1Mby1M Virtual Accelerator Investor Forum: With Padmaja Ruparel of Indian Angel Network (Part 4)

Sramana Mitra: What is the size of the fund?

Padmaja Ruparel: $70 million. The IAN platform represents a way of raising money from $30,000 to almost $7 million. All they need to do is to keep performing and growing the company and money will be available. I think that this is the new gap that we have identified. This is the new gap where we have positioned the fund. The second that we have done is 60% of the fund is raised.

We started operations and investments in six companies all in a period of a quarter. Interestingly, the entire 60% has been raised in India. This is domestic money. It’s hard to raise money in India and therefore, they raise a lot of money overseas. We have already raised 60% in India and we are still raising. We are an ecosystem player. We are not like any other fund. We believe in bringing in mentoring and whatever we can do to help. That is the new trend that we are trying to set.

Sramana Mitra: How do you parse unicorn mania? This is something that is unfortunate. India copied this from Silicon Valley. How do you react to that? How does your network process this?

Padmaja Ruparel: I just want to answer that very simply. Over the years, we have never invested in any company or had any discussion on investing in a company on the basis of valuation or market share alone. It has always been focused on top line, bottom line, EBITDA. That old-fashioned business-building has sustained us and we have not had this problem in our portfolio.

Sramana Mitra: Have you invested in any company that got caught into this unicorn mania? As an angel group, you could get buried under later-stage liquidation preferences if there’s a company that starts to play that game with other follow-on investors.

Padmaja Ruparel: No. We did invest in a company, which was affected by the unicorn mania. I also want to point out that before it went there, we exited the company and made our money. So we didn’t get impacted.

Sramana Mitra: This is actually a very good point. I’m talking to lots of angel investors on this point. If you’re doing angel investment today, you have to negotiate co-sale right so that you can get out before unicorn mania buries you under liquidation preferences.

Padmaja Ruparel: I believe investing is the easiest part. You have to know when to exit. The timing and structure of those are important.

Sramana Mitra: Last question, one of my observations is lots of stuff have already been built. There aren’t as many wide open large opportunities especially when you look at B2B, but there are any niche opportunities. Even in India, I would say that there are a lot of B2B niche opportunities.

Some of these businesses need to be built for very small amounts of capital. Maybe $1 million to $5 million and sold for $10 million to $15 million. In some cases, they could be built for $250,000 to $500,000 and sold for $5 million to $10 million. Especially with India’s cost structure and generally frugal dynamics of the entrepreneurs, this seems to be right up India’s alley. How are you processing this kind of dynamics?

Padmaja Ruparel: I think that’s a very interesting observation. We’re absolutely picking up niche plays. We also understand that we do not need too much of money, which is interesting. We focus on two aspects. Can the company sustain and grow on its cash earnings? Secondly, who are the likely acquisition partners? In India, the acquisition and M&A play are starting to open up. Those are giving reasonable returns. Angel investing, startups, and entrepreneurship are young in this country. Acquisition is just starting.

Sramana Mitra: In this case, the acquisition opportunities are going to be global. India has developed a lot of software expertise at this point. Building software products that can be acquisitions for larger global technology companies is a trend that will pick up. We just need to create the ecosystem to not be obsessed with these unicorns. Everybody wants to build unicorns. Well there aren’t that many unicorn ideas out there. Those are rare, few, and far between ideas.

Padmaja Ruparel: That’s true. Also remember that India is not only creating companies that focus on the western market.

Sramana Mitra: I agree. On the B2C India-facing market, that’s a whole different story.

Padmaja Ruparel: M&A’s are happening quicker. The talent and product here are robust compared to what you may get in other countries.

Sramana Mitra: Great! Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Padmaja Ruparel of Indian Angel Network
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