Teacups in hand and butter biscuits within reach, a handful of local technology titans debated the future of some young Indian entrepreneurs on a summer Saturday. After grilling five teams over several hours, the group, the Indian Angel Network, put two promising start-ups on the shortlist for potential financing. “The Angel Network is really trying to help breed innovation,” said Padmaja Ruparel, the president the organization. “Our efforts are really going into driving the economic engine of India.”
The Indian Angel Network discussing funding of new ideas in their office in New Delhi, India.Even though India is famous for it software industry, it hasn’t been a conducive environment for up-and-coming technology companies. Unlike in Silicon Valley, start-ups here can’t easily access capital, tap into a network of serial entrepreneurs or hone their ideas through incubators. Wealthy individuals and organizations like Indian Angel Network are increasingly filling the void, providing initial capital to young companies with strong prospects. It’s a small but growing class. In the last five years, angel investors plowed less than $200 million into start-ups, based on data from Venture Intelligence, a Mumbai-based research firm. In the United States, the angel investor market topped $20 billion in 2010 alone, according to the Center for Venture Research.
Angel investing is a high-risk, high-reward game. Since start-ups often fail before they ever make any money, the investors, which typically invest less than $1 million, are betting that a few will take off — earning returns as much as 10 times their original outlay. In India, they’re basically hoping to find another Nandan Nilekani, the co-founder of the software exporter Infosys, or the next Azim Premji, the billionaire chairman of Wipro, one of the world’s largest technology service companies. Entrepreneurs in India have faced even tougher odds. Until 1991, the country had socialist economic policy, with most industries dominated by state-owned firms or a handful of large business conglomerates like the Tata and Birla groups. Back then, upstart projects often got stalled by bureaucratic hurdles. Saurabh Srivastava, the chairman of the India Angel Network, who founded the software company IIS Infotech in 1989, said he had to wait 2.5 years to get permission from the government to start his company. “For first-generation entrepreneurs, it was a monopoly; anyone who had an alliance got ahead,” said Mr. Srivastava, who is considered one of the pioneers of India’s modern technology industry.
Now, established entrepreneurs and business executives like Mr. Srivastava are looking to ease the burden for the next generation. The Indian Angel Network, for example, has started an incubator, where members mentor young entrepreneurs. It also set up “boot camps,” inviting 10 individuals or teams to give three-minute pitches in different cities across the country, to practice for future fund-raising efforts. Analysts say it’s unclear whether angel investing will become enmeshed in India’s business culture as it is in Silicon Valley, or whether it will crumble if early investors suffer too many losses. While conditions have improved significantly for India’s entrepreneurs, they still face numerous challenges, including a weak infrastructure and a poor education system.