In Madurai, Ahmedabad, Chandigarh And Other Tier-2 Cities, Angel Investors Are Funding Local Entrepreneurs Who Rarely Get Attention From Top-Of-The-Line Funds In Big Cities
For as long as he’d lived there, R Sivarajah had considered the famous 17th century Meenakshi Amman Temple the biggest draw in Madurai, one of the oldest cities in Tamil Nadu. Around 2012, though, the founder of IT solutions company Winways Systems, realized he was meeting and giving advice to wannabe entrepreneurs from the city’s many engineering colleges almost every day. And they seemed, in his mind, to be almost as ubiquitous as the tourists who flocked to the temple city.
He started out by mentoring aspiring entrepreneurs but found that big-city investors were hesitant to put money behind smalltown startups. “Our local talent was migrating to the big cities, and we weren’t seeing many success stories out of Madurai,” says Sivarajah.
So, in 2014, he set up Native Angels Network (NAN) as 10-member group of angel investors in Madurai. Over the last two years, it has grown into a 152-member angel investor network spread across Madurai, Coimbatore and Erode in Tamil Nadu. They’ve invested in three startups -Rainstock, a rainwater harvesting platform, FreshNV , an e-commerce platform for fresh meat, and Happy Hens, a poultry startup.
Across the country, regional angel networks in cities like Chandigarh and Ahmedabad, which find and fund entrepreneurs with big ideas in small towns, are slowly building their portfolios. They fund ventures that rarely get attention from top-of-the-line investors based in New Delhi or Mumbai.
Madurai-based Happy Hens Farm, a free-range chicken farm in the rather unusual space of practicing traditional methods of raising poultry, for instance, struggled to keep going as it couldn’t raise funds from the biggies. It’s only when they went to NAN that they got the cash to keep going. And data backs this up: A recent report by InnoVen Capital reveals that out of all the investments made by Indian Angel Network and other angel networks in Mumbai, Chennai and Hyderabad, only 10 deals went to startups not based out of the five major cities in 2015-2016. So small-town industrialists and entrepreneurs are trying to back their own.
Of the six investment ranging between 30 lakh and 1.25 crore t h a t Ahmedabad Angel Network has made, five startups are based in Ahmedabad. Munir Thakor, founder of an IT company and an investor in the network, says the entrepreneurial hub at IIM-A and Ahmedabad University’s Venture Studio have helped the network meet more entrepreneurs.
In Indore, B P Inani, who has been running his own finance ad visory firm Swan Finance for over two decades, founded Swan Angel Network in December 2015 to handhold early-stage startups in Bhopal, Indore and Gwalior. He’s brought together 35 investors from various business houses who agreed that the growing startup scene was too big to miss out on.
Chandigarh’s nine-month-old angel network has 26 investors, mostly first and second-generation entrepreneurs. They get around 100 applications a month, and have invested in three startups. In the eastern part of the country, Calcutta Angels has invested in 10 companies. Despite many investors in tier-2 and tier-3 cities wanting to fund their own innovators, the number of investments these networks makes remains low. Padmaja Ruparel, president of Indian Angel Network, believes this is because most investors from tier-2 cities don’t have the ability to mentor startups as their own domain knowledge is limited.
“Many of them tend to be in the mould of money lenders or traders rather than angel investors. Many of them still think in terms of annual dividends,” says Ruparel.Based in Delhi-NCR, Indian Angel Network has more than 425 members, of which about 10% are from tier-2 cities. Ruparel says first-generation entrepreneurs are backing entrepreneurs in Kerala, Mysuru, Chandigarh, Goa and Ahmedabad.
Entrepreneurship network TiE has chapters in tier-2 cities as well and also works with Chandigarh Angels Network and investors like Thakor.
Kunal Kashyap, executive director at TiE Bengaluru, says that while some angel investors are genuine there are others who are looking at startups as another asset class. “They don’t understand the risk profile of such investments,” he says. Many businessmen weave “guaranteed returns” into the contracts and entrepreneurs should look at the documents carefully, he says.
Sivarajah of the Maduraibased NAN agrees that a problem the network faces is that many investors are used to running their own industries and are quite conservative about taking risks.“Many are wary of getting a relatively small stake in a company with a very high valuation. So the investors also need to be educated.They are all sitting on good money but their involvement is low,” Sivarajah says. He is quick to add that things are not too bad since taking it slow is sometimes better than making the wrong investments, which investors in major cities seem to have done.
Swan Angel seems to have worked a way around this. Its network comprises industry experts but investors have agreed not to play with valuations. They leave the valuation exercise to an expert for a later round.
Many entrepreneurs have an idea but not the expertise to commercialize it, says Inani. And that’s where his experience comes in handy. His network is planning to invest in 12 startups this year, with all the investors committing to around 1 crore each.
Are port by startup analytics firm Tracxn notes that tier2 cities like Ahmedabad and Jaipur are emerging as the next startup hubs, accounting for 20 deals in 2016 alone. Bhopal, Indore, Kanpur and Chandigarh are also seeing newer angel funding rounds, not necessarily by the larger networks, the report adds.
And that’s what keeps these small-town investors gunning for more. “In 2012, many were reluctant to even think about starting their own ventures. Things are changing slowly ,” says Sivarajah, adding that the ecosystem as well as awareness for both investors and startups is growing gradually in these regions.
“And the proof is that colleges in places like Tirunelveli, which is smaller than Madurai, are inviting us to speak to their students on entrepreneurship.”
Source : The Times of India (Delhi)