Angel investors ready to tide over rough times in start-up ecosystem

Angel investors, who tend to provide capital for a business start-up in exchange for convertible debt or ownership equity, are aplenty these days, given the enabling policy environment. Eventhough angels bring in mentoring, risk capital, and provide access to their own business networks, a slowdown appears to be around the corner. However, a surprising number of people are still willing to act as angels, given that they are accustomed to failure.

“We have seen a hit rate of 33 per cent,” says Apoorv Ranjan Sharma, president and co-founder, Venture Catalyst, an early-stage investment and start-up incubator. “Almost 70 per cent of start-ups generally tend to die, though a survival rate of 30 per cent is very good. This phenomenon is present not just in the Indian market. In other markets, 80 per cent investments are generally written off.”

Failure is a given, adds Hemant Kanakia, lead investor at Indian Angel Network (IAN), who has seen his fair share of start-ups going bust. “If a product fails to deliver a unique value proposition compared with other products under that same segment, chances are that it will fail to make a mark,” says Kanakia.

Rajeev Banduni, CEO, GrowthEnabler, which delivers data and intelligence on disruptive technologies, insists the failure rate in Silicon Valley is 85 per cent. “In the US, 97 per cent of start-ups are failing. Most companies tend to shut down within 18 months, and some face a casualty by the 13-14 month. Most businesses wake up to the fact that the runway is over and they cant take off.”

Harminder Sahni, founder and Managing Director of consulting firm Wazir Advisors, and an angel investor, says a lot of capital has been pressed into the market in 2015 and right through this year through early-stage seed investments. He says a slowdown is definitely in the works, one which will allow investors to take stock and ensure that their investment thesis is aligned with the emerging possibilities.

Distilling their years of experience and proficiency with various fundamental start-up-related concerns, most angel investors in India are providing an integrated platform to help with teething issues. What has helped is the enabling environment.

“India’s rank for ease-of doing business went up by 12 in just one year due to an improved regulatory framework, thus creating a conducive business-friendly environment,” says Debmalya Banerjee, Regional Director, Indian Chamber of Commerce (ICC), adding: “Market conditions do tend to matter.”

Banerjee says the Chamber waited on the sidelines to check out how things had shaped up since Start-up India was launched in 2013. “We waited for quite some time to see how things moved, to understand the success and failure rate. We realised that the e-commerce bandwagon is almost completely over. There are just too many people in that space, and not so many takers.”

IAN’s Kanakia says start-ups need to do a proper R&D before hitting the market. “One must figure out at least 4-5 unique value propositions for the product before actually starting to build it. Figure out the customer base, do a bit of an entry-level survey, collate all the feedback and then start,”he says, adding the chances of failure tend to come down considerably.

GrowthEnabler conducted a study on how many start-ups are being funded. Banduni says a lot of start-ups are not getting funded. “Angel investors and VCs get 3,000 applications, but only two are funded. But one has to take heart. Business magnate Elon Musk went bankrupt in 2007. After 20 years of hard work and sweat there was Pokemon Go. Before Angry Bird became a popular game, they wrote 51 games. The 52nd game got them fame and recognition. So one has to continue to pivot to reinvent, and keep at it.”

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