ENTREPRENEURSHIP AND INNOVATION MANAGEMENT

CIA-III

Report on Detail Analysis of an Angel Investor while Funding a

Startup.

Submitted To: Submitted by:

Dr Lakshmy Priya K B. Sai Kartik (1829205)
Vishakha Shukla (1829224)
Pooja Modi (1829221)
INTRODUCTION:
India’s startup ecosystem is going through a dark patch. The government initiatives and roadmap
to boost economic environment is inspiring more entrepreneurial minds. The Startup Funding
Scenario has changed over time. Ten years ago people had only few but now it varies from venture
capitalists, Angel Investors, Bootstrapping, Government grants and Subsidies, Seeking Funds from
Business Incubators and Accelerators, Crowd funding etc.

The funds raised by Indian startups are $3.9 billion in first half of 2019, just $300 million less than
what was in 2018, which was $4.2 billion.

Therefore, the Study is focused on analyzing the different sources of funding to a startup i.e. Angel
Investors.

OBJECTIVES:

 To have an in depth knowledge of the work of an Angel Investor.

 To know on what basis does an Angel Investor Fund a Start up.
 To know the various Initiatives and schemes undertaken by them.
ANGEL INVESTORS:

Angel Investors are High Networth Individuals who provide capital for a startup and help
entrepreneurs in starting their business by providing funds in exchange of ownership stake or
convertible debt.

In H1 2019, 227 angel investors participated in angel funding.

COMPARISON CHART:

Basis Of Difference Venture Capitalists Angel Investors

Meaning It is an organization or These are high net worth

professional person who provides individuals who help
funding to startups or budding entrepreneurs in starting their
companies which have high business by providing funds in
growth potential and helps them to exchange of ownership stake
expand. or convertible debt.

Risk Level This is comparatively less Risky This is highly risky since they
since they invest in already invest in the initial stage of
profitable business. business and the profitability
of the business is not known.

Investment Size The amount invested is The amount invested is less.

Comparatively large.

Investment Sources They pool money from They use their own money for
corporations, foundations and investment
insurance companies.

Investment Investment is made in Pre- Investment is made in Pre-

profitability Business revenue Business

We took the interview of Mr. Vijay Chauhan who is an Angel Investor and a Research Associate
in Right Horizons Financial Services Private Limited. He is an expert in analyzing the business
and knowing the growth potential of the business and knowing whether it will become the next
multibagger.
1. PARAMETERS FOR FUNDING A STARTUP:
An Angel Investor says that there is no rear view mirror of a startup to look into before
investing. So there should be detailed study about the venture where they are investing.
The fundamental criteria’s are the quality of management along with quality of business
.The quality of business can be checked by the Return on Capital Employed that the startup
is at the Initial stage. This is taken care because there can be seed investment and also or
else it can be checked by comparing other ventures in the same horizon to have an estimate
of the ROCE. The Quality of management can be checked by going through various
domains like MCA database, Indian Kanun.org where we can know about any frauds or
any legal compliance regarding the Entrepreneur and also background check is
compulsory.

2. DIFFERENT WAYS OF SUPPORTING A STARTUP:

Funding is not everything that creates business value to a startup. It also requires Expertise
to grow and expand.

3. NAMES OF STARTUPS FUNDED:

 Biryani by kilo
 GoT IT

4. SUCCESS STORY OF A STARTUP:

 Biryani by kilo
Biryani by Kilo (BBK) is a gurugram based startup which has raised $1 million of funding
from a group of investors. It was founded by Kaushik Roy, Vishal Jindal and Ritesh Sinha
in 2015. The startup has in February 2017 received angel funding from a group of investors.
It is a premium biryani brand which serves the Khansama style of cooking and every
biryani is freshly cooked with rich ingredients. Biryani by Kilo has invested in a cloud
kitchen delivery model to get the advantages of flexibility to locations, low rentals and low
wastage. In India the food delivery market, Swiggy and Zomato have gained popularity
and are delivering 200 thousands of daily food each. However, these startups are
 leveraging technology in creating niche market rather than a competitor for the existing
startups.
Their Unique Selling Proposition (USP) is that their packaging was different and they
targeted only Premium Segment. They deliver Biryani in earthen pots with a candle so that
it can be heated anywhere and be eaten fresh .It is the only Biryani chain to make Biryani
Fresh for every order in individual handis. They target Young couples and giving quality
Product along with Combo to be affordable.
This has been a great success in drawing biryani lovers. It has now has one in Mumbai and
11 outlets in Delhi NCR. It is growing at a rate of 70 to 80% per year.
Also it is the only chain which makes three different styles of Biryani- Hyderabadi,
Lucknowi and Kolkata along with high quality ingredients (Rice, meats, spices) and the
most authentic cooking process and recipes. The main idea is to give the customer home
quality premium biryani in the traditional dum cooked style. It currently covers Gurgaon,
Dwarka, Noida and South Delhi.

