 "India scores high in angel and incubator participation")
With India's entrepreneurial ecosystem growing steadily, angel investors and investments are increasing rapidly, giving the country the second highest percentage of angel and incubator participation in the world.
According to a report by the professional services firm EY - earlier known as Ernst & Young - the percentage of angel and incubator participation in India rose to 17 per cent in 2013, from three per cent in 2011. This has been bettered in just one other country - Canada, with 20 per cent in 2013 (see 'A global picture').
Data from VCCEdge - a website that provides information on private equity, venture capital, mergers and acquisitions and other aspects of the Indian deal landscape - shows that in 2014, some $115 million was raised by entrepreneurs from angels (wealthy individual investors) and seed funds across 285 deals, compared to $69 million in 2013 across 262 deals.
The year 2014 saw the highest-ever inflow of angel and seed funds in India, after a dip in value terms in 2013 (see 'Deal snapshot').
Industry experts said that since later-stage funding is dominated by venture capitalists (VCs), angel and incubators are filling gaps in early-stage funding for entrepreneurs whose traditional source of seed funding has been family and friends.
Over 250 angel networks have registered in the country, with top corporate leaders playing the role of angels. Notable among them are Indian Angel Network, Mumbai Angels, Chennai Angels, Harvard Angels and Hyderabad Angels.
An angel investor is a wealthy individual who invests his or her personal capital in a company in exchange for equity. Corporate leaders who successfully built large companies and have now turned into angel investors include Ratan Tata, N R Narayana Murthy, Kris Gopalakrishnan, Azim Premji, T V Mohandas Pai, Lakshmi Narayanan, R Ramaraj and Gopal Srinivasan. States such as Kerala, Karnataka, Tamil Nadu and Assam have either launched angel funds or are considering doing so.
Product development and revenue generation are the only two development stages that are attracting significant interest from angel investors and incubators. Mobile applications, software products, clean technology, hospitality, education, retail, food processing and internet plays have emerged as popular with angels.
Meanwhile, the Centre has recognised angel funding as key to the growth of India's SME sector.
The Centre is reported to be working towards a solution to ring-fence angel investments that are currently taxable under the Income Tax Act. The Association of Indian Angel Groups is reported to have held discussions with the Union finance ministry on amending the rule that seeks to exempt investments not exceeding Rs 10 crore from Section 56 (2) of the Income Tax Act, provided that such investments are made through registered angel groups.
Currently, according to a rule introduced in the Finance Act 2012, capital raised by an unlisted company from any individual against an issue of shares in excess of the fair market value would be taxable as 'income from other sources' under Sec 56 (2) of the I-T Act.
Kayar Raghavan, a member of The Chennai Angels, says that ensuring a successful exit is a constant struggle for angels, with exits on average taking over seven years.
"A way out of this is for later stage funds to provide for secondary exit, even if only partially, for angel investors. This would enable angel investors to recycle their funds across more early stage firms, de-risk more start-ups and help the entire system sustain itself better," he wrote in a recent column on yourstory.com, a website that promotes India's entrepreneurial ecosystem.
According to a report by the professional services firm EY - earlier known as Ernst & Young - the percentage of angel and incubator participation in India rose to 17 per cent in 2013, from three per cent in 2011. This has been bettered in just one other country - Canada, with 20 per cent in 2013 (see 'A global picture').
Data from VCCEdge - a website that provides information on private equity, venture capital, mergers and acquisitions and other aspects of the Indian deal landscape - shows that in 2014, some $115 million was raised by entrepreneurs from angels (wealthy individual investors) and seed funds across 285 deals, compared to $69 million in 2013 across 262 deals.
The year 2014 saw the highest-ever inflow of angel and seed funds in India, after a dip in value terms in 2013 (see 'Deal snapshot').
Industry experts said that since later-stage funding is dominated by venture capitalists (VCs), angel and incubators are filling gaps in early-stage funding for entrepreneurs whose traditional source of seed funding has been family and friends.
Over 250 angel networks have registered in the country, with top corporate leaders playing the role of angels. Notable among them are Indian Angel Network, Mumbai Angels, Chennai Angels, Harvard Angels and Hyderabad Angels.
An angel investor is a wealthy individual who invests his or her personal capital in a company in exchange for equity. Corporate leaders who successfully built large companies and have now turned into angel investors include Ratan Tata, N R Narayana Murthy, Kris Gopalakrishnan, Azim Premji, T V Mohandas Pai, Lakshmi Narayanan, R Ramaraj and Gopal Srinivasan. States such as Kerala, Karnataka, Tamil Nadu and Assam have either launched angel funds or are considering doing so.
Product development and revenue generation are the only two development stages that are attracting significant interest from angel investors and incubators. Mobile applications, software products, clean technology, hospitality, education, retail, food processing and internet plays have emerged as popular with angels.
Meanwhile, the Centre has recognised angel funding as key to the growth of India's SME sector.
The Centre is reported to be working towards a solution to ring-fence angel investments that are currently taxable under the Income Tax Act. The Association of Indian Angel Groups is reported to have held discussions with the Union finance ministry on amending the rule that seeks to exempt investments not exceeding Rs 10 crore from Section 56 (2) of the Income Tax Act, provided that such investments are made through registered angel groups.
Currently, according to a rule introduced in the Finance Act 2012, capital raised by an unlisted company from any individual against an issue of shares in excess of the fair market value would be taxable as 'income from other sources' under Sec 56 (2) of the I-T Act.
Kayar Raghavan, a member of The Chennai Angels, says that ensuring a successful exit is a constant struggle for angels, with exits on average taking over seven years.
"A way out of this is for later stage funds to provide for secondary exit, even if only partially, for angel investors. This would enable angel investors to recycle their funds across more early stage firms, de-risk more start-ups and help the entire system sustain itself better," he wrote in a recent column on yourstory.com, a website that promotes India's entrepreneurial ecosystem.