Lack of angel funding or very early stage seed money has prevented growth of startups in India. When compared to the number of potential entrepreneurs, engineering skills and product ideas, the options for funding a startup through venture capital, angels and incubators are few.
The lack of investment support at the seed stage is a critical issue since it’s during the initial stages of a startups lifecycle when funds can help nurture breakthrough ideas, business models and products. The Angel community in the valley has played as important role in supporting the entrepreneurial activity and that model needs to be replicated in India.
Traditionally, most of the angel funding in India has come from family and friends. The Indian startup market is still in a nascent stage and can be compared to the Silicon Valley in the early 1980s. Angel investors in the valley have helped build successful companies and have contributed their personal wealth and experience to new entrepreneurs.
While the angel investment concept in the country is in a formative stage, the market itself has started evolving in unconventional ways to fill the gap. High net-worth individuals are starting to form networks or groups that collectively evaluate and fund deals. There has been some momentum in the number of VC firms focusing on early stage investments. Bangalore-based Erasmic Venture Funds and Mumbai-based Seedfund typically invest less than $1 million. State government-backed venture capital funds are also seeing a revival in seed funding - several, including Karnataka, Gujarat and Andhra Pradesh, have announced fresh funds. Large investment firms like Nexus India Capital, which has a $100 million India fund, and Draper Fisher Jurvetson (DFJ) that typically invest larger amounts, are showing interest in playing angel selectively. There is no shortage of startups or ideas but only a few entrepreneurs have the right experience, discipline and team required to execute well.
Incubators, startup competitions and events where entrepreneurs can demo their products and ideas have started to be organized across the country. The Government of India has started to contribute as an angel investor to help Small and Micro enterprises. The government’s "Credit Guarantee Fund Trust for Small & Micro Enterprises (CGTSME)" allows banks to grant loans up to the sum of Rs. 1 crore (approximately $220,000) to small enterprises without any collateral or security.
India is starting to see more angel activity in the last couple of years. But a lot more needs to happen quickly so that brilliant ideas do not die because of lack of funding.