How you can own a slice of India’s next billion-dollar startup?

How you can own a slice of India’s next billion-dollar startup?

An inside peek into Mumbai Angels, one of India’s first angel investing clubs, and several reasons why angel investing can be exciting and rewarding

At 34, Naveen Tewari, is the poster boy of the Indian startup world. His company InMobi, a mobile advertising network, is valued at over US $1 billion (by SoftBank, the Japanese Media company which invested US $200 million in Tewari’s company) and competes with Google in the mobile advertising space. However, this story is incomplete without one additional piece of information – the role of InMobi’s angel investors, Mumbai Angels.

Back in 2007, as Tewari and his co-founders were looking for seed-capital with just a PowerPoint presentation in hand, they happened to meet two guys – Sasha Mirchandani and Prashant Choksey, both owners of family-run businesses. Mirchandani’s family owned Mirc Electronics, the parent company behind Onida, and Choksey’s family used to own Asian Paints. However, in their free time, they dabbled in investing small amounts of money in early-stage entrepreneurs.

Choksey recalls, “Sasha and I met Tewari in Delhi, and were blown away by his commitment and his pitch. These Mckinsey and Harvard guys (Tewari is an MBA from Harvard and worked for McKinsey) know what they are talking about. In just one meeting, we were sold on to his story.” At the time, InMobi was called mKhoj and its business model was totally different from what it is today. “But it was the entrepreneur we were betting on. Here was a guy who could get a top-notch job anywhere in the world. He was ready to leave all that and startup out of a gully in Andheri. What he was sacrificing to make his venture work was what helped us make a call,” adds Choksey. Within days, Tewari received a cheque for US $500,000 from the duo and a few of their friends.

This investment not only planted the seeds for Tewari’s entrepreneurial journey, it laid the foundation for an organised angel network. In November 2006, Choksey and Mirchandani had setup Mumbai Angels, one of India’s first angel investing clubs (Indian Angel Network was the other). The network would connect professionals, entrepreneurs and family business owners interested in angel investing with early-stage entrepreneurs. It was structured as a non-profit with members paying an annual membership fee. Today, Mumbai Angels has over 150 members in the network and has deployed over US $15 million into 37 startups and has even made six exits.

Mirchandani says, “We’ve debunked the process of angel investing so that one doesn’t have to be a tycoon to invest at the seed-stage. If one has Rs. 5 lakh to Rs. 10 lakh to invest, he or she can be an angel investor. The key is one has to understand the risks of such investments and be prepared.” Typically, at Mumbai Angels, a group of investors pool together and invest anywhere between US $100,000 and US $500,000 in a startup. It’s an investment that is extremely risky, but as several people say, you could lose only 1x the money (one-time the money invested) but make unbelievable returns if the company turns out to be successful. The story of InMobi is a case in point.

So, who can be a good angel investor?

Mirchandani says, “One of the key aspects of being a good angel investor is someone who knows the difference between adding value and looking over the shoulder of the entrepreneur.” Mumbai Angels takes pain and effort to ensure angel investors know their role. Choksey adds, “Once you are in, implicit trust in the entrepreneur is crucial. One needs to understand that you are in it for the entrepreneur. You need to understand where he is coming from, his passions and what he wants to achieve.”


It was the entrepreneur we were betting on. Here was a guy who could get a top-notch job anywhere in the world. He was ready to leave all that and startup out of a gully in Andheri. What he was sacrificing to make his venture work was what helped us make a call.


In the case of InMobi, Tewari tried his hand at several mobile-related business models including an SMS-based search. He even tried to sell deals (for shops in Mumbai) through a mobile phone. Choksey still remembers how he went to Linking Road in Mumbai to see if he could help Tewari convince a few shop owners there. Choksey says, “The entrepreneur will obviously try out many business models; some will work and some will not. To the credit of Mumbai Angels, we let him experiment. Over-inquiring an entrepreneur does not work.” Eventually, InMobi did arrive at a model that worked. It was a mobile ad network, one that connected mobile publishers and application developers with advertisers. However, by the time the proof of concept for this business model was ready, the company had run out of cash. Just in time, Tewari and his co-founders managed to raise US $ 7.1 million from Kleiner Perkins Caufield Byers and Sherpalo Ventures, both Silicon Valley venture capital firms. Choksey and Mirchandani exited the bulk of their shares (they still own a small stake) in a secondary transaction in this Series-A round. Choksey reminisces, “I still remember the day. I was para-gliding when I got a call from Sasha, who gave me the news. We were excited both for Tewari and Mumbai Angels.”

