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Blessed Entrepreneur,
Do You Hear The
Angel’s Whisper?
When you have an idea, but not the money to even
validate it, what do you do? Do not nail it into a coffin,
but seek the help of an angel instead! Angel investment
in the tech space is picking up in India, and we are
at the juncture of witnessing the birth of an angel
investment ecosystem in our country.

The fortune cookie
Let not a good idea bite
the dust even before it
sees the light of day,
just for want of start-up
capital! Approach angel
investors and avail of
not just their money but
valuable guidance too.
Find your angel
You can find a list of the member-
investors on the angel network websites:
Mumbai Angels:
http://www.mumbaiangels.com/
Indian Angel Network:
http://www.indianangelnetwork.com/
h
earing entrepreneurs speak
about their angel investors
is likely to remind you of a
very profound quote from
the Talmud: “Every blade
of grass has its angel that bends over it
and whispers, ‘Grow, grow.’” Bedtime
stories drawn from the scriptures, parables,
and our imagination always speak of
angels as harbingers of good fortune. They
manifest themselves in many forms—as
good advice or lessons, as pots of gold, or
a helping hand in disguise. These angels
usually appear only when the time is ripe
and when they depart, they leave behind
a glow in the lives they’ve touched. In
fact, you cannot miss the commonalities
between the angels of fairyland and those of
the silicon valleys of this world!
Although angels invest in all verticals, we
will restrict the scope of this article to angel
investment in tech start-ups in India—and
take a look at who angel investors really
are, how the angels and the entrepreneurs
find each other, how the relationship starts,
progresses and ends, what motivates angel
investors, what benefits (apart from the funds)
entrepreneurs gain from angel investment, the
flipsides, and more.
Indeed, this is the ideal time to explore this
start-up funding option, because experts feel
the time is now ripe for angel investment in
India, and it is quite evident from the few but
growing number of success stories we hear of.

56 | July 2008 | www.itmagz.com | i.t.

