Sarah has a good roundup of lack of angel investing activity in India. Lets get to the more interesting part – how to solve it?
I ran into Vishal Gondal on a flight few weeks back and he had a model that is pretty interesting. And may be there are some other thoughts in the community. So let me try and frame the problem.
How do we get 1000 angel funded startups every year with average initial investment of $100K? That’s collective $100M in angel capital – enough to get started. Some key issues/ constraints/ leeway:
- Any sector
- The amount may be available through formalized groups or otherwise
- Mostly to concept stage businesses, sometimes prototype – definitely no revenue threshold
- No express requirement for mentor, or active investors (yes, this was a tough one for me to let go)
- Doesn’t include advisory capital, sweat capital, incubation resources, etc – talking cash here
- Equity investment with profit motive – no debt, no collateral, no grants
The unstated one of course is sustainability and good choice of ventures – which is a decision that markets can make. Again, I have no included ownership thresholds – markets can decide that.
Smart ideas out there?
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Ganesh – the issue in VC firms is lack of enough bandwidth to deal with 20 startups (as against one scale up venture). And that goes back to the 2:20 model of venture capital and cost of hiring dedicated managers.
Krish – why do you say this is a money losing proposition? Most investment of this kind is based on “sound teams with workable ideas” – are you implying that angel class structurally is non-remunerative? While I agree that money should be hard to come by, if there is no/little supply, there is no market…
Oops…I meant non-payment of “creditors” (not debtors)… Sorry 🙂
Guess you just defined a “Liberal-VC/Angel” ! Someone who has money to throw about. I wouldn’t categorize it as intelligent risk taking. May be it’s digestible if the source of that wealth is by means of anything other than hard toil ( I rate even inheritance as toil – if not yours’ someone else’s).
In finance, we say the only way to “fund” a loss is by non payment of debtors. People normally mistake earlier years’ losses can be adjusted against future profits; that is only an accounting treatment allowable by taxmen. It never works that way. A loss is a loss and can be off-set only if you can pass it on ; and that means if those to whom you owe are willing to take a proportional haircut too. Highly unlikely? You bet.
I would still bet on sound teams with workable ideas. May be it’s rarely found, but that’s where the money should go. In a way it is motivating for fluid teams to rigor up their act and pitch with conviction. Let funding be tough to get (because there is not and never will be a short cut to prosperity) and that is the only thing that will precipitate winners.
Alok,
Isn’t it possible for the VC firms themselves to do this.. A new model for VC investment adapted to the Indian conditions. i.e Every a VC firm allocates a small amount for this kind of deals ( Example : $2 million ). And they invest in 20 companies annually which are at concept stage instead of 1 company in scale stage. And every partner within the firm could share the additional work-load ( sitting on the board of 20 additional companies ).
Is there any reason why VC firms wouldn’t and shouldn’t do this ???
– Ganesh
May b not clear only to me but – where is the solution? What the solution presented seems like what should be output. But from where and how these $100m are going to come? And this is 100m per year not one time?
Second – from where innovation is coming? how to make sure that who ever (dim-witted) person is managing the fund is able enough to look beyond the IIx brand tags?
I dnt think problem is in startups in India – problem is with VC/fund managers in India. Often questions have been raised about how some of the big funds operate in India. In all my encounters with Indian VC fund managers I have not found even one original. What one needs to do is get smarter people to become fund managers. I am sure there is enough money (100m is not that much IMO) and there are good enough startups coming from India. Problem is money is not routed to quality startups due to whatever reasons.