Over the years, Mumbai Angels has managed to attract a wide variety of people into its network. Unlike in the U.S., where several angels have been entrepreneurs in the past, in India, family business owners and salaried professionals have also been roped into the network. Mirchandani says, “In the early days, most people we brought into the network were friends. But now we’re looking at areas of expertise and are trying to balance out the network with people from various sectors.”  Successful entrepreneurs like Sanjay Kamlani (who exited Office Tiger and Pangea3) and Anand Jhavery (who exited Rave Technologies) joined Mumbai Angels. Mirchandani says, “This was super important. These guys know what it takes to build and exit a successful company. Entrepreneurs can certainly learn from the experience of such investors.”


There is room for growth at the incubation stage – companies from incubators can feed into angel networks and seed-funds. Also, I do believe that entrepreneurs will benefit from attending a few entrepreneurship-related classes on some aspects – say, on how to articulate their plans better while pitching to investors.


Kamlani has invested in several startups through the Mumbai Angels platform. Some of his investments include Serial Innovations (a company that makes security software and panoramic security cameras), Algorithm (an ERP software venture), Onward Mobility (a mobile apps company) and Karmic Lifesciences (a clinical research company). He guides entrepreneurs from the outside as needed. His expertise has been in building outsourcing companies by serving the western markets. Entrepreneurs in the Mumbai Angels network can tap into his expertise – whether it is setting up a sales office in the U.S. or hiring a large number of people, Kamlani’s service comes into play.

Jhavery established Rave Technologies, a product engineering services company, in 1987 at a time when angel investing was unheard of. He has been a core part of the Mumbai Angels network, advising entrepreneurs and playing a role in improving the operations of Mumbai Angels. Jhavery also doubles up as the head of the membership committee of Mumbai Angels, helping identify new angel investors and bringing them into the network. Jhavery also invested in InMobi, in addition to investments in Apalya Technologies (a mobile video delivery platform) and AtYourPrice (online air tickets for corporate clients with a focus on saving costs for them) among others. Jhavery says he’s willing to wait a bit and bet over a long-term period. His investment in Apalya Technologies is an example. He says, “It’s also a mobile play like inMobi, but the technology is more complex. Sometimes, I am willing to bet over a longer term.”

Operations at Mumbai Angels

For almost every member of the angel network, angel investing is a passion that is pursued over the weekend. However, Mumbai Angels wanted to organise itself with a process in place to identify and invest in startups. Choksey and Mirchandani, along with some of the earlier angels, decided to put together a small team to manage day-to-day operations at the non-profit (when angel investors invest in a startup, the deal is between the individual investors and the startup company. Mumbai Angels only facilitates the process). Today, Mumbai Angels receives several business plans (over 700 every year), which are sorted by the full-time team headed by Anil Joshi, vice-president of operations. Every 45 days, 16 startups are selected to pitch to angel investors over the phone. These 16 are then brought down to four startups that are presented face-to-face at a Mumbai Angels meeting held once every six weeks. Mirchandani says, “It’s a meeting that is extremely organised. There is a presentation format that is followed; each company is given a stipulated time frame to pitch; and then over lunch, entrepreneurs interact with angel investors one-on-one.”

After this, Joshi’s team formally asks investors to show interest on any of these four startups. Within a stimulated time duration, a deal champion (the angel investor who takes the lead to analyse a prospective investee company) is selected to interact with the startup to gather in-depth information and perform due-diligence. After this, a decision is made. If there are enough angel investors who want to invest in a particular startup, a term sheet is negotiated, the deal is done and one of the angels sits on the board of the company. Like in most early-stage deals, the valuation depends on how much money the company is raising, the team and the space in which the company operates. Choksey and Mirchandani agree that valuing a company at this stage is an art, one that just depends on what works for that particular entrepreneur and his investors.

What next for the overall ecosystem?

India, today, seems to be on the right track to see the development of a vibrant startup ecosystem. Mirchandani has started Kae Capital – a fund that will invest at the seed-stage but will continue to invest in future rounds as needed. Another Mumbai Angels member, Karthik Reddy, has started Blume Ventures, that will invest anywhere between US $50,000 and US $2,50,000 in startups along with other like-minded seed-stage investors. Like Kae Capital, Blume Ventures will continue to invest in top-performing portfolio companies.

But from an early-stage entrepreneur standpoint, where does India stand in the development of the overall ecosystem? There are incubators, either associated with universities or independent ones, which handhold entrepreneurs in the early-phase. Angel networks that can cut cheques starting from US $100,000 are also present. And, of course there are the seed-stage funds, venture capital firms and private equity firms. From a fund raising standpoint, it seems like the gaps are bridged. But there’s a long way to go in several other aspects.