Angel investments are here!
B efore we understand why angel
investment is just catching on
in India, we first need to understand
who these angel investors are.
To put it simply, they are
individuals who have some money
to spare! More so, they are people
who have the guts to invest this
money in a business even before it
has taken shape. If they trust the
ability of a start-up team, they give
them a cheque and all the guidance
required to realise this entrepreneurial
dream. There need be no product or
business plan. A synergetic team with
a great idea and the fire to pursue and
productise this idea is all that angel
investors will look for, before betting
their money.
Unlike institutional investors
like venture capitalists (VCs), who
normally come in only after seeing
a validated product idea and a
feasible business plan, these angelic
individuals pitch in their money even
before there is anything concrete on
paper. They come so early on in the
start-up lifecycle that they usually put
in the first money—the money that
is needed for the start-up team to do
the ground research (even to validate
their idea), and well, start up!
This means angel investors require
a relatively sound knowledge of
the field/industry in which they are
investing, in order to be able to judge
an utterly raw business proposition.
This is actually why angel investment
in India took a long time to catch on.
“For a long time, angel investment
in India has been limited to certain
A synergetic team with a great idea and the fire
to pursue and productise this idea is all that angel
investors will look for, before betting their money.
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ethnicities like the
Patels, Marwaris and
certain other business
communities. Most
often, these investors
would get to know
when an acquaintance
or an acquaintance’s
acquaintance was looking
for money to get started
with a business, and pitch
in with whatever they could.
So, normally you would find
them investing in businesses
they are familiar with, or in
other options like real estate,
fixed deposits, bonds, etc,”
reflects Puneet Vatsayan, co-
founder, Mobera Systems Pvt
Ltd, trying to gauge the psyche of the
quintessential Indian angel investors
and why they've been absent from the
scene for so long. Network, goes on to explain why
He explains, “Traditionally, the tide has now turned: “In the
there has been a stigma attached to past one or two decades, the first
investing in companies (especially generation of Indian entrepreneurs
start-ups) because there is a fear has moved rapidly so as to create a
of both failure and exit—even if paradigm-shift—especially when you
the investor made a lot of money look at the IT industry. They went
by selling his holding in the on to change the whole scenario, and
company, the community would have now become icons with well-
still misconstrue exiting as a sign of deserved fame. Apart from a sound
failure. This fear or reluctance is even understanding of the IT industry,
higher when the investor is unfamiliar these successful entrepreneurs also
with the industry or business realise the intricacies of business, the
environment the start-up works in.” value of entrepreneurship, and the
And so it is that the tech space in need to foster it.”
India has seen relatively little angel These entrepreneurs have now
investment in the past. turned into angels, ready to invest
Padmaja Ruparel, vice president their money, share their knowledge
of the Delhi-based Indian Angel and provide extensive handholding,
to bring up the next generation of
entrepreneurs. But, why?
“Somebody bet on me; I’m now
giving back,” smiles Vatsayan.
i.t. | www.itmagz.com | July 2008 | 57
cmyk
 Advantages beyond the money
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W
hy should a tech start-up
look for an angel? First
and foremost, that might
often be the only source of capital for
them. As Neal Gupta, entrepreneur
and angel investor, points out, “For
tech start-ups, angel or VC funding
are the two basic options, as bank or
debt finance is not feasible. They are
beyond the risk profile of other types of
finance.” Even the earliest of early-stage
venture capitalists usually come in only
after the entrepreneur has something
concrete—at least, a valid idea or
business plan—to show. So, in cases
where a brilliant, enterprising team
has everything but the money (even to
get started with their groundwork), an
angel investor is the only ray of hope!
Further, as Mumbai-based angel
investor Sasha Mirchandani, senior
investment director, Blue Run
Ventures, points out, tech start-ups
usually require relatively less money
to validate their product, prove their
business and show sufficient adoption
to get a venture capitalist in. Such
small amounts are usually quite
easy for angel investors to bring in,
provided they have confidence in
the entrepreneur. And of course, it is
not charity! Tech start-ups also give
whopping returns if the idea and team
are sound. So, it is a capital-efficient
model with high returns.
Mirchandani goes on to highlight
that it is not just about cutting a
cheque—angel investors normally have
an inherent interest in participating
in the formation of the start-up.
Angel investors bring with them experience, hardened
knowledge and contacts (including experts and
potential customers)—all of which are extremely
essential for the success of a start-up.
58 | July 2008 | www.itmagz.com | i.t.
They enjoy the adrenaline rush, the
handholding and the networking—
every single time! That, precisely, is
the biggest advantage of getting angel
investment for your start-up. It is more
than just the money. Angel investors
bring with them experience, hardened
knowledge and contacts (including
experts and potential customers)—all
of which are extremely essential for
the success of a start-up. Since angel
funding comes packaged with those
who can do something for you,
Vatsayan calls it ‘smart money’!
Later on, it also becomes easier for
angel-invested start-ups to get venture
capital funding, because the VCs place
more trust in a team that has been
mentored by a knowledgeable angel
investor. Kanwal Rekhi, one of the
earliest angel investors in India, and
now the managing director of Inventus
Capital Partners, stresses, “Money by
itself is never enough in an early stage.
I spend a fair amount of time helping
the entrepreneur. VC valuation depends
on the progress the company makes
on angel investment. It also depends
on the reputation and track record of
angels.”
Often, entrepreneurs, especially
if they are first-timers, consider
the guidance more significant than
the capital itself, as it boosts their
success rate immensely. Shalini Sethi,
chairperson and managing director of
Emploi Globale Consulting Pvt Ltd, is
one such example. She says they sought
angel funding for the significant value-
add and the capital, in that order.
“Outside investors like angel
investors validate the business plan,
and bring an outsider’s point of view,
which is critical for the growth of the
company. Institutional capital should
come in when the company has grown
to some size, and has the capability
to deploy it,” she says, and goes on to
sum up the benefits of angel funding.
“The advantages of angel funding are
strategic guidance, introduction to
potential customers, easier availability
of subsequent institutional capital,
value-addition in hiring, and assistance
in quick-starting the organisation.
Many of our potential customers are
talking to us at the CXO levels because
of the credibility we have gained due to
Dr Jagdish as an investor and advisor.”
“Better the devil you know than the

