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Next-Gen entrepreneurs: Angels of the startup ecosystem

Next-Gen entrepreneurs: Angels of the startup ecosystem
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You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Small businesses play a vital role in fueling the economy, making critical contributions that help to keep our country’s entrepreneurial arteries pumping. They're crucial for job creation. But it is these small businesses and startups that end up facing the financial hurdles and credit crunch as banks turn reluctant when it comes to approving financing for them.

It's difficult for startup founders to get the funding needed to launch. Enter the new generation entrepreneurs donning the hat of angel investors. They are the modern alternative to traditional funding. Where banks and venture capitalists are falling back, angel investors are stepping up, and proving to be invaluable for small companies and the economy.

InMobi's co-founder, Amit Gupta and Flipkart co-founders, Sachin Bansal and Binny Bansal recently funded food-tech startup Twigly. The Flipkart duo has played angels to other entrepreneurs as well. Goibibo Group founder, Ashish Kashyap was an angel investor for Gurgaon-based food ordering startup Bite Club.  Snapdeal CEO, Kunal Bahl and co-founder Rohit Bansal have participated as angels in over half a dozen startups, such as apparel firm Bewakoof, travel planning startup Routofy, and TinyOwl, a food delivery platform.

In other words, it's raining angels on young entrepreneurs with startup ideas. These new age entrepreneurs are investors who normally invest in a business for the sake of entrepreneurship and paying it forward, of course in addition to hitting one out of the park. Some of the angel investors in companies like Uber have seen tens of millions of dollars as returns on investment. 

Of late, angel investors have become the most significant source of funding for entrepreneurs who are engaged in an early stage business or startup seeking equity to grow their business. Platforms like angellist have democratized fund raising. The concept of angel investors has been active in India for more than 5 years now, but the numbers were marginal to begin with.

Earlier, getting a commitment from an investor consumed a lot of time and efforts; comparatively the amount of money that trickled in was relatively small. The investing party also demanded a large share of equity in return for small cash. Most deals happened behind closed doors. As expected, the early stage startups weren't very keen to approach such entities.

Instead, they bootstrapped their companies to a certain extent before seeking external funds. However, over the past couple of years, the industry has witnessed an increase in the number of angels and new generation investors, taking quick decisions and releasing larger cheques. Investing in startups, even when they are at high-risk, can offer tremendous rewards and is a great opportunity if you prefer hands-on investing rather than taking a backseat approach.

For entrepreneurs especially, who have relevant knowledge on new markets and first-hand experience with running startups, angel investing can be a rewarding opportunity. They can carefully choose a startup by studying their business plan, make strategic contributions through mentoring or by taking an advisory role and generate significantly higher returns on their investments.  As an investor, one can actually monitor the startup's progress and find a way to see their investment through a meaningful m&a or subsequent growth and capital raises.

Most angel investors are successful & experienced entrepreneurs and some still run the companies they started. At times, they also belong to different generations. While the older generation of investors mostly turn into angels once their businesses becomes profitable, the younger lot often takes this plunge for startups, while they are themselves in the process of raising money from venture capitalists and private equity investors.

Flipkart's Bansal duo, Delhivery co-founder Sahil Barua,  Jabong co-founder Praveen Sinha and Snapdeal's Kunal and Rohit are a few from this category who have turned angels even as they seek investments to grow their operations. Therefore, they have good insights into the minds of other businessmen who request them to fund their business.

We belong to the age of intelligent capital where although venture funds do bring in a lot of knowledge and contacts to startups, it's only entrepreneurs who can make the initial investment since they have been through the same experience themselves. If convinced, they can make a small business take a big leap forward and can also continue to provide financial support after the first round of funding.

In simple words, business angels can not only support early stage startups financially but can also offer years of industry knowledge and experience to get any business thriving at a large scale. So are you ready to get involved in an existing venture or give the next business entrant on the block a leg up, and further help in boosting the economy too, all this while generating returns on your investment?