Jhavery, Mirchandani and Choksey unanimously believe that there is a potential for an angel network in every city in India. “There can even be multiple,” adds Mirchandani. Jhavery says, “There is room for growth at the incubation stage – companies from incubators can feed into angel networks and seed-funds. Also, I do believe that entrepreneurs will benefit from attending a few entrepreneurship-related classes on some aspects – say, on how to articulate their plans better while pitching to investors.”

Reddy of Blume Ventures believes there are several gaps outside of fund raising. He asks, “Can we recruit a professional to lead a growth-stage company (say, similar to how Google hired Eric Schmidt)? Is there a platform to hire co-founders for your venture or to hire the head of technology for your startup?” Reddy also believes that for seed-stage funds, it would help to have a more vibrant mergers and acquisitions market for smaller companies. He certainly makes a fair point. In the U.S., there are the likes of Facebook and Google, but the ecosystem also sees smaller companies getting acquired by larger ones on a regular basis.

At a broad level, India’s entrepreneurial ecosystem is heading in the right direction. But it would be naive to think it is all set. The next few years are going to be crucial – well-managed incubators, good seed-funds and more angel networks, along with the numerous venture capital and private equity funds, will take care of the fund raising side. As all investors repeatedly mention, the next crucial outcome is more exits, both through IPOs (initial public offering) and acquisitions (small and large), and this will lay the foundation for a robust entrepreneurial ecosystem. At the moment, one thing is for sure: for stakeholders in this space, the journey is exciting and adventurous.


EARLY-STAGE ECOSYSTEM

A ROADMAP

Angel clubs and incubators in all major cities

Entrepreneurs need some capital and handholding in their early-phase. Angel investors, who know what it takes to build businesses and are also available locally, will certainly help. Startups coming out of incubators can feed into seed-funds.

More small-ticket mergers and acquisitions

For seed-funds, exits are critical. While it would be great to witness the next Google coming out of India, more exits for small companies through acquisitions would be a tremendous boost.

An entrepreneurship-education vehicle

India has numerous small and medium enterprises. Some handholding through structured curriculum at affordable prices will go a long-way in increasing the probability of success of these smaller ventures.

More information flow within the ecosystem

There are several events catering to the startup ecosystem. But we need more of that. The flow of information from seed investors to venture capitalists to private equity investors is crucial to make progress, especially in terms of exits through acquisitions.

A vehicle to support hiring into startups

Entrepreneurs need to understand the importance of hiring – be it co-founders or employees. It should be possible to hire a seasoned executive to head a startup. The risks and rewards of getting paid through stock options should be understood.

*Several of these ideas were gathered through conversations with Karthik Reddy, Prashant Choksey and Sasha Mirchandani


MUMBAI ANGELS

IN NUMBERS

No. of startups invested in till date: 37

Total amount invested: Over US $15M

Total no. of angels in the network:  Over 150

Typical investment per startup:  US $100,000 to US $500,000

No. of startup pitches every month:  60 – 80


Some of Mumbai Angels’ exits till date

  • Dhama Innovations, a technology company most well known for its climate control technology used in apparel
  • Exclusively.in, a flash sale portal selling high-end products
  • InMobi, a mobile advertising network
  • Myntra, an online portal that transformed its business model from personalised products to fashion e-commerce
  • Reverse Logistics, a reverse supply chain solutions company

Prem Sivakumaran is co-founder & CEO of Growth Mechanics, a leadership and entrepreneurship-focused business content company in India. Growth Mechanics publishes The Smart CEO, a publication focused on enabling peer-to-peer knowledge exchange among C-level executives and board members. The platform reaches over 1.2 lakh CXOs across its website, app, print publication & CEO Round Tables, and has featured on the cover India’s leading business leaders/founders from Infosys, Mindtree, Tata Sons, ICICI Bank, Biocon, Yes Bank and several others. In addition of Smart CEO, Growth Mechanics also organises the Startup50 Conference & Awards, an annual event to recognize India’s top 50 startups every year. Startup50 Alumni include Freshdesk, Oyo Rooms, Urban Ladder, Capital Float, Paperboat Beverages, among others. Growth Mechanics’ primary business model revolves around linking CXOs and Brands around engaging content and has worked with India’s leading companies including Mahindra Group, Godrej & Boyce, BASF, Airtel, Tata Docomo, Fiat, IDA Ireland, Yes Bank, Prestige Estates, Frederique Constant, Indian Terrain

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