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angel you don’'t.“
T
hese words by Ethiopian writer that the angel investor would like to taking an angel investor’s money;
Hama Tuma, sum up the two have a say in the affairs of the start-up. while you might not be able to shake
aspects of angel investments. More so, the investor will play Devil’s off the control that comes with the
Whether you want it or not, the angel Advocate and question every move of investment, it is possible to at least
investor is going to be deeply involved the team’s. The entrepreneurs must be ensure that your investor shares your
in your start-up, guiding every step. On up to this challenge. This, Vatsayan vision and believes in it.
the other hand, entrepreneurs might feels, is where Indian entrepreneurs Angel investors come in at the
not like their ‘dream plan’ touched or suffer, because they have grown up in concept or seed stage of a company,
tweaked beyond a limit. If you have a an environment where they have barely when business plans and market
violently independent streak, you might been challenged before. strategies are evolving, and this is
not even enjoy too much guidance— All said, there is definitely going to precisely why their guidance, non-
unless your thoughts and that of the be a lot of guidance and control that judgmental stance and outside
investor’s are in sync. comes along with angel funding— perspective adds so much value.
As Vatsayan points out, those who that is a choice entrepreneurs have However, the investor must also be
have invested their money at a very to make, and another relationship comfortable with the team going
early stage would definitely want to they have to learn to live with! For through a discovery phase on a host of
make sure it earns a sizeable return. In these very reasons, it is important to issues—most angel investors do realise
such a case, it is quite understandable indulge in a little introspection before that what is unknown is much higher
in the first-year plan of a company than
It is important to indulge in a little introspection before what is known.
taking an angel investor’s money; while you might not More so, there is a fine line between
be able to shake off the control that comes with the interference and guidance—so, you can
investment, it is possible to at least ensure that your at least enquire discreetly to find out
investor shares your vision and believes in it. if the angel investor who has offered
to fund you has a reputation of not
crossing this fine line. Sethi asserts that
they have been lucky in finding an
angel of an angel investor, but things
could go awry if the investor and
entrepreneur do not strike the right
chord.
Rekhi very candidly says, “Some
angel investors can mess you up.
Many angels have no entrepreneurial
experience, and should not be
mentoring!” Evidently, it is not just
the investors who have to evaluate
the entrepreneurs, the reverse also
holds true. Rekhi also warns against
seeking multiple mentors: “It gets very
confusing when an entrepreneur gets
multiple and sometimes conflicting
advice.”

i.t. | www.itmagz.com | July 2008 | 59

 STORY MENTORS
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PUNEET VATSAYAN,
co-founder, Mobera Systems
Pvt Ltd
Vatsayan is an
entrepreneur who has received
angel investment for his
earlier start-ups including
Vivexchange. To return the
good turn, he now angel-
invests in USA, Europe and
India. His Chandigarh-
based start-up Mobera
Systems creates technology
on an outsourced basis. They
work in a very niche space,
covering contract R&D and
intellectual property. Vatsayan
is a member of the Indian
Angel Network.
PADMAJA RUPAREL, vice
president, the Indian Angel
Network
The New Delhi-based Indian
Angel Network has over 70
members, including institutional
members like Google and Sify. It
has invested in over 12 start-ups
across multiple sectors. Together
with the British Business Angel
Association, it’s formed the
United Kingdom India Business
Angel Network (UKIBAN).
The IAN works across India,
including investments in Delhi,
Pune, Bangalore, Mumbai,
Chennai, etc. It has now
expanded to Sri Lanka and
France too.
NEAL GUPTA, entrepreneur
and angel investor
Neal Gupta is an Indian
entrepreneur and angel investor.
Gupta has been investing for a few
years now, and has not exited any
of his investments yet. One of the
firms he invested in, called Printo,
has migrated the Kinkos business
model from the US, and has now
received funding from a premier
large VC, but he continues to keep
his stake in the business. Another
interesting one is a boutique
investment bank called Viedea,
based in Bangalore, which has
achieved significant traction in
the finance sector. Gupta is also a
member of the IAN.
KANWAL REKHI, managing director,
Inventus Capital Partners
Kanwal Rekhi is one of the earliest
angel investors in India. He no longer
angel invests because he has his own
venture capital firm, Inventus Capital
Partners, which also does early-stage
funding. He has invested in 53 companies
in the last 13 years, of which he was on
the board of 23. He has seen a total of
20 exits of which six were Initial Public
Offerings (IPOs). About 40 of those
companies had VC investments. He does
not believe in working through angel
networks. “I prefer to lead the investments.
I have had no success following other
people’s lead. I do invite others; as a
matter of fact, there is a group of people
who always ride with me,” he says.

