Angel funding for startups seems to have received a little boost of late. According to India Angel Report 2016, released by InnoVen Capital, the venture debt firm, the deal activity by the angel groups grew significantly in FY16, amounting to R113.7 crore across 69 deals, as compared to R70.3 crore across 47 companies last year.
The financial year 2015-16 has seen the highest number of deals when compared to the preceding four years.
Startups like Healthifyme, YourDost, BlueChilli, AhaTaxis and WhatsonRent are among those who raised angel funding in FY 16. According to the report, demographically, Delhi-NCR had emerged as the preferred destination for entrepreneurs, attracting 36% of angel deals, followed by Bengaluru 20% and Mumbai 10%. Interestingly, one fourth of the all the startups in the sample had at least one female co-founder. Chennai seems to have attracted a good number of startup funding in FY14 and FY15 with a share of 21% and 18% respectively. But in FY16 it saw only 5% of the deals coming.
Commenting on the development, Padmaja Ruparel, president at Indian Angel Network said, “There are only one or two sectors where the private equity funding has come down or the valuations have dipped. If we pull out those, which have largely become a big boys’ club, the rest has not seen a dramatic rise or dramatic fall. A lot of innovation is happening in the manufacturing, fintech, logistics, clinical trials, hospitality sectors. And we see an enormous opportunity with the size of the market and growth in innovations.”
With India being one of the largest consumer markets behind China and the US, more number of B2C startups have sprung up in recent years and attracted investments compared to B2B startups. According to the report, B2C startups attracted over two thirds of angel group investments, with consumer internet, food and e-commerce as top sectors. In the B2B space, IT/ ITeS startups received the most amount of funding, followed by logistics. A strong preference for revenue generating startups observed in recent years continued in FY16, with 71% of the startups backed by angel groups generating revenues, the report said.
“Earlier, Indian innovative companies were building products that were accessible only in the global market. But now, we have companies which are building products here and are catering to both Indian market and the global market. This is a big shift, and with the right push from the government, it has made it all attractive,” Ruparel added.
Unlike VC funds who invest in startups at a later stage to push for growth and expand the market share, angel funds invest in early stage startups, supporting the idea and innovation of young entrepreneur. For instance, even as a host of food delivery startups are shutting operations. Bengaluru-based Cookaroo, a food delivery startup that delivers freshly prepared meals by utilising the under-utilised commercial kitchens, raised angel funding from Vijay Krishna Yadav of Highland Hospitalities and Sachindra Murugesh, to fund its technology development.
Commenting on the investment, Yadav said, “Cookaroo’s business model is similar to OYO Rooms’ business model in the budget accommodation space. This unique and scalable model has allowed them to be profitable early on in the business. Most food delivery startups today are only addressing the consumer side of the food delivery ecosystem. Cookaroo is not only addressing consumer pain points but is also solving the problems that exist in the supply chain side. We believe that Cookaroo is in a good position to grow into a strong player in the burgeoning food delivery industry.”
The talent pool was also well represented from premier institutions like IIMs and IITs. About 23% of all engineering graduate founders were from the IITs, while 16% of all founders are MBA graduates from the IIMs. The report notes that 67% of founders were engineering graduates and the majority of them had a post-graduate qualification, most commonly an MBA.
At an overall portfolio level, an analysis of over 150 investments made by angel groups between FY05 and FY15 reveals that, angel groups had exited 18% of investees, while 7% had wound down, with the remainder still operational, but not exited. And more than 50% of these companies have raised follow-on rounds of funding within which 22% raised multiple rounds.