The archangels of Indian e-commerce

When the first wave of Internet entrepreneurs in India tasted success in the pre-dotcom bust era, most of them either cashed out or invested the money back in their start-ups. Helping other start-ups was not on their mind.

Cut to 2015, and the scenario has changed. The new breed of entrepreneurs are constantly chasing higher market share, start-ups are garnering record venture capital investments, and their valuations have been rising.

There’s one more thing. Entrepreneurs who are riding high on valuations are helping newer start-ups by investing in seed capital and later rounds of funding. They have been joined by individual angel investors and retired business executives.

There are exceptions to this rule, as evident from declared individual investments from January to September. Ratan Tata, chairman emeritus of Tata Sons Ltd, has emerged as one of the most prolific investors in start-ups; he has infused an unspecified amount in ventures such as e-commerce platform Snapdeal, taxi-hailer Ola, online furniture store Urban Ladder and used-car portal CarDekho. Between January and September, he invested in eight start-ups, the same as last year, all of which are Internet-led.

Another non-entrepreneur who has been investing actively is Mohandas Pai, the former Infosys Ltd board member, who has invested in nine start-ups; he took part in a $2 million round of funding in Zimmber, the online handyman service, and a $400,000 round with other investors in Ressy, a restaurant discount app. His former Infosys colleague Kris Gopalakrishnan has invested in four start-ups.

Among entrepreneurs helping start-ups, Snapdeal founders Kunal Bahl and Rohit Bansal are leading the pack with eight and seven investments, respectively, compared with 12 last year. They almost always invest together, but this year Bahl has invested in one more—behavioural marketing platform Betaout—with Paytm’s Vijay Shekhar Sharma, which Bansal was not involved in.

Together, Bahl and Bansal have invested undisclosed amounts in innovative start-ups such as Zenatix, which is creating an Internet of Things platform; ShadowFax, an on-demand delivery service and participated in a $15 million round in TinyOwl, a food delivery platform.

Sharma has invested in three ventures, including Betaout and mobile fitness marketplace Goqii, run by Vishal Gondal, who founded Indiagames, bought in 2011 by Walt Disney Co.

Zishaan Hayath, the founder of test prep venture Toppr, has invested in five start-ups. He participated in a $1.3 million round of funding in Pickingo, an on-demand delivery logistics service, and ShadowFax with Bahl and Bansal, for a total of 45 investments in his portfolio.

Rajan Anandan, managing director, of Google, South East Asia and India, has been an angel investor for years. This year, he has invested in eight start-ups, including Zenatix, data analytics start-up Innovaccer and Little Black Book, an online city and lifestyle guide. Including his previous investments, he has funded 29 start-ups so far.

Anupam Mittal, founder of People Group, invested in five startups—half as many as last year—which included a $5.5 million round of funding for online logistics marketplace The Porter, with other investors such as Sequoia Capital and Kae Capital.

The latest to tap this network of investors is Rahul Yadav, the co-founder and former CEO of Housing.com, who is planning to raise $15 million for his new start-up. Paytm’s Sharma, and Flipkart co-founders Sachin and Binny Bansal—who invested in five start-ups this year till September—are reported to have agreed to invest.

  Such angel investors have significantly higher money power today than the early 2000s. Founders of companies such as Snapdeal, which has raised over $1.5 billion in 10 rounds, have the ability to make significant investments in other start-ups. They also want to bet on next-generation technologies, which might become huge just like their ventures did in a matter of three-four years.

They also like to operate individually, apart from the formal angel networks that have also gained in prominence in the last couple of years. Almost all of them are in the Internet-led sector, or technology more broadly, and the entrepreneurs among them are still running the companies they founded, like the Bansals at Flipkart and Sharma of Paytm.

“There has been a definite increase in individuals investing in start-ups, compared with the scenario a few years back. It is almost as if start-ups have become a new asset class,” said Zuhaib Khan, co-founder, Shopatplaces.com, an e-commerce portal that raised funding form the Indian Angel Network in July.

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They are also taking less time to decide where to invest. “Funding decisions happen quickly if start-ups have traction and are looking to raise remaining funds to complete the round with other investors backing them,” said Khan.

However, investing in start-ups—both at the seed and early-stage levels—remains risky, with just about a quarter of of them succeeding.

“It is a very high-risk investment. You need to be prepared to lose all the money,” said Manish Singhal, an entrepreneur and angel investor, who has funded logistics automation platform Locus, online coffee delivery firm DropKaffe, and BetterButter, an online recipe sharing platform, in 2015.

  It is no surprise that they choose companies which are technology-led, given their own backgrounds. This year, over 39% of angel money flowed into this sector, with the median size growing to Rs.1.38 crore for each round, more than double of the levels seen last year, according to a report by InnoVen Capital India in collaboration with the Association of Indian Angel Groups.