'Fluff of high valuations' has settled for firms: Padmaja Ruparel

Entrepreneurial expectations have become more realistic, says co-founder of India's largest group of angel investors

Start-up entrepreneurs have become realistic and the "fluff of high valuations" has settled, says Padmaja Ruparel, co-founder of Indian Angel Network (IAN), India’s largest group of angel investors. IAN, which was founded in 2006, has invested Rs 900 crore in more than 200 companies and it has a market valuation of over $9 billion. IAN aims to invest Rs 5,000 crore and create 500,000 jobs by 2030, Ruparel told Aryaman Gupta in an interview.

Here are edited excerpts from the interview.

The year 2022 has been about realistic expectations. How was it out for IAN?

It has been a good year. We closed 2022 with over Rs 85 crore of investments in 52 companies in the fintech, B2B SaaS, D2C, agritech, cleantech and healthtech sectors. For us, especially being early stage-investors, it is vital that we mitigate risk by investing across sectors and geographies.

An interesting trend has been entrepreneurial stories from smaller towns. We have invested Rs 26 crore in 13 companies from Tier 2 and Tier 3 cities, which demonstrates the kind of entrepreneurship emerging from these regions. There has been a shift in investor sentiment over the last two years in terms of open mindedness towards tier 2 and beyond regions.

We have also invested Rs 17 crore in 11 women-led companies. As of September 2022, the IAN Group has invested in more than 17 per cent of companies led by women entrepreneurs and over 25 per cent of companies from Tier 2 cities, with an investing fund corpus of (around) 20 per cent and 21 per cent respectively.

On the other hand, we also had lucrative exits from 13 high value companies this year. Against an investment of Rs 28 crore in these companies, IAN gave cash exits of almost 4x and investors continued to hold shares worth Rs 180 crore. Further, our portfolio companies have raised a total funding of Rs 1,260 crore this year.

IAN’s maiden fund, IAN Fund 1, which includes companies such as Phool.co, Dhruva Space, WebEngage, Wow! Momo, Propelld, was a big success this year. Close to 70 per cent of the fund’s portfolio companies have seen the next rounds from marquee Indian and global investors.

On the back of that, we also launched IAN Alpha Fund, a SEBI-registered Cat II VC fund with a fund corpus of Rs 1,000 crore this year. With this fund, we are keen to invest in cleantech, healthtech, agritech, edutech, fintech and emerging sectors like Industry 4.0, Web 3, Robotics, etc.

2022 also saw the operationalisation of BioAngels, India’s first sector focused angel investor group, in partnership with BIRAC.

Amid a funding winter, how has dip in valuations impacted entrepreneurial expectations?

We have not seen a funding slowdown among early-stage start-ups. However, the fluff of high valuations has definitely settled. Entrepreneurial expectations have become much more realistic.

Valuations, as well as investments, should be made on the basis of top line and bottom line figures. We at IAN want to build businesses with good top line and bottom line numbers. We of course understand that when we invest in early-stage start-ups, companies will initially be making losses due to a dearth of revenue, coupled with burn. But they must also show that they are on the path to profitability. Because of this, we have seen very few write offs. Our failures are well under 29 per cent.

With large funds focusing on seed and early stage, how does it impact IAN?

We have faced competition in the past as well, when the number of companies was also lower overall. Since then, the pie has grown dramatically.

The competition has increased and we fight for deals. But that is a good thing, especially for deals where there is co-investment. Co-investing in early-stage companies increases the overall value of investments while mitigating the risks. There is more money on the table for next rounds. It helps everybody. So, you can look at it as competition or ‘co-opetition’. I look at it as the latter.

Does IAN have any target it is working towards?

The only way to create jobs is through start-ups. The IAN platform has, till date, helped create over 90,000 jobs, enabled filing of over 160 patents, and helped the reduction of over 40,000 MT of carbon emissions.

With the growth curve IAN has had, it is our vision to support 500 start-ups, invest Rs 5000 crore and create 500,000 jobs by 2030. With the launch of our many funds, we are inching closer to that goal.

What are some of the most notable trends you have witnessed in the start-up ecosystem?

Today, technology has become an infrastructure highway. It now operates horizontally across all sectors. Companies cannot scale their businesses without technology.

The level of confidence among entrepreneurs is now also extremely high. This, coupled with an acceptance of failure rather than a fear of failure, is a big reason why entrepreneurship has got so much of a push.

Further, entrepreneurs, who were previously building exclusively for either global or domestic markets, are today building businesses for India and taking them global. Because we are one of the largest markets today, global innovations are also coming to India. So, we have done the full circle, taking centre stage amid the global start-up ecosystem and my belief is that we will soon become the second largest ecosystem in the world.

Have there been any notable structural changes in the way IAN operates?

The two necessary ingredients to build a good company are funding and talent. Everything else is secondary. If a company has good talent, it can build the business with proper execution. But that is not possible without money. And you cannot put money into companies which do not have good talent. It is a synchronous process.

In order to address the funding requirement, we have created a platform where well-performing entrepreneurs can raise capital between Rs 25 lakhs to Rs 50 crores. And we were the first to structurally transition from angel investors to a VC fund.