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.

Continue reading “India needs 10,000 more angel investors to build a thriving startup ecosystem”

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What are the differences between angel funding, venture funding and crowd funding? In what scenarios can they be exploited for maximum benefits?

(My response below, to the above question on Quora)

Different investors participate in different stages of a venture. Angel investors invest at the very early stages – when the founders only have an idea or when the idea is being or has been developed into a prototype. They provide enough capital for the idea to be tested and proven in the market, so that another set of investors can bring in more capital after the model is proven and when the venture needs more money to take the proven model to a wider base.

Continue reading “What are the differences between angel funding, venture funding and crowd funding? In what scenarios can they be exploited for maximum benefits?”

My advice to students aspiring to be entrepreneurs

During my talks at engineering colleges and business schools I often come across students who are clear that they want to be entrepreneurs, but they cannot do so immediately because they have student loans or other financial commitments to take care of. And that is a perfectly understandable reason for deferring your entrepreneurial ambition.

My advice to such aspiring entrepreneurs is to keep their entrepreneurial ambition as the key focus on their lives. Sure, go ahead and take up a job because you need to. BUT NO MATTER HOW MUCH SALARY YOU GET, KEEP YOUR EXPENSES AND LIFESTYLE WITHIN RS.25000 – RS.30,000 (USD 500). Continue reading “My advice to students aspiring to be entrepreneurs”

Startup Next, the global and top pre-accelerator program comes to Delhi.

Startup Next, the global and top pre-accelerator program – backed by the likes of Techstars, Google for Entrepreneurs, Global Accelerator Network and Startup Weekend – is coming to New Delhi !

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The Startup Next program is designed for startups who plan to apply to accelerators or are pitching to investors for funding.

Startup Next is an intense mentorship program consisting of weekly sessions (one session in a week lasting three hours) for five weeks. The program has a structured curriculum and in-depth engagement with one-on-one mentoring, designed to help startups build the foundation of scalable ventures.

Continue reading “Startup Next, the global and top pre-accelerator program comes to Delhi.”

Guest Post – Why less than 1% of incubated start-ups get VC funding

Over the last 5 years or so, India has seen the emergence of a number of private and government-supported accelerators and incubators. Many of them have run a few cycles and have now fine-tuned their models and programs. Quite a few of them have very good and solid programs.

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Yet, if we were to measure the success of start-ups from all these programs in terms of them raising growth-capital, the report card is not very encouraging. If some industry numbers are to be believed, less than 1 per cent of start-ups that go through various incubation and accelerator programs in the country receive institutional funding. This number probably includes incubators in academic institutions, most of which have not been able to run meaningful programs to help entrepreneurs build fundable ventures.

Why is this number so low? Why the start-ups who join accelerator or incubator program with the hope of getting mentored for accelerating their journey towards growth are not able to get growth-capital? Continue reading “Guest Post – Why less than 1% of incubated start-ups get VC funding”

M&A: Why small exits matter? The big value of small exits (#iSPIRT-OEQ)

iSPIRT Open Ecosystem Questions(OEQ) Series. The conversation around this exciting session was lead by Sanat Rao (iSPIRT) and the speakers were Jay Pullur (Pramati Technologies), Sanjay Shah (Invensys Skelta), Pari Natarajan (Zinnov), Karthik Reddy (Blume Ventures) & Vijay Anand (The Startup Centre).

Sanat initiated the conversation with an observation that it was only the bigger exits that are picked up by the media. Smaller exits do not get any media attention at all. , We all hear about the big bang “home runs”: WhatsApp sold for 19 billion USD to Facebook, Google acquires Nest for 3.2 billion USD, etc. However, studies show that 65% of VC funded companies in the US return 0-1x to their investors. Even among the remaining 35%, the exit valuations are relatively small: since 2010, the average M&A deal size in the US/Israel is 100 million USD. Only a small 0.1% of VC-funded companies are home runs (50X returns). And not just in India. In Israel too, from 2010-14, out of the 88 exits, two deals on Viber and Waze accounted for a whopping 25% of the total M & A value.

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Given these statistics, why do we promote the myth of a multi-billon $$ exit? Why don’t we recognize the value of these smaller exits? Should we not be promoting and helping product startups to find an exit at an earlier point in their lifecycle, rather than treating these exits as a worst case scenario? Continue reading “M&A: Why small exits matter? The big value of small exits (#iSPIRT-OEQ)”

Bootstrapping – Boon or Bane for Product Startups?

On August 14th, 2014 iSPIRT, the industry enabler that is creating a vibrant eco-system for promoting, encouraging, supporting and enabling product companies out of India, organised a very useful online discussion on the concept of bootstrapping. Titled  ‘Bootstrapping – Boon or Bane’, the discussion explored various facets of bootstrapping, including its relevance, benefits, limitations, and challenges.

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Sharad Sharma, founder of iSPIRT kicked off the conversation with a very incisive observation that the startup community, largely driven by the media, tends to celebrate and showcase startups only when they receive angel or institutional funding. How true is that!!! There are a number of very successful and modestly successful startups, many of who are deserving of the praise and showcase, but they get reported about only when they close an investment round. (I am not sure if the media is to blame entirely. I suspect companies too reach out to media only after they have received an investment round, perhaps because they believe that funding makes the ‘story saleable’ for the media.).

Continue reading “Bootstrapping – Boon or Bane for Product Startups?”