Agarwaltimes - Entrepreneur scouts

MUMBAI: When Delhi-based mobile news app News In Shorts was evaluating raising institutional money last year, the young founders discussed the plan with Flipkart's Sachin Bansal, an angel investor in the venture.

"I remember we were on a call with Sachin, and we told him we were looking to raise a Series A round. The very next moment he introduced us to Tiger Global," says co-founder Azhar Iqubal, an IIT-Delhi dropout, just like his two other co-founders.

Tiger liked what they saw. They led a $4 million round of funding in the two-yearold startup last month. "Clearly, an introduction from Sachin carries a lot of weight," says Iqubal.

This is the latest - and hottest - way of raising funds. Find a big name angel who believes in your project, and investors will beat a path to your door. Entrepreneurs like Flipkart's Sachin and Binny Bansal, Snapdeal's co-founders Kunal Bahl and Rohit Bansal, Zomato's Deepinder Goyal, and Burrp's Deap Ubhi have emerged as some of the most sought-after. Many of the companies in their portfolio have gone on to raise funds at higher valuations from established investors. While these new-age entrepreneurs say they are not affiliated to any one venture fund, their proximity to select investors has been noticed. Many young founders who are starting out today are being advised to rope in one of these in-demand angels as it makes raising Series A rounds easier.

So whether it's Tiger Global funding startups like Grey Orange Robotics, Reviews42 and News In Shorts - where the Flipkart founders have made angel investments - or Nexus Venture Partners and SoftBank Corp backing the portfolio of Snapdeal co-founders (TinyOwl, Housing, Ola), it's clear there's a close, albeit unofficial, relationship between these investors and entrepreneurs. Tiger is the biggest shareholder in Flipkart, and Nexus and SoftBank are investors in Snapdeal.

ENTREPRENEUR ENDORSEMENT

Bahl of Snapdeal dismisses claims of any affiliation with a particular fund. "It's mere coincidence. Given that we've been on our entrepreneurial journey for eight years now, there is a gut understanding one develops. So downstream investors start seeing our interest in a company as a screening mechanism. Almost 75% of the companies we have invested in have gone on to raise venture capital, while Ola, Housing, Tiny Owl and some others have raised growth equity as well," he says.

Mumbai-based food ordering app TinyOwl's co-founder Harshvardhan Mandad says having successful entrepreneur angels on board helps in establishing connect with investors. As many as 270 early-stage investments were made in startups last year, with venture capital funds like SAIF Partners and Sequoia Capital too making seed investments. Most VCs do not have the bandwidth to source such large number of deals through their teams so they see angel investments by influential entrepreneurs as an endorsement of a startup.

"We don't have a scouts programme, but there are instances where we co-invest or do a follow-on investment in companies where we know one of the investors well. Sometimes, these investors could be founders we have invested in," says Pankaj Jain, venture partner at 500 Startups, aSilicon Valley seed fund and accelerator.

News in Shorts founders (From left) Deepit Purkayastha, Azhar Iqubal and Anunay Arunav got angel investment from Flipkart founders Sachin Bansal and Binny Bansal, which then helped bring in Tiger Global.

KEEPING IT INFORMAL

Sequoia Capital runs a dedicated fund for its scout programme in Silicon Valley, but says it does not have a similar one in India. In the initial years, the `scouts' were wellnetworked entrepreneurs in the Valley who did not have deep pockets of their own to invest independently but were paid to source deals for Sequoia without divulging the VC's identity. The programme was made formal about two years ago. Shailendra Singh, MD at Sequoia Capital India, said he did not want to comment on the trend.

Rajul Garg, who co-founded Pine Labs and IT outsourcing firm GlobalLogic, both of which had Sequoia as an investor, says things run very informally , based on individual relationships between angels and partners of VC firms. "I've had a good relationship with a few partners because of my history, so they may give me meetings and have discussions with my portfolio companies. However, real investments are very much based on their own assessment of opportunities," he says. Among ventures that Garg has invested in, Healthkart was funded by Sequoia Capital.

Mukul Singhal of SAIF Partners says it's helpful if founding teams are also looked at by another set of credible eyes. SAIF has closely aligned with a bunch of entrepreneurs including Deep Kalra of Makemytrip and Abhishek Goyal, cofounder of UrbanTouch and now Tracxn! But Singhal says these are no formal partnerships.

"There is a high level of trust between investors and successful entrepreneurs they have backed. These entrepreneurs know what to look for in a young founder," says Tarun Davda, director at earlystage fund Matrix Partners. Even as the Indian startup ecosystem matures, the secrecy attached to entrepreneur-investor relationships will likely continue, just as in Silicon Valley where scouts rarely disclose their VC affiliations.

TinyOwl founders (Clockwise from top left) Tanuj Khandelwal, Gaurav Choudhary, Saurabh Goyal and Shikhar Paliwal attracted co-investments from Snapdeal founders Kunal Bahl and Rohit Bansal along with Nexus and Sequoia. 

Agarwaltimes