The current calendar year looks all set to record the highest quantum of angel investments in a single year. As per Tracxn data, angel investors have already pumped in $14.67 million across 56 deals in the first half of the year, compared to $16.58 million across 32 deals in calendar year 2014.
“Angel investors maximise value by investing time and energy to build a start-up. They use their expertise to mentor the company and help it grow to the next level,” notes Ajay Hattangdi, chief executive and managing director of InnoVen Capital and member of Mumbai Angels.
Angel investment refers to funding from affluent entrepreneurs who are among the first to invest in a start-up in exchange of convertible debt or ownership equity. They seek to exit at Series A or B round of financing. Angel investors typically target 35 per cent – 45 per cent returns at the end of three to five years. This is why they prefer to invest in start-ups, which provide services that get traction quickly, thereby attracting venture capital investments that help to increase the valuation of the company.
As per InnoVen Capital, in FY15, 21 per cent total angel investments were deployed in IT and IT-enabled sectors, 18 per cent towards online services, 17 per cent in consumer services, 9 per cent in education and 4 per cent in e-commerce. However, industry feels angel investors need to raise their risk appetite and payback horizon. “Angel investors are by and large still reluctant to invest in ground-breaking ideas, since return on investment in such big bets takes more time and returns don’t come immediately,” says Subhasish Sircar, founder and chief executive of Health Vectors.
Angel funding sets the tone for future fund raising rounds. The investment allows startups to set up operations and scale the business model, making way for fund infusion from venture capital players for further expansion. Take, for example, hyperlocal firm Jugnoo that raised $1 million from angel investors and recently announced $5 million Series A round of funding from Tiger Global.
“Angels clean the house and bring order to get the start-up ready for Series A financing round,” adds Hattangdi. The top five in 2015 include Eat Shop Love, Customfurnish, Wellness Forever, 20Dresses, EazyDiner, Jugnoo, ZenRooms and Stitchwood.