Why Indian angel investors are backing startups from the US to Estonia
In June last year, Estonian startup Comfee raised seed funding from a group of investors that included India's Dewang Neralla, a former director at Financial Technologies India Ltd who backed the venture as part of the Cross Borders Angels (CBA) network.
Comfee, now called FlipFlic, makes a solar-powered device that automates the functioning of the window blinds. It is not the only startup in CBA's portfolio which has been backed by an Indian investor.
Indeed, Indian investors have taken their first baby steps to investing in foreign startups, though the number of such investments is small. While most such investments have been made in US and UK firms, deals have also been inked in offbeat destinations such as Estonia, Hungary and Finland.
The Indian members of the CBA, an international angel network with presence in Mumbai, London and San Francisco, have also invested in Finnish e-learning platform Claned and Hungary-based enbrite.ly, an online advertising fraud detection firm.
Like the CBA, the Indian Angel Network (IAN) has also backed startups based outside India. It has invested in UK-based data protection services firm Ascema and US-based startups Assured Risk Cover and ActivityHero.
These investments are a departure from the IAN's typical strategy of focusing on India-based startups. So what is attracting Indian angel investors toward startups in these countries? Technically advanced ideas, global scalability and new market entry strategies, say industry executives.
"The reason behind investing in these countries is to diversify and get an exposure to different paradigms as investors and give a global recognition to our portfolio," a spokesperson for the IAN said.
Ashwin Sanzgiri, director of CBA North America, Asia and the UK and Ireland, said that cross-border investments also help entrepreneurs to potentially raise capital that can add value by supporting newer market entry strategies, pricing models and introduction.
Launched in 2014 by Scaale Group, the CBA's primary focus is on global investments and its angel members come from India, the US, the UK, Spain and China. Till date, the angel network has made investments in five Indian startups and seven international firms.
Sanzgiri also said the CBA's investments are not driven by geography but by the merit of the business, its traction and opportunity to monetize.
"Typically, a Mumbai-based investor would prefer investing in an entrepreneur based in Mumbai/Pune. A Bengaluru-based angel would choose not to look toward the North or the Northeast. This we believed was not the most efficient way of investing and asset allocation," he said.
Apart from the CBA and the IAN, another investor network that is backing foreign startups is Keiretsu Forum, which has its India operations in Bengaluru and Chennai and has about 40 members. The network's co-investment fund, Keiretsu Capital, raised around $6.5 million for its first angel investor fund last year. The fund's Chennai chapter has made 12 investments in foreign startups. Of these, seven have been in US-based startups in sectors such as analytics, video streaming, health-tech and fin-tech.
Rajan Srikanth, co-president at Keiretsu Forum Chennai, had previously said that the companies that raise funds from Indian investors see the country as a potential market in the short or medium term. "In other cases, they have some India connect such as having a development centre here or may be a founder who is Indian," he had said.
The angel networks invest across sectors. IAN says its investments are sector-agnostic. The CBA also is market-agnostic but is bullish on sectors such as Internet of Things, Big Data, robotics, education and clean energy.
The CBA's investments range from $250,000 to $1 million, on average, while the IAN's median ticket size is $500,000. However, Sanzgiri said the ticket size doesn't depend on the country of the investment but on the merit of the business and traction.
Sanzgiri also said the CBA does not engage with firms that are aspirational unicorns. He said the network aims to exit its investments through strategic sales to larger companies and listing on stock exchanges. "Our objective is always to plug in capital from smart investors that can expedite growth and hence, potentially create an exit event for the company/investors in a three- to four-year horizon," he said.
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