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2015-01-19

How to raise a startup fund in current environment

The investors are turning sector agnostic and are looking for well-differentiated concepts.

In 2010, there were around 10 incubators in the country; While the number has risen to approximately 50 in 2013. The investors are turning sector agnostic and are looking for well-differentiated concepts. Is the funding scenario in India really changing or are there downsides too?

The Indian startup ecosystem and investments in early-stage firms are growing. The Indian Angel Network alone gets about 5,000-6,000 business plans in a year. Although the number of companies getting investment can be anywhere around 25-30 per annum, but with over 300 investors, the opportunity is waiting to be tapped.

There is a huge potential. India is touted to become the next big market if the Prime Minister’s current policies are fully implemented. Moreover, investors are not only home-grown, but they are coming to India from Western nations and are looking out for opportunities in the Indian start-ups.

“We are expected to hit a 5.6 per cent GDP growth, which is not only aspirational, but a great leverage for entrepreneurs to build companies. Also, high-profile corporate individuals, who are stepping out and starting their ventures, do so with the help of high quality teams, which is a sign of great companies getting started,” says Padmaja Ruparel, President, Indian Angel Network.

Evolved Ideas, Evolved Transactions

College students are also increasingly picking up entrepreneurship as their career choice. Investors believe that it is the reason why entrepreneurship today is pushed to the top of the pile. The angel investors are putting their personal money in ventures and in asset class.

So, we are getting entrepreneurs, seeing overseas money being flown into the market and VCs investing in diverse portfolio companies. Even the sectors today are opening up. “Young startups today are not only limited to technology, but are also extending to healthcare, agriculture, manufacturing, clean energy, etc. All sectors are opening up. It is very exhilarating to see all this,” says Ruparel.

Satish Kataria, Founder, Catapooolt, believes the supply gap needs fixing. There is a dearth of investment in a country where every day so many new ideas are generated. Not all ideas, he suggests, can be drowned to drain. He believes, “It is crowd-funding that will drive the mammoth entrepreneurial drive.

In last year and a half, we have been able to get 30 projects for a transaction of over Rs 75 lakh. Seeing the ecosystem today, I can say crowd-funding will start gaining ground sooner rather than later.” It’s a matter of time how the “collaborative” Indian market will respond to crowd-funding. 

Sector Agnosticism or Trend Followers?

Many investors today are learning to be sector agnostic, and looking out for propositions that are well-differentiated and cater to high-growth markets. The focus today has shifted from specific sectors to high-dedicated, execution-focused teams.

Ruparel too believes in high-differentiated propositions more than anything, “Some time ago, I was in an investor pitch and heard someone talk about building an electric scooter. When everyone asked him why he was building it, when it had been already done by Mahindra and Honda, the reason that he gave proved that his product was well-differentiated. Take the automatic dosa-vending machine for instance; it takes out the need for a chef, for the skill needed to make a dosa.”

For Sunil K Goyal, CEO, YourNest Angel Fund, the companies that leverage technology attract investments and he says, “Technology is possible in every sector, and it helps serve global markets in a better way.”

Sectors Cashing in

The healthcare sector has seen a tremendous growth and many companies are coming up in that domain. A lot of logistics and mobile-enabled apps too have been picking up. “We have invested in a company called FarEye, which is a mobile-assisted logistics player. It helps the courier guy to deliver faster, and for his office, to track his whereabouts. We are also looking at technology propositions overseas, because the R&D ecosystem is much better there. It’s our aim to bring them to emerging economies like India. Another player we have invested in the UK tracks the user’s daily appointments and tells them the best way to reach their destination, it is called Lowdown App,” says Ruparel.

Although the ecosystem is welcoming a gamut of investments in various quality propositions without being sector biased, 2015 could see a lot of investments in the technology domain. Major investments are going to take place in logistics and technology and this will open the Indian market for competition at the global level.

The tax structure could be looked at as the only downside in startup funding scenario. The home-grown investors are subject to tax scrutiny if they invest in an Indian enterprise and not when looking overseas,and Indian companies seeking funds will avail tax benefits when transacting via foreign investors.

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