, Rs 4,000-5,000 crore is a lot. That should incentivise entrepreneurs to really create what I would call “kick ass” companies.
How would you differentiate what funding will be made from the fund and which ones will come through the angel network?
The differentiation is very simple — any company looking to raise up to Rs 6 crore will come from the angel network and anything beyond Rs 6 crore will come from the fund.
How many companies do you plan to invest in through this fund?
The fund will invest in around 150-160 companies over a four-year period.
Who are the investors in this new fund?
We have investors Yes Bank, IIFL and SIDBI. We also have (Infosys co-founder and former CEO) Kris Gopalakrishnan, (Hero group joint director) Sunil Munjal, and (Narayan Hrudalaya founder and chairman) Devi Shetty. It’s a very massive list of investors that we have. That’s been the story of IAN; it’s not only the money but also the quality of money which makes the difference. That is also what we are seeing with the fund.
In terms of your deployment strategy, are there any particular sectors that you are keen on investing in?
At IAN, we are sector agnostic, but we do hope to invest in sectoral leaders. We look forward to investing with sector-focused funds, which would enable us to drive the best deals in a sector. Also, within IAN we have domain experts as investors.
Would you also be interested in investing in overseas companies?
We would like to make overseas investments but it would be according to SEBI regulations, so it would be within the regulatory framework.
How has the year been so far for IAN, and what does it look like for the remaining part of the year?
The year has been phenomenal for us so far, we have been able to invest in one company every 12 days or so. We have also got a couple of cash exits, which we could announce soon. The year looks very promising. With the fund being announced, we are already inundated with entrepreneurs wanting to raise money and investors wanting to co-invest with us, so it looks very promising. Our vision is to become the largest horizontal platform for early-stage investment in the country.
How many companies do you plan to invest in this year?
The fund would work with the angel network. Last year we did about 35-40, so this year too, we should invest in 40 at least, if not more.