Nandini Mansinghka

The author is CEO of Mumbai Angels Network

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Investments And Exits: How Angel Investors Are Changing The Dynamics For The Industry

With the investor community recovered from the pandemic’s initial disruptions, angel investment is set to increase exponentially in the upcoming years as angels are transforming the dynamics of the industry.

For anyone who has been following the startup ecosystem, it’s a no-brainer that India’s startup ecosystem has seen astronomical growth in recent years. Despite the pandemic’s initial disruption in early 2020 and impact on startups, the ecosystem has not only recovered but also grown immensely. India is currently home to the third-largest startup ecosystem in the world, with 21 startups making their entry into the Unicorn league this year alone.

However, while this data is indicative of the startup ecosystem’s immense potential, startups require a constant inflow of funds, especially in the initial phase, to ensure the business doesn’t fail from lack of funding. This is where investors come into the scene. Apart from Venture Capitalists (VCs) and other sources, there is one category that plays a crucial role in the entire ecosystem – angel investors.

Recent times have seen an increase in angel investments, with even founders of highly successful startups turning angel investors. According to reports, there are 4600+ active investors in the country, with nearly 60% of them being angel investors, signifying the growing presence of early-stage investors. With the investor community recovered from the pandemic’s initial disruptions, angel investment is set to increase exponentially in the upcoming years as angels are transforming the dynamics of the industry.

Angel investors’ role in the startup ecosystem

Rather than merely providing financial backing to a startup, angel investors are present throughout the company’s growth journey, offering the required guidance and mentorship. They invest not just financially but time, knowledge, and other resources too, in exchange for ownership equity, making them an indispensable aspect in a startup’s journey. But, alongside investments, angel investors look to make a successful exit too.  

Planning and executing the exit strategy

Angel investment comprises the entire cycle – from the investment to the returns, i.e., the exit, along with the next round of funding that will take place. Having an exit strategy in place is imperative to ensure that the angel investor gains optimum returns. However, there is no cookie-cutter approach to make an exit from a startup, and a successful exit doesn’t happen overnight. It’s important to understand that the exit can either be financial wherein a VC buys out the angel investor’s equity, a strategic exit that results in an acquisition, or an acquihire exit, in which case a startup that isn’t successful/profitable goes through a merger or an acquisition with an equity swap to avoid depleting the investor’s capital further.

Having said that, the right time to exit a startup would be when the business is witnessing a high growth rate and gaining traction. While this varies for each business, angels will simply need to consider factors such as the market scenario, return on investment, etc., and implement their exit strategy accordingly. Aiming for successful exits and maximum returns on their investment will benefit the angel investor.

Angel investments – no longer restricted to the metros

Up until recently, angel investments were often majorly concentrated in metropolitan cities. However, this has since changed. With startups becoming a separate, lucrative asset class, more and more investors are strengthening their portfolios by investing in high-growth, high-potential startups from Tier-II and Tier-III cities, enabling entrepreneurs to scale their business, further facilitating the startup ecosystem’s growth. In 2021 alone, 10 Tier-II cities were added to investors’ lists as emerging startup hubs, including Silvassa, Raipur, Mangalore, Ranchi, Roorkee, Palakkad, Panchkula, Ludhiana, Thrissur, and Jabalpur. 

New-age investors from across the globe

With the pandemic making remote working a norm, investments have transcended geographical boundaries. Today, angel investors, not just from India but across the globe, are investing in startups in the country – both those in Tier-I cities and Tier-II/Tier-III cities. Furthermore, there has been a surge in millennial/GenZ investors who have a higher risk tolerance and are more willing to invest in early-stage businesses. All this combined has paved the way for increased investments pouring into the country’s startup ecosystem.

Summing up

As the world adjusts to the new normal and the investor community continues to back high-potential, high-growth startups in their journey, the startup ecosystem is growing at a breakneck pace, with several startups not only entering the Unicorn club but also listing for IPOs, going public. Given the steady uptick and evolving trends in angel investments, there is no doubt that the angel investor community is changing the dynamics of the industry and will continue to do so for the foreseeable future.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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