The Indian Angel Network is defying funding slump with bold Rs 1,375 crore fund launch and ambitious exit plans

Indian Angel Network, which had funded Zypp as it does scores of such start-ups, watched on without interfering when Zypp changed tack. That’s one of the things IAN does well: allowing its start-ups leeway.

Now, buoyed by its successes, IAN has set a goal of investing Rs 5,000 crore in 500-odd start-ups within the next six years. That’s a tall target for IAN, which has deployed Rs 1,000 crore since it was founded in 2006 by Padmaja Ruparel, Saurabh Srivastava, and Raman Roy. But if it succeeds, IAN will have created half a million jobs by 2030 by investing in early-stage start-ups.

“Angel investment in India is as old as us,” says Ruparel, who became an “angel” after dabbling in varied professions and quitting her family’s real estate business.

Ruparel’s optimism has not left her even though the industry was becalmed in 2020 by lockdowns. But after hitting an all-time low, funding peaked in 2021. Then came a funding winter in the second half of 2022, as investors took their time (sometimes five or six months against a couple earlier) to seal a deal. Many had backed start-ups without a thought in 2021, but when the ventures failed to fight the lockdowns, the investors stepped back.

Ruparel says the funding ‘winter’ happened because some firms burnt through their cash too soon and failed to stabilise. “We didn’t see a situation where it was complete winter and nothing moved. Investments did happen, but some companies slipped, and thus, there was a drop in fundraising,” says Ruparel. “This reduced the investors’ appetite because they feared possibilities of loss.”

Serial investor Sanjeev Bikhchandani, founder of Info Edge and the man behind brands such as Naukri.com, jeevansathi.com and 99acres, concurs with Ruparel. “Investors, today, have become a little extra cautious. But the start-ups which have potential and have performed well are not facing this funding crunch,” he says.

T.V. Mohandas Pai, Chairman of Aarin Capital Partners and veteran investor who was CFO of Infosys, says investments go up and down in a cycle. “It keeps going up and down, but it is taking too long this time. The yearly funding should reach at least $15-20 billion to be called cyclical,” he says.

Pai says the cycle depends on macroeconomic conditions in the West, which is the source of most investments in Indian start-ups (85% of the investments come from abroad). Cycles are a global phenomenon driven by the macroeconomic conditions.

K. Ganesh, another serial entrepreneur and investor, says private equity and VC funds are sitting on many capital commitments. “But I think we have to recognise and acknowledge that funding velocity, ticket size and valuation of start-ups did go downhill,” Ganesh says. “When the market was hot, money was chasing deals, but now deals that would have taken two months to close are running into delays of six to eight months.”

Ruparel says that one of the biggest cash components for early-stage start-ups is the salary bill of senior people. “Many of our portfolio start-ups reduced the salaries of the senior people and survived the pandemic and funding winter of 2020,” she says, dodging questions about job cuts.

IAN was there to mentor such start-ups and give quick feedback on critical issues. Akash Gupta, Co-founder and CEO of Zypp Electric, says, “IAN has guided us throughout our journey. They have helped us on multiple fronts, including cash management and hiring decisions.”

IAN was established as a network of angel investors supporting early-stage start-ups in agriculture, e-commerce, education, hospitality, semiconductors, and retail. It had been almost a year since Raghuram Rajan, then the International Monetary Fund’s chief economist, had said financial risks were increasing and there could be a catastrophic meltdown. No one believed him until the meltdown happened in 2008.

Foreign funding shrank, but India’s central bank did well in insulating the country from the crisis. Volumes picked up in 2011, and IAN and a clutch of angel investors helped power many early-stage start-ups in Bengaluru, Mumbai, and Delhi-NCR.

Today, IAN claims to be supported by more than 500 investors across nine countries. Among IAN’s successes are Zypp, WOW! Momo, Spinny, Manastu Space, Data Sutram and WebEngage. (D2C food chain WOW! Momo raised funding through IAN in 2015, with InfoEdge’s Bikhchandani as the lead investor.)

Sagar Daryani, WOW! Momo’s Co-founder and CEO says, “IAN has supported us throughout our growth journey. Regarding compliance with the regulatory framework, one IAN is acting for all. Angel networks are very helpful for your business if you can use them. When we entered Delhi-NCR, we got a lot of support from the network regarding location hunting, connections, contacting vendors, etc.”

According to Daryani, IAN also supported him in raising funds right after the pandemic when restaurant businesses had just started coming back to life after having to shut their doors during the lockdowns.

So why does IAN go for early-stage start-ups? Ruparel says young start-ups have young founders with little experience. “It is obvious for them to make mistakes, and that’s why early-stage investors should also act as mentors to help them navigate. We intend to give our portfolio start-ups all the support.”

IAN’s mentoring includes getting the start-up the right industry connections, as it did with Dhruva Space, which is building application-agnostic satellite platforms. Chaitanya Dora Surapureddy, Dhruva’s CFO and Co-founder, says IAN has “guided us in everything, including making the right industry connections”.

