Avoid ideas that do not offer first mover advantage: Indian Angel Network chairman

Interview with Saurabh Srivastava

Indian Angel Network chairman Saurabh Srrivastava wants startups to focus on innovative solutions to the real problems of people and businesses instead of copying ideas that were successful in the past. Shrivastava tells Sharath Chowdary that the investors have been bullish on startups that were doing serious work in areas of IT, healthcare, medical devices, logistics among others. Excerpts of the interview:

Startups often complain about funding crunch. Is it true?
This perception is more to do with the difference of opinion that exists between startups and investors when it comes to the funding decisions. The focus of funding has become more rational in the country. Instead of pouring easy capital, venture capitalists (VCs) and angels are seriously looking for innovative and profitable ventures.

Angel investors are continuing to invest and foster the entrepreneurship culture in the country. The angel and seed investment landscape has seen 46 per cent growth with 552 deals in 2016 (till August) when compared to 377 deals in the last year. Out of the 552 deals, 401 were pre-Series A funding rounds.

Are they being undervalued?
Undervaluation is natural when other players in the market are not doing well. Earlier, when big players were attracting huge funds in India, each and every entrepreneur managed to get higher valuations. It all depends on the market forces - supply and demand.

What is the reason behind the low success rate among startups?
The copycat models may not succeed in India. What works in the US may not work here. Few entrepreneurs who enjoyed first-mover advantage were successful. Others are unable to differentiate themselves. They should come up with innovative solutions to the pain points. Their ideas should address a real problem, and then customers will pay for it.

How many startups were funded by IAN last year and this year?
Around 7,000 entrepreneurs approached the IAN during the last financial year. We have invested in close to 40 companies in FY 2016, and so far we have funded around 25 start-ups in this fiscal. The average ticket size is up to $1 million, and the sweet spot is between $400,000-500,000. IAN's Small Ticketing Funding (STF) program also helps breed innovative start-ups with an investment of Rs 25 lakh.

What are the basic parameters that determine your investment decisions?
The market size of the product or service is the first important factor. It should address a large market segment. Later, we check the validation of the idea by testing in the market. There will be focus on the team, and the competition. Finally, every investor would look at revenues of the company as they need return on investment.

What are the promising sectors?
Investors are bullish on IT, healthcare, medical devices, logistics, education and e-commerce sectors. At present, business-to-business (B2B) platform looks more promising than business-to-consumer (B2C). With a portfolio of over 110 companies, IAN has been instrumental in shaping up start-ups in 16 different sectors on B2B platform.