 Got IT

It is an ON DEMAND logistics service based startup which caters to all possible segments
like B2C, B2B,C2C,C2B both for non-routine and routine services. It is a one call service
to all retailers, customers who may wish for it when it comes to delivery of goods and
services just as their tag line goes – Delivering Smiles. They mainly aim at comfort, crisis
management and time. Indore ground is well tested and they are planning to expand to other
cities as well. Ventures like Got IT are valuation game ventures where despite having a
business plan customer acquisition focus is of prime importance. More the customer base,
higher shall be the valuation. Once a base in created the business model can be extended
through:

Delivery of fruits and vegetables through own stores.

Creation of a one call solution for plumbers, carpenters, helpers, cleaners, electricians,

Providing Laundry services to the base.

 Inter city logistic services for Mumbai suburbs.

Delivery of specialized items of other cities to Mumbai (like Indore Namkeens etc.)

Tie up with local female entrepreneurs for delivery of their goods and products.

5. INFLUENCE OF THE PERSONALITY OF AN ENTREPRENEUR AS A

CONSIDERATION TO INVEST IN THE STARTUP.
The factors on the basis of which he assesses the quality of the entrepreneur and the
management are-:
 Background Check which includes fraud check.
 Convergence and Divergence test- Convergence test includes IQ test and the test to know
about the problem-solving ability of a person, critical reasoning. Divergence test assesses
the ability of an entrepreneur to think out of the box. It measures how creative the
entrepreneur can be.
 Personality of the entrepreneur and his ability to take risk.

6. ASSISTANCE PROVIDED TO STARTUPS POST INVESTMENT.

In Mr. Vijay’s opinion when the entrepreneurs get the funding from investors for their
startup, they tend to spend the money in an inefficient way and tend to misuse the capital.
They do this unknowingly. He says that as an angel investor it is his responsibility to tell
the entrepreneurs to focus on frugality and spend the money wisely. They should go for
cost savings whenever possible. Money spent on something worthy is fine, but they should
do cost benefit analysis before spending money on a particular thing. Giving suggestions
and inputs in relation to spending the capital wisely and in running the business efficiently
is what an investor should do to help a startup post investing.

7. EXPECTATION OF A ROLE IN THE BOARD OF DIRECTORS OF THE

STARTUP.
 Mr. Vijay’s father is also involved in Angel investing along with him, so his father expects
a role in the board of directors. As he is already working as a research associate in an
organization, he cannot take up the role in the board of directors of any startup.

8. TIME HORIZON FOR EXIT FROM THE STARTUP.

Mr. Vijay looks for long term exit which is after 5 to 6 years of investing in the startup. A
business is generally not profitable in the first few years of it starting the business, so he
holds the stakes in the firm for a longer duration of time. When the cash flow is position of
the startup is positive and the valuation of the startup can be done then he thinks about
exiting from the startup by selling his stake to other Private Equity investors or any other
investors.

9. BENEFITS STARTUPS GET WHEN FUNDED.

Apart from capital the startups get expertise and suggestions which the experienced
investors give then when they invest in their business. Entrepreneurs get additional
guidance from the investors.

10. INITIATIVES TAKEN IN THE COMPANY FUNDED.

Mr. Vijay and his father have invested in a Gujarat based startup which is involved in
farming of prawns and other seafood. He and his father were deeply involved in the
business. His father even provided operational support to the startup without any monetary
consideration because he believes that success of a startup in which they invest is more
important than the monetary benefits. The startup owns Another startup also sprung from
this startup. The oxygen level must be maintained at a 4% in the ponds in which the prawns
and fish are kept. There is a special machine used for this purpose. The machine they were
earlier using had a long breakdown time, require service on a weekly basis and was not
very efficient, and they were facing difficulty because of this so they hired people for L &
T to make a machine for this purpose. The machine they developed was more efficient than
the machine in which they previously invested, and it had a shorter breakdown time and
needed service only after 2 weeks. They started a business of manufacturing and selling
 these machines to the people who needed them. They expanded the business line in this
way.

11. MARKET CONDITIONS AND THE BUSINESS THE STARTUP IS IN HELP IN

TAKING THE DECISION TO FUND OR NOT.
Yes, the market conditions help in making the decision whether to fund the startup or not.
The startup should be in the industry which is flourishing. It should be a small like a small
fish in a big pond as it has a potential to grow in that big pond. Industry in which the startup
is should be growing and the opportunities for it should be more.

12. RECENT TRENDS REGARDING ANGEL INVESTORS.

People now days have become cautious with their money. Now they look more at the return
on investment (ROI) they get and the return on capital employed (ROCE) which the firm
earns. People are always ready to fund an entrepreneur with a good business idea. If the
startup is considering raising debt (Venture Debt) then they do not encourage the
entrepreneur to do that as the cost of debt for them is very high and they provide more
funds to the startup if needed. If the startups go on to raise debt, then they exit from the
startup.
13. ON WHAT BASIS DOES AN INVESTOR FUND A STARTUP?
 Growth (opportunities available)
 Quality of business (return the startup earns)
 Quality of management

14. GOVERNMENT SCHEMES

 Mudra Loans
 15. LEGAL TERMS REQUIRED BY THEM WHILE INVESTING:
They have dedicated legal team who takes care of the legal compliance, term sheet along
with filling with Registrar of companies like CA, CS.

CONCLUSION