Angel Investing: Downward Trajectory
The euphoria over Angel Investing in India is dwindling over the last year.
It is common knowledge that aggressive angel funding in India is on the wane as investors have become wary of backing early-stage companies. The number of companies that received funding as well as the amount invested dropped to a threeyear low in 2017.
The enormous rush to invest in early-stage companies post-2011, was largely due to a global glut of liquidity coupled with an emerging trend of consumers’ mobile-first behavior. This was the era that saw a swift growth in smart phones and internet connectivity, leading to a mushrooming of tech companies especially in the B2C segment across all industries including lifestyle, food, travel and health. Investors, caught up in the hype of the moment, dashed to ride the wave of digital penetration in India, especially across tier 2 and tier 3 cities.
More than 60% of the early-stage companies that received funding in the last five years fell under the tech sector. The ‘fear of missing out’ season in angel investing led to the financing of many ‘me too’ startups that lacked any real differentiation or innovation. The resultant poor performance and the lack of profitable exits dampened the enthusiasm of early-stage investors. Consequently, the euphoria around angel investing abated, leading to a decrease in early-stage funding by over 25% in 2017 alone.
While this scenario could mean increased difficulty in a start-ups ability to raise initial funding, it may result in a robust funding environment. The urge to cash in on the ‘tech rush’ has meant that many angel investors have burnt their fingers and are now eschewing the ‘spray and pray’ approach to funding. The market now comprises of discerning investors who are on the lookout for quality rather than quantity, ready to invest bigger in companies with a sound business model and stable operating policies.
With the bar set higher, the tech sector as well as young entrepreneurs are pushed to come up with business plans that are vigorous and self-sustaining. The key is to build a viable cash flow positive business model,that focuses on marketing as well as on solving real customer problems and product development. If these steps are done right, money should follow easily.
The ‘silly’ season in angel investing has given way to a more prudent investing milieu. Businesses with a solid platform are drawing the attention of the