Teacups in hand and butter biscuits within reach, a handful of local technology titans debated the future of some young Indian entrepreneurs on a summer Saturday. After grilling five teams over several hours, the group, the Indian Angel Network, put two promising start-ups on the shortlist for potential financing.
“The Angel Network is really trying to help breed innovation,” said Padmaja Ruparel, the president the organization. “Our efforts are really going into driving the economic engine of India.”
The Indian Angel Network discussing funding of new ideas in their office in New Delhi, India.Sanjit Das for The New York TimesThe Indian Angel Network discussing funding of new ideas in their office in New Delhi, India.
Even though India is famous for it software industry, it hasn’t been a conducive environment for up-and-coming technology companies. Unlike in Silicon Valley, start-ups here can’t easily access capital, tap into a network of serial entrepreneurs or hone their ideas through incubators.
Wealthy individuals and organizations like Indian Angel Network are increasingly filling the void, providing initial capital to young companies with strong prospects.
It’s a small but growing class. In the last five years, angel investors plowed less than $200 million into start-ups, based on data from Venture Intelligence, a Mumbai-based research firm. In the United States, the angel investor market topped $20 billion in 2010 alone, according to the Center for Venture Research.
Angel investing is a high-risk, high-reward game. Since start-ups often fail before they ever make any money, the investors, which typically invest less than $1 million, are betting that a few will take off — earning returns as much as 10 times their original outlay. In India, they’re basically hoping to find another Nandan Nilekani, the co-founder of the software exporter Infosys, or the next Azim Premji, the billionaire chairman of Wipro, one of the world’s largest technology service companies.
Entrepreneurs in India have faced even tougher odds. Until 1991, the country had socialist economic policy, with most industries dominated by state-owned firms or a handful of large business conglomerates like the Tata and Birla groups.
Back then, upstart projects often got stalled by bureaucratic hurdles. Saurabh Srivastava, the chairman of the India Angel Network, who founded the software company IIS Infotech in 1989, said he had to wait 2.5 years to get permission from the government to start his company.
“For first-generation entrepreneurs, it was a monopoly; anyone who had an alliance got ahead,” said Mr. Srivastava, who is considered one of the pioneers of India’s modern technology industry.
Now, established entrepreneurs and business executives like Mr. Srivastava are looking to ease the burden for the next generation. The Indian Angel Network, for example, has started an incubator, where members mentor young entrepreneurs. It also set up “boot camps,” inviting 10 individuals or teams to give three-minute pitches in different cities across the country, to practice for future fund-raising efforts.
Analysts say it’s unclear whether angel investing will become enmeshed in India’s business culture as it is in Silicon Valley, or whether it will crumble if early investors suffer too many losses. While conditions have improved significantly for India’s entrepreneurs, they still face numerous challenges, including a weak infrastructure and a poor education system.
Many of these new investors are “the first wave of people who kind of made money in their first venture and sold off probably 10 years back,” said Arun Natarajan, chief executive of Venture Intelligence. “Time will tell what will happen when a real downturn arrives. Will some of these guys stick to safer investments?”
The Indian Angel Network understands the potential pitfalls. Founded in 2006, the group counts the outsourcing giant Raman Roy; Harish Mehta, the founder of an engineering design services firm; and Rajan Anandan, the managing director of Google India, among its 175 members. Mr. Anandan spent the majority of his career working for McKinsey & Company and Dell in the United States, joining the India Angel Network in 2006 after he returned to his home country.
“It’s very fulfilling to work with entrepreneurs,” said Mr. Anandan, who also invests in start-ups on his own. “We sit on the boards of the companies. We are deeply involved.”
To vet potential investments, the group meets most Saturdays in boardrooms across the country. They listen to 20-minute pitches from young entrepreneurs based in India and abroad. After they reach consensus on a start-up, they solicit the larger membership for money.
In the last five years, the group has made 25 investments, notching gains in Druva, a successful real-time data backup software company. Another company in its portfolio, Hungry Zone, a restaurant reservation site in Bangalore, was bought by the British company Just-Eat.
They put candidates through the wringer. While the organization hears more than 200 pitches a year, it only finances a handful.
At a recent meeting, the first presenters were graduates of IIT Roorkee, a prestigious engineering school in the country. The two young men described their idea to develop a virtual learning company for “freshers,” or recent graduates, to make them more attractive to multinational companies with Indian operations.
As they described in their pitch, it would fill an unmet need in the country. But 20 minutes into their PowerPoint presentation detailing the hardships face by new graduates, the judges grew restless.
“In the interests of time, can you move towards a solution?” asked Vishal Lalani, who runs a dashboard instruments manufacturing company.
Later in the day, the group voted down the pitch, citing doubts that the idea would really address the problem.
“We’re not looking at it as cutting checks,” said Pradeep Gupta, the chairman of the specialty media house CyberMedia and a member of Indian Angel Network. “We should be able to add value to the company. We should be able to add value to India.”