Why Invest Into Indian Startups

Sushanto Mitra, Founder & CEO, Lead Angels Lead Angels is a pan-India angel network, started by a team of three originally from IIT Bombay to professionally develop angel investing in India by applying best practices of early stage investing backed by an experienced team, savvy investors and a network of relationships and partnerships in the Indian startup ecosystem.

The break neck speed at which technology is transforming our lives now is unprecedented across human history. Each day, some where in the world, there is a startup that is breaking rules and shaking the foundations of an established practice or business. While many of such startups may fail but a few will certainly grow to become leaders in their domain. This also means that their founders, teams and early investors who put their money and time behind these companies would be laughing all the way to the bank. There are countless examples of such startups that have now multi-billion dollar valuations and have rewarded their investors handsomely. Facebook, Alibaba, AirBnB and Uber are just a few names. Their tribes are of course increasing by the day as technology is creeping into every aspect of life.

What is to be noted that most of these far reaching disruptions originated from startups none of which were public companies. Thus only a select set of investors who had access to these investment opportunities. In general, the public markets do not have access to such disruptive startup investments and only angel networks, venture funds and a few PE funds that specialize in the startup sectors get to see such companies.

While the success stories of global startups are well documented, in India, the wealth created by some of the Indian startups is often missed out. There are more than 10 startups in India over 1 billion valuation
all created in the last 5 years. Many investors in these companies would have made returns ranging from 10X-1000X of their original investment. Some of these include companies like RedBus, Taxi For Sure and Free Charge where investors have a full exit, in other cases like Flipkart, Oyo and Ola the exits may have been partial for some investors.

While some of the new demand will be met by existing companies, there is a huge potential for startups across India to build disruptive businesses to capture this market

What is interesting to note that many of these companies are not hardcore technology companies but actually ones that have leveraged technology to disrupt or grow a particular market by bringing digitally oriented products and services to a rising group of elite and affluent Indians. India will become the third largest consumer market in the world behind USA and China by 2025. What is also noteworthy that the 16% of Indian house holds with incomes over INR 10 lakhs per annum is the fastest growing segment of the Indian population and will be generating demand for a number of new goods and services. While some of the new demand will be met by existing companies, there is a huge potential for startups across India to build disruptive businesses to capture this market.

Apart from the Indian Consumer Growth Story, there is also a huge opportunity for Indian software companies to build SAAS products that can be used by Indian and overseas businesses. These companies can leverage the availability of technically qualified people in India at much lower cost compared to developed economies. It is expected that Indian SAAS companies will capture 8% of the global SMB SAAS market by 2025. This is estimated to take their combined valuation to US$ 50 billion.

Last but surely not the least is the potential of Indian deep technology startups in the areas of AI, ML, IOT and Robotics which could bring out winners. Affordable technologies that leverage the availability of technically qualified people in India and focus on solving a real problem can build successful companies. In the last four years at least 10 such companies have been acquired by global giants and their numbers will only increase as India becomes more integrated to the global market.

Most of these opportunities will be largely in the startup sector and investors who can identify winners at an early stage will be rewarded handsomely as some of them are likely to become billion dollar companies. The trick of course is to find the right companies. One way is to focus in a sector where one has domain skills and hope that this knowledge will lead us to the right companies and decisions. The other is to join a professionally managed angel network that has a mix of analysts and investors with the diverse skill sets so that we can combine our own skills with that of the network so as to find the right companies.