Finding each other

H
ow do the investor and the follow up on leads they get through
entrepreneur find each other? acquaintances.
Who finds whom? It could Whatever be the form, it is very
be either way. essential for entrepreneurs to network,
Most angel investors are in order to be able to connect with
experienced entrepreneurs themselves. the investors.
So, they give lectures or mentoring Dr Sheth , who invested in
sessions, which serve as a medium Emploi Globale, says, “I am not a
through which they connect with part of any angel investor network.
entrepreneurs in search of capital. However, I am a TiE Mentor, and
Some evaluate projects through attend their events as well as other
angel networks. Others just keep networking events. I do believe
their ears glued to the grapevine, and networking is very useful, since

60 | July 2008 | www.itmagz.com | i.t.


ALOK MITTAL,
managing director—
Canaan Partners India
Alok Mittal is one of
the earliest angel investors
in India. He is a member
of the IAN, and believes
in the power of angel
networks to look out for,
evaluate and support start-
ups. His entrepreneurial
journey is strewn with
successes, including
Jobsahead.com. Knowcross
and Viedea are amongst
Mittal’s current angel
investments.
SASHA MIRCHANDANI,
senior investment director,
Blue Run Ventures
Sasha Mirchandani has
been investing since 1999,
and his portfolio includes
several tech start-ups including
mKhoj, Textual Analytics
Solutions and Canvera. He is
a member of Mumbai Angels,
and although they now invest
across the country, he believes
that India needs localised
angel networks, because
proximity between an angel
investor and the start-up is
very important.
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SHALINI SETHI, Dr JAGDISH
chairperson and managing SHETH, angel
director, Emploi Globale investor, Emploi
Consulting Pvt Ltd Globale Pvt Ltd
Emploi Globale is a Dr Jagdish Sheth
2007 start-up in the strategic is based in the US, but
recruitment, consulting has invested in Indian
and RPO business. The companies. He is not
company is angel funded by an active, aggressive
Dr Jagdish Sheth, amongst angel investor,
others. Sethi has over perhaps because
20 years of experience in his background is
business development and academic. He likes
operations in industry and to encourage and
academics. Her experience nurture ideas and
lies in executive searches for talent, especially from
senior teams. students.

there are only two to three degrees of
separation between an idea or talent
and access to capital.” As an academic
scholar, sometimes Dr Sheth himself
identifies an opportunity and suggests it
to a successful serial entrepreneur.
So, it is possible that sometimes
the investor himself might trigger
the project. However, this is quite
rare. Gupta says, “Being essentially
an entrepreneur, I do get charged up
about new opportunities and untapped
markets, and often have considered
funding new businesses around an idea
and good team. But ultimately, this is
a very time-consuming method. Plus,
the success of a new business usually
percolates down to the founders’ zeal
about their idea, and the hard work
required to make it a success, which
is hard to assess if the business is
the brainchild of the investor. So, I
generally wait for the entrepreneurs to
approach the Indian Angel Network,
of which I am a member, or approach
them if I have heard about their business
through an associate and like it.”
The past few years have seen the
rise of angel networks as an effective
meeting ground for investors and
entrepreneurs. We could look at this
trend as the beginning of a hitherto-
nonexistent angel investment ecosystem
in India. Mirchandani recollects a
time when there was absolutely no
‘ecosystem’ in India, and he had
to form his own investment firm
(Cocoon Ventures) to pursue his angel
investment activities. But later, they
founded Mumbai Angels, which has
over 40 investors now.
The Band of Angels, Indian Angel
Network, etc were born to meet such a
need. Today, many investors prefer to
work through these angel networks. “I

