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Angels rush in where pvt equity fears to tread

While the country is awash with foreign money flowing into private equity, the game is not exactly easy for first-time entrepreneurs, reports N Madhavan.

business Updated: Dec 09, 2007 22:36 IST
N Madhavan

It might sound like that old saying: Water, water everywhere, not a drop to drink.



While the country is awash with foreign money flowing into private equity, the game is not exactly easy for first-time entrepreneurs looking for a big break into the world of business.



Early stage funding, what many believe to be the essence of venture capital, is not quite abundant. But successful Indian entrepreneurs who have been there and done that are trying to solve this problem in their own way with a network of “angels” — individuals who provide seed capital and some hands-on advice and help to boot, often by sitting on the boards of start-ups.



“It is hard to do early stage unless you have people on the ground,” says Saurabh Srivastava, founder of the Indian Angel Network (IAN) that not so long ago was called the Band of Angels, which sounded more like a rock group than a bunch of middle-aged millionaires that its members are.



Srivastava, who sold his start-up IIS Infotech to British software firm Xansa and branched out into venture capital, told HT that private equity flow into India totalled about $7.5 billion last year and is expected to double this year, but most of the funding went into late stage companies ahead of their initial public offerings (IPO) , or into already listed companies.



“Overseas capital is more comfortable with late stage,” says Srivastava, adding that the Internet bubble that burst in 1999 and 2000 put many investors off early stage funding, choking avenues for many bright ideas. Large overseas equity funds are uncomfortable with small amounts and also do not have the people who can actively hold the hands of small entrepreneurs, he says.



Now, people like Srivastava and others, including Pramod Bhasin, who built the firm now called Genpact, Vishnu Dusaud of Nucleus Software and Raman Roy who sold his Spectramind to Wipro are among those in the band called IAN.



Srivastava bemoans the fact that the Finance Ministry does not quite please the domestic venture capitalists. Last year, it took away a pass-through tax benefit that exempted funds representing back-end investors from tax.



Venture funds overseas enjoy an LLC (limited liability company) status that enjoy pass-through benefits under which individuals who put in the funds pay tax from their own accounts.



The IAN has about 60 to 70 people, acting like a mutual fund for big boy entrepreneurs many of whom are still busy running their companies but glad to share the risk and rewards for new ones with ideas. The IAN is closely linking to The IndUS Entrepreneurs (TiE), the network of US and Indian professionals and investors that is still warm to early-stage funding. Come Tuesday, TiE will meet in Delhi for a conference that brings entrepreneurs and financiers together.