“IAN is a founder-friendly network that looks at long-term association with founders. Because of the pandemic, there was a year’s gap between our first conversation and raising the funds. But they made sure that funds were raised right, and we saved enough to have a runway for the pandemic,” Surapureddy says.

Does Ruparel or IAN favour women-led start-ups? Not exactly, but Ruparel does try to ensure that women entrepreneurs do not have to face gender-biased questions like, ‘Are you married? What are your maternity plans?’

Ruparel says women lead 23% of IAN’s portfolio. She acknowledges that, at least in India, many women founders face gender-biased questions when they pitch for funding. Such gender stereotypes have existed in Indian society for ages. However, IAN focusses on the founder’s potential, not their gender.

“Though it is hard to avoid sexist actions completely, such as turning to male founders while discussing financials, we try to make sure that no stereotypical questions are asked during the pitch,” Ruparel says. “However, women have to network more, which Indian women have been avoiding over the years due to social stereotypes.”

Ruparel says women have come out in support of other women, created dialogues, and set examples. They could adopt business leaders like Nykaa’s Founder, Falguni Nayar, as role models. “Her work is a landmark example of the paradigm shift in the women-led business landscape in India,” she says.

Nishita Agarwal, Co-founder of Papa Pawsome, a D2C start-up selling organic shampoos and spa kits for pets, did not face gender-biased questions at IAN. “While pitching to other investors, we faced gender-biased questions, but our experience has been smooth with IAN. The best part of the conversation with them is having a single point of contact in the whole organisation,” she says.

Agarwal says IAN’s resourceful investor base gives an edge to the early-stage start-ups it mentors.

Ruparel attributes the turmoil in the start-up industry to the failure of some promoters on compliance issues. Byju’s, BharatPe, and Paytm became household names and success stories, but they ignored governance and compliance issues and have been hauled up for that.

The Reserve Bank of India cracked down on Paytm’s wallet and bank business after it ignored KYC rules, while BharatPe’s leaders brawled in public. Byju’s forgot the basics of handling cash or debt, among other things. Founder and CEO Byju Raveendran watched Byju’s valuation come down to zero from a whopping $22 billion.

Ruparel points out that India’s compliance ecosystem is ever-changing and dynamic as technology evolves continuously. “In such a scenario, young start-ups with limited resources and more focus on scaling the business could miss the compliance policies,” she says.

But, she cautions, “It is important to find out whether such start-ups are missing these by intent or by mistake. It is important to find that out and help the founders.”

Ruparel says angel investors must impress upon start-ups that while their idea could be new, the rules for building a business are not. “There are some tried and tested methods for sustainable business growth. Founders have to understand that, ultimately, they are not catering to the investors but the customers. So they have to look into the future and determine where they want their businesses to put up some years later,” she says.

The founders must ensure that expenses are well structured based on cash flow to earn a profit in the long run. They must ask themselves, “Will I have a good-looking balance sheet that I may need to present to raise money?”

Ankit Agarwal, the Co-founder of Phool, a company that recycles flower waste from temples to make incense sticks, scented candles and essential oils, realised this early on. “We are a very young start-up that raised pre-Series A investment from IAN’s VC fund. After the funding, IAN laid out the entire concept of financial discipline and how to maintain it,” Agarwal says, and intends to stay connected with it.

Mentoring early-stage start-ups is fine. But angel investors must choose their portfolio wisely. This is where investing through an angel network works, as peer-to-peer sharing of experiences can help.

As start-ups evolve into mainstream businesses, investors push their limits and step into uncharted territories for better returns. How should investors choose their portfolios in such a scenario? “An investor may invest in multiple companies but certainly not have expertise in all those sectors. In such cases, shared experiences help mitigate risk,” Ruparel says.

Raman Roy, Co-founder of IAN, says the Indian ecosystem has come a long way over the last two decades, from questions like, what is a start-up and what is angel investing? Today, start-ups are a part of the mainstream in government policymaking and job creation.

“I am confident that IAN will continue to play a role in shaping this ecosystem and taking it to greater heights while meeting India’s national objectives,” Roy says.

Combining the angel network and the two funds makes IAN a horizontal platform for seed- and early-stage investing and breeding tech-enabled innovative businesses. IAN plans to launch two more funds, one by late 2026 and the other by 2029. It aims to back early-stage Indian technology hubs-based start-ups with a special focus on those leveraging AI, healthtech, and edtech.

Saurabh Srivastava, another IAN Co-founder, says exits or selling off stakes in a portfolio company are equally important. Srivastava, one of the forces behind software industry body Nasscom and The Indus Entrepreneurs (TiE), says, “The IAN Fund 1 is currently focussed on driving exits. Several exits are in the pipeline, which will be announced soon after the transactions are completed. Our experience and focus has been to invest in Indian start-ups solving real problems in India and then scale globally.”

That’s going to be the key: scaling globally.

@sudi_journolife