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August 24, 2016

How to Trigger Explosion of the Angel Investment Market in India? Ask for Less!

Prajakt Raut of Applyfi feels more startups need to ask for INR 50 lakh cheques versus wasting precious time trying to raise INR 3 Cr in their first angel round.
For investors to be comfortable investing upwards of (INR 3 Cr) as a first cheque in a startup would need the startup to have some amount of organisational maturity and some early-evidence that the concept, market opportunity, value proposition, pricing, business model, marketing programme, sales programme, product/service delivery, etc. are tested and that the results appear to be encouraging. However, most startups tend to seek this larger investment even when they are not yet fully ready with the evidence. Such startups will find it much easier and much faster to close a $74.3K (INR 50 Lakhs) round, which in most cases will be adequate to build a foundation that will allow them to raise a much larger next round.
Why Do Most Startups Seek Larger Round For First Round Investing?
Perhaps because that’s the perceived ‘sweet spot’ of investors for seed/angel rounds. And it is also true that we have fewer options for startups to raise $74.3K than we have for them to raise the larger amount. It is rare to see such a small deal in the Indian startup space. And we need to change that for a range of reasons that, in my view, are important to strengthen and expand the early-stage entrepreneurial ecosystem in India. Often, startups hesitate to raise smaller rounds as they worry about valuation and dilution. However, instruments like convertible notes and other options like claw back can easily address this concern. In my view, if startups start seeking (INR 50 Lakhs to INR 1 Cr), the investor ecosystem will find ways to service these smaller deals.
Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.