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Why Angel Investors are Turning Venturing Capitalists Angel investment platforms have begun launching their own VC funds to write bigger cheques, which further allows them greater participation in a startup's growth story

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The increasing prevalence of venture capital in the Indian market is a direct consequence of its flourishing startup ecosystem, that has established itself as the world's third largest. As the looming fears of global recession and a harsh funding winter gradually ease, an intriguing trend in India's venture capital landscape has been the transition of angel investors into VCs.

With the goal of creating a conducive environment for startups in the country, the launch of government-led initiatives such as Startup India Initiative and Angel Tax Relief have helped accelerate the growth of angel investors in India. This has also been a factor of the proliferation of high and ultra-high net-worth individuals and entrepreneurs in the country who seem to be looking to invest their money. Traditionally, angel investors play a crucial role in the early stages of a startup, as they provide critical capital, or rather, the very first venture capital to a startup for commencing its operations and developing a product or service. Writing big cheques, however, has been a challenge for angel investors as they mostly invest their own wealth to finance entrepreneurs, becoming participants in their growth without possessing direct operational control. Meanwhile, venture capitalists study the granular details of a business plan, establish the fundamental Memorandum of Understanding (MoU) between the organisation and the VC, carry out thorough industry research, scrutinise market growth rates, examine competitor performance and derive estimations for market size, product life cycles and distribution channels.

Angel investment platforms have begun launching their own VC funds to write bigger cheques, which further allows them greater participation in a startup's growth story. Functioning as a venture capitalist is also beneficial for companies as VCs help build successful organisations through recruiting senior management, adding real value to become more profitable. Conventionally, angel investors only invest in the early stages of a startup. As a startup moves out of the pre-seed and seed rounds of funding, the angel investor is given the exit option. In lieu of them being invested, they may not exercise much control in important matters involving the startup.

The VC status can provide angel investment platforms better leverage, and bring them on-par with other VC firms backing the startup. A particular company includes a 'cap table,' which shows the total number of ownership entities. Founders usually prefer a limited cap table, reducing the burden of having several entities review performance reports and raise queries. A VC or a VC fund is a single entity. When a startup enters its Early Traction or scaling stage, operating as a VC can allow an angel investment platform to become co-investors in the company, ensuring better participation and equal rights as other stakeholders.

Out of all the foreign direct investment (FDI) received by India, more than half is constituted by private equity and venture capital in the country. In 2022, India accounted for 5.1% of global venture capital funding value, and 6.3% share of its volume, registering a 0.6% growth compared to the previous year, whereas countries such as UK and China registered a decline in venture capital funding deal volumes. It will be important to observe the role of private institutional capital, including the challenges it faces. These challenges pertain to tightening capital conditions, increasing competition in domestic markets and the prominent need for accountability on corporate governance. Additionally, to ensure India's long-term economic growth, job creation and innovation, the growing venture capital landscape will require an expansive playbook to build, grow and support startups of tomorrow.

Dr. Apoorva Ranjan Sharma

Co-founder and managing director, 9Unicorns

Dr. Apoorva Ranjan Sharma is the Co-founder and Managing Director of 9Unicorns. He is a seasoned veteran in the startup sector and a serial investor.

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