i.t. | www.itmagz.com | July 2008 | 61

InsighT
find working through my network—
Indian Angel Network—to be most
efficient as there are domain experts for
better due diligence, there is access to
good deal flow, and the power of the
network and related contacts is very
beneficial to the funded start-ups,” says
Gupta.
Whatever be the form, it is very essential for
entrepreneurs to network, in order to be able to
connect with the investors.
Working through a network is also
beneficial for aggressive investors, who
wish to be on the constant lookout for
new projects. Explains Alok Mittal,
managing director—Canaan Partners
India, who is also an angel investor:
“…that is a basic strength of an
entity like the Indian Angel Network
Matching the horoscopes
F
aced with a proposition,
how does an angel investor
decide whether or not to go
ahead?
“I put the most emphasis
on the entrepreneur. Is he
entrepreneurial, a clear thinker?
I need to be able to see a clear
way to 10 X or better returns
before I get excited. This implies
a large emerging or expanding
opportunity. I do not like me-
too and a-day-late plans. I put a
lot of stock on the entrepreneur,
and look at the business plan
secondarily. I can always help
refine the business plan/thinking,”
Frankly, whether a start-up gets funded or not depends
also on environmental factors such as the health of the
economy and the particular industry.
62 | July 2008 | www.itmagz.com | i.t.
(IAN). It is a group of about 70
investors who wish to make angel
investments. The group engages
collectively in deal sourcing and
assessment. Finally, the interested
investors write individual cheques
to the company. We appoint one
board member to represent all the
investors investing in any company.
Given the experience of people
in IAN, we emphasise on value-
addition through our network.
This includes mentoring, strategic
inputs, recruitment, customer/
partner connections and help with
subsequent rounds of fund-raising.”
In case you are still doubtful,
here is how it works—entrepreneurs
approach angel networks and submit
their requests or proposals, which
are then evaluated collectively by
the network members, or by experts
recruited by them for that purpose.
Based on such evaluations, those
interested invest directly in the start-
ups. Sometimes, all these investors
join the board of the start-up
company, else they nominate one or
two members of the angel network to
sit on the board, on behalf of all the
investors.
Sometimes, the angel networks
in the country also work together,
sharing deals and passing on leads.
For example, Ruparel points out that
the Mumbai Angels and the IAN
have co-invested before.
says Rekhi.
So, what is a good team (or
entrepreneur) according to an angel
investor? “An entrepreneur should
have talent, vision, an idea that solves
a problem, be capable of executing
the idea, be ‘mentorable’, wish to
grow as a person too, and match my
wavelength of thought,” lists Vatsayan,
pointing out that even other investors
like VCs give the team the highest
weightage. Apart from the pedigree
and resumes of the founding team,
as well as their management abilities,
Gupta points out that it is also
important to look at their ability to
work as a team, and their flexibility in
integrating other talented individuals
later.
Angel investment is as much a
business as it is a passion, so, quite

