Angel networks on a high after a few smart exits

The concept has much going for it after two successful sales over the past year

MUMBAI: Angel networks, a concept barely two years old in India, may have proved a point with a couple of exits investors operating through these networks have got over the past year.

Mumbai Angels, one of the two organised angel networks operating in the country, secured a profitable exit last month when it sold a part of its stake in mKhoj to venture capital funds Kleiner Perkins, Caufield & Byers, and Sherpalo Ventures.

The two VCs invested $7.1 million in the mobile advertising company in which Mumbai Angels had invested $5,00,000 earlier.

Earlier, in June 2007, the group had managed to sell another of its investee companies, Delhi-based online DVD rental provider, Madhouse Media, by merging it with Bangalore-based 70 mm. It had invested in the company along with Indian Angel Network, the other organised player, and some other private investors in January 2007.

Indian Angel Network has only that exit to talk about till date.

“That we have put money into 10 companies and have already managed two exits in the last one-and-a-half years validates our model,” said Sasha Mirchandani, one of the founding members of Mumbai Angels, and senior investment director of BlueRun Ventures, a global venture capital firm now active in India.

He did not disclose the returns these exits made for Mumbai Angels, only that they were “substantial”.

Angel networks bring together a group of successful entrepreneurs and investors who pool in their resources, time and money to help those with concepts and ideas to start a company.

At Mumbai Angels, the angels meet monthly to formally consider four start-ups selected from among more than 30 that are screened each month. Members of the network, who number 40 now, operate as a group, but invest in their individual capacities, trying to make a successful business model out of an idea.

Praveen Chakravarty, chief operating officer and head of research at BNP Paribas Securities, is another co-founder of Mumbai Angels, who still holds a stake in mKhoj. He says the two exits earned him more than what he invested in five companies through Mumbai Angels.

But, it’s not always that these angel investments go right. On the risk-reward spectrum, angel investments would figure right at the top.

“It’s not for the faint-hearted. More often than not, it’s one out of 15 deals that come good. And sometimes, that one is sufficient to cover up for the losses in the other 14,” says Chakravarty.

It might still be early days to tell whether angel networks are effective. But, going by the success that Silicon Valley-based networks such as Band of Angels have enjoyed in the past, there definitely seems to be a case for India.

“Globally, angel funding is very localised. That’s one of the reasons why we started Mumbai Angels to focus on Mumbai and Maharashtra-centric deals, though we’ve invested in companies outside the region. In the next couple of years, I won’t be surprised if there is an angel network in every metro city in the country,” said Mirchandani.

That could mean more angels, like in the US, where there are as many if not more angel investors as venture capital and private equity investors.

“As of now, angel investors form the bottom of an inverted pyramid of funding sources in India. There are more venture capitalists and private equity investors here than there are angels,” said K Srinivas, managing partner of BTS Investment Advisors, a private equity firm that has been operating in India since 1996.

Even firms such as his, which invest in companies at the expansion stage, feel more inclined to invest in a company which has been seeded by angel investors. “There is a higher level of comfort,” says Srinivas.

Meanwhile, Mirchandani has another type of angel group in mind now. “I want to facilitate the starting of an angel group, exclusively run by successful women, to invest in companies started by women entrepreneurs,” he says.

sanat_vallikappen@dnaindia.net