High Life. Angels have no fear

There are many on social media who have called 2016 the annus horibilis — a bad year for business. It may not have been the worst, but it certainly wasn’t good. The trend reflected in the investing world of private companies, the domain of angels, venture capitalists and private equity investors, was nothing to write home about.

In terms of total number of deals and the amount, 2016 fared poorly compared to 2015. The investment recorded was down by 24 per cent, while deal count was down as well.

The falling numbers have created a sense of gloom, or shall we say caution, in the investing world. However, if we dice the data, things aren’t that bad.

For instance, let’s look at deal count among the three key segments of the market: angel, early and the growth-late. In 2016, number of angel deals was, in fact, quite similar to 2015. And for the next stage of deals — early stage — it was in fact more than 2015 by a healthy number.

This seems to be the consistent trend even in 2015. Angel deals saw a big surge in 2015, as dozens of angel platforms came about, and the buzz around private investing drew hundreds of new HNIs to this space. This segment held well in 2016.

A surge in angel investing reflects more start-up creation, and these companies need access to more capital. That’s where early stage deals come in. It’s good to see that early stage segment is reflecting a simultaneous increase. Akin to new HNIs who entered the market and energise angel investing, new early stage funds have emerged in the last two to three years, which are driving growth in early stage investing. Some of these funds have been created by successful angel investors, who have moved on to the next stage of investing. Examples are funds like Orios, Kae Capital, Blume, Kalaari etc. Most of these funds focus on doing Series A (first significant round of venture capital funding), and amounts largely in the $1-3 million bracket. Even some early stage funds from other countries like Japan, China, Korea, Germany and Russia seem to have become active in 2016.

The slowdown was largely in Series B onwards, and particularly in B2C internet, where investors suddenly became focussed on the need for profits. The story is well known there. The number of deals in internet-driven businesses fell sharply in 2016 compared to earlier years. This was largely due to slowdown in B2C internet space. However, in many other sectors, such as healthcare, education, BFSI (includes fin-tech), media and entertainment the deal count was actually up. Series B funding refers to the second round of funding, C to third round, and so on. Funding usually takes place when the company has achieved some milestones in developing its business.

As an angel investor, you don’t have to start worrying about whether investing in 2017 in start-ups will be a bad idea. If you believed in the India story in 2016, no need to stop doing so in 2017. The Modi government is trying hard to bring changes; while the demonetisation may not have gone well, overall, things are progressing in the right direction.

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