understandably, investors consider other
criteria too.
Dr Sheth says he looks for three
criteria in judging an investment. “First,
is the industry growing but still highly
unorganised and inefficient because
it is fragmented with too many small
owner-driven companies? In that
case, a professionally-driven company,
especially through processes, can scale
up and create more efficiency. My
second criterion is the management
team. Are the team members ambitious
and do they have the passion to succeed
and make a difference? Third, is the
Goodbye, or maybe not
A
ngel investors would not,
typically, stay forever. They
will either reduce their
involvement, or even exit the company
at some stage when they think the
company can do without them, and
when their investment has also yielded
sufficient returns.
Rekhi points out that the angel
investor’s role is large only till the
VC money comes in. “As an angel
investor, my goal is to prepare the
entrepreneur to become VC ready
and help him find a high-quality VC.
I continue to hold my stake till the
end, and do like to stay on the boards.
But, after VCs have come on board,
I do not like to step in front of them.
I help only when asked after the VCs
have invested,” he says.
Exit strategies for angel investors
vary to a great extent. Some have
the option of exiting once the firm
is funded by a VC, so the capital
structure can be cleaned up. On the
other hand, a serious VC might like
business good for society and does it
serve a genuine need?”
Frankly, whether a start-up
gets funded or not depends also
on environmental factors such as
the health of the economy and the
particular industry. “Start-ups approach
angel investors at various stages of
their development. Many times their
ability to attract funding depends
upon their industry and upside
potential. Personally, I prefer start-ups
in technology, KPO, and consumer
sectors which should be cash-flow
positive,” explains Gupta. “Apart from
the angel investor to continue holding
some funds. Angel investors might
then decide to retain a part of their
shareholding, while exiting the rest.
Exit strategies for angel investors vary to a great
extent. Some have the option of exiting once the firm is
funded by a VC... On the other hand, a serious VC might
like the angel investor to continue holding some funds.
“I prefer not to exit once the VC
comes in, and hold out for subsequent
rounds, or the final exit of the
founders, which is a sale or IPO event.
Holding a board seat is really a factor
if one has taken a substantial stake in
the business, which generally angels
avoid, so they can invest in multiple
start-ups,” says Gupta, who has not
exited any of his investments yet.
“Normally, companies funded by
us will grow into large companies and
be either a candidate for an IPO or a
strategic acquisition. In some cases,
there might be a secondary purchase
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the team, I also look at my knowledge
and interest in the industry, the
viability and scalability of the business
model, whether the selling point is
a disruptive technology or not/cost
arbitrage/migration of a business
model to India or something else,
etc. I like to see a promising set of
financials, which show a company in
the black and cash-flow positive even
in the early stages. This shows me
they know how to prove their revenue
model, control costs, and have some
staying power until momentum
builds.”
of our equity by later-stage investors,”
says Mittal.
So, angel investors typically have
various exit (or non-exit) models:
they can withdraw all or part of their
stake once the VC comes in; they may
continue to sit on the board and be
active as before, or let the VC take
the lead; they might withdraw when
they see the money coming in, or
they may wait till the IPO or later.
It is completely an individual choice.
As Mirchandani points out, if they
believe so much in the project, they
might wait till the IPO to make 20X.
That is what the guys who invested in
Google did, and they got a whopping
good return worth more than the wait
(pun intended) in gold!
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 Now, and ahead
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W
hile the formation of angel
networks is definitely a
great step towards building
the ecosystem in India, the investors
and entrepreneurs feel that there is still
a long way to go. Mittal says, “This
applies both to the number of angel
investors, as well as the mechanisms
to connect angel investors and
companies.”
Mirchandani explains that the need
of the hour is localised angel networks.
Since angel networks in India are still
few and young, they usually work
across the country, with members
Having localised and more active angel networks would
encourage more people to invest. That is extremely
important to nurture the indigenous industry in India.
64 | July 2008 | www.itmagz.com | i.t.
investing in various Indian cities.
However, for the extent of guidance
and handholding that an angel
investor typically needs to provide,
it is important that they spend a
lot of time with the start-up team.
Sometimes, telecons and other virtual
meetings are insufficient, and it is
important that the mentor sits with his
team in the conference room, or steps
into the field with them. If the two
parties are geographically separated,
the investor needs to travel so much
that it becomes impossible for angel
investors with their own companies
or day jobs to handle. Having localised
and more active angel networks would
encourage more people to invest. That
is extremely important to nurture the
indigenous industry in India, and to
ensure ideas do not die down as mere
ideas!
“Angel investment in India is still at
a nascent stage, but with organisations
such as the Indian Angel Network,
and the palpable excitement of new
entrepreneurs in different markets and
industries, I see enormous potential
for the future,” says Gupta. “In my
opinion, India is one of the most
promising countries to be in this
sector, whether as an entrepreneur
or angel investor. We need to release
large amounts of inefficient capital
from grey markets, dying sectors, non-
resident Indians (NRIs), and others,
to better fund start-ups. But currently
I do not see a huge gap in the supply
and demand of angel investor capital.
Deal flow is improving rapidly, but
there is potential for more. India is a
promising and preferred destination
for many investors today, whether
angel, VC, or private equity, as
its gross domestic product (GDP)
is mostly demand-driven and not
supply-driven like China’s. Of course,
China and Brazil are two of the other
big investment targets in the global
economy, but angel investing is more
challenging there due to autocratic
rule of law, large size of projects,
and language barriers. I believe that
India’s democracy, innovativeness, new
meritocracy, and sense of urgency make
our country the Number 1 investment
destination today!”
Janani Gopalakrishnan Vikram
The author is a freelance writer, columnist and editor. More
at http://gjanani.googlepages.com. You may reach her at
gjanani@gmail.com