Angel investors, VCs and other funding options for startups

While most entrepreneurs think of VC funding as the most obvious way of funding their startups, there are actually many different ways in which you can fund your startup.

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Getting Risk Capital I.E. Angel Investors Or Venture Capitalist – VCs

Angel investors or VCs are investors who give you capital in exchange of equity in the company.

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11 components that make up a good business plan

Investors will be interested because you have a plan to address an opportunity well, not just because you have identified an opportunity that is interesting. That’s why, while having a good idea is certainly a good starting point, it is not enough for investors to invest.

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Most entrepreneurs make the mistake of detailing out their product or service or concept. What most investors are looking for is your plan for building a strong, profitable, scalable, defensible business around that product or concept.

The success of an entrepreneurial venture depends entirely on the quality of execution. Many companies fail to implement their ideas well. Hence what investors seek in the plans they review is evidence that this team will be able to execute well on a concept that appears to address a potentially large market.

What should a business plan cover?

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Paperless Financial Transactions–An Opp Largely Ignored By The Startup Community

According to reports, paperless transactions during the past financial year amounted to INR 92 lakh crore as against paper-based transactions worth INR 85 lakh crore. For a country like India, struggling with issues such as financial inclusion, black money and lack of infrastructure (internet connectivity in rural areas), this news is a welcome surprise and demands to be celebrated. But it went largely unnoticed.

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Growth in paperless transaction is in line with the government’s and the RBI’s agenda of creating a cashless society, with monetary transactions through the internet, ATM, cards and mobile devices.

Why Is Increase In Paperless Transactions Cause For Celebration? 

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How angel investors can boost the start-up ecosystem in India

Senior professionals, moderately successful entrepreneurs as well as high net-worth individuals (HNIs) have been expressing an active interest in investing in start-ups. Individuals who are keen to explore start-ups as an asset class, however, have to recognise that investing in them is a high-risk, high-return game.

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They need to get comfortable with the fact that they could lose their entire capital in some of the companies they invest in, and that most of the start-ups they invest in may not succeed.

Anyone who has the ability to spare Rs 5 lakh or above a year — and not lose sleep over it — could look at co-investing in two-three start-ups a year, so that over a two-three-year period, they are able to build a good portfolio.

With a diversified portfolio, investing in start-ups can provide better risk-adjusted returns. Existing angel groups and investors typically invest in start-ups raising upwards of Rs 2-3 crore, as their members do not usually want to write smaller cheques.

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We need to think of entrepreneurship beyond VC-fundable ventures

The startup ecosystem in India is progressing at a very stable pace. The percentage of young individuals as well as experienced professionals thinking of entrepreneurship as a career option is growing due to a number of reasons:

  • There is an enabling environment for entrepreneurs. Boot camps, accelerators, and incubators guide first-time entrepreneurs about converting concepts into ventures. The number of funding options is increasing, including venture debt.
  • The emergence of some media houses that cover the startup eco-system, as well as mainstream media that gives some space/time for startups is creating a better understanding of startups, and entrepreneurship as a career option.
  • The words startups and entrepreneurship have entered the vocabulary of the government and there is an expectation of policy and resources that will turbo-charge entrepreneurship.
  • Parents are now a lot more willing to let their children give up lucrative job offers and pursue an entrepreneurial dream thanks to what they have seen and heard in the media. There is now a critical mass for startups and entrepreneurs to not be considered an oddity, but one of the top career choices, at the beginning or in the middle of a professional journey.
  • Also, as a society, we have started becoming more accepting of failures, and have come to recognise that entrepreneurship is a set of experiments, some of which succeed and some fail. Till a few years ago, we used to say that in the Silicon Valley, failed entrepreneurs have a higher chance of getting funded because they have learned what does not work. Glad to notice that the same is happening in India too.

Overall, it is a great time to become an entrepreneur in India.

However, the entire entrepreneurial community, as we think of it today, is  minuscule in comparison to the much larger number of aspiring entrepreneurs in the country.

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Changing dynamics in India’s startup eco-system

2014 was a defining year for the Indian startup ecosystem. Compared to the rest of the decade, a number of significant events and activities had changed the very nature of the startup world. Companies like Flipkart,Snapdeal, PayTm, Zomato, etc had redefined ‘scale’ and investors had started placing big bets on them. These companies darted ahead of the pack, to not just dominate their markets, but to grow it too. Of course, they were helped by a conducive environment – mobile phones, internet connectivity etc – but they also built infrastructure, people and processes that could handle a different order of scale than what they themselves could have imagined a few years ago. These startups demonstrated the potential and the competence to build world-scale companies and created new goalposts for entrepreneurs to aspire for.

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As a result of e-commerce, a number of enabling technology and service companies started becoming more meaningful. Analytics, online engagement platforms, delivery companies etc found a much larger market to address their business case, and therefore their investment-worthiness became stronger. What remains to be seen is how effectively the e-commerce industry will retain customers once the discounting era is over and customers have to buy on the fundamental value proposition of e-commerce i.e. ease of access and choice. We may see some changed market dynamics at that stage, and the transition phase may throw up some new, unexpected leaders.

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India needs 10,000 more angel investors to build a thriving startup ecosystem

Only a very few aspiring entrepreneurs from among 1000s are able to convert their ideas into a business.  And one of the key reasons for this is the lack of access to capital that is required to start something new.

Out of 1000s of investment-worthy startups, less than 300 are able to get initial capital in India.

The present environment is very conducive for people to think of entrepreneurship as a career option. Entrepreneurship cells, incubation centres in colleges, boot-camps, hackathons, and other forums for entrepreneurship promotion, as well as a vibrant media for startups – all have inspired very few to become entrepreneurs.

Angel investor groups, accelerators, and incubators get over 5,000 applications every year. Nearly 10,000 startups send their profiles to media houses every year. While quite of few of these large numbers may not be serious contenders, there is a significant number of aspiring entrepreneurs with the competence, commitment and concepts that can become strong businesses. And quite a few of these can become profitable investments for angel investors.

Yet, only about 300 or so of these aspirants are able to get initial capital to get started. And mostly those, who require capital between Rs 2 to Rs 5 crore range. That’s the declared ‘sweet spot’ of most angel investor groups and VCs who participate in early-stage deals.

Why are there less than 300 early-stage investments in India?

VCs and Angel investor groups are unable to do smaller deals because their members do not want to write smaller cheques, and the efforts required to review, process and close a Rs 50 lakh deal is as much as it takes to close a Rs 5 crore deal. The largest angel investor network in the country does less than 20 transactions in a year.

The number of startups whose funding requirements are less Rs 50 lakh is significantly higher than the number of startups requiring Rs 2 to Rs 5 crore. In fact, many a businesses can get going with just Rs 25 lakh.

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Significantly, If we don’t find a way of funding 1000s of deserving entrepreneurs, we would end up frustrating that segment.

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