Uncle Scrooge would probably figure in Corporate India’s Most Wanted List right now. India desperately needs wealthy individuals who are willing to pool in capital for startups and upcoming enterprises. Generally, such investors turn out to be retired executives or entrepreneurs who undertake high-risk investments in anticipation of high returns on their investment. In business jargon, they are known as angel investors.
The word “angel” was initially associated with wealthy, aristocratic Englishmen who provided funds for theatrical productions. In due course of time, the term came to be associated with business investors as well. All over the world, angel investors are instrumental in providing funds to companies that do not qualify for funding by venture capitalists. In the Indian context, the trend of angel funding is yet to catch on, whereas investments in private equity and venture capitals has grown over the past few years.
The scarcity of angel investors does not bode well for India. This is because angel funding is a crucial component for startups. Angel investors also generally tend to act as mentors for the enterprises that they sponsor. Since startups have a very high rate of failure, intense scrutiny is undertaken by angel investors before providing funds. In the absence of angel funds, companies will find it tough to move beyond the incubation stage. This can prove to be a major deterrent for Indian entrepreneurs.
Traditionally, certain Indian communities like those of Marwaris and Jains funded their enterprises by establishing social networks based on trust. However, compared to other countries like Israel, the angel sector in India is relatively underdeveloped. Due to the absence of many success stories in this field, it is difficult to bring in new players to promote startups. Although a few angel networks like the Band of Angels and The Indus Entrepreneurs have been formed in recent years, the presence of dynastic hierarchies in Indian businesses ensures that professional angels are hard to find.
The bull-run in the Indian stock market in recent years has been instrumental in providing seed capital to companies. However, it is essential to bear caution in this regard since inexperienced investors might end up incurring major losses in these high-risk investments. This was witnessed in India in 2000-2001 when many wealthy but inexperienced investors lost their investments during the software boom. Angel investors need to be well connected and experienced before taking the plunge. They have to identify the startups with potentially high returns on investment and feasible business plans. They then counsel the entrepreneurs and help them in strategizing. The job of an angel investor thus involves a high degree of personal involvement and maturity.
One of the key factors behind the transformation of the Silicon Valley into a technology hub was the presence of a large, systematic network of professional angels for technological ventures in the region. To replicate a similar scenario in India would require time and effort. With the progressive strengthening of the Indian economy, the number of angel investors is on the rise. As of now, the search for the godfathers of business in India continues.
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