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As VCs stay away, angels come to the rescue of growth-stage startups

With venture capital firms hoarding funds for their portfolio companies because of the Covid pandemic, angel investors are moving in and writing bolder cheques in these late-stage startups

July 24, 2020 / 09:01 PM IST
Image by Tumisu from Pixabay

Image by Tumisu from Pixabay

In March, Vinay Bansal, Chief Executive of Inflection Point Ventures, a consortium of angel investors, came to the rescue of hyperlocal delivery firm Milkbasket after it reportedly failed to raise its much-touted $50 million round.

Uncertainty around the cash-guzzling hyperlocal delivery model and the changing market scenario around the pandemic had led venture capital (VC) funds to maintain a safe distance from the company.

So, instead of looking at a potential down-round with larger VCs, according to sources, the company chose to raise a bridge round at the previous round’s valuation, with the angels coming into the picture for working capital funding.

The fund is helping the company improve its unit economics at a time when a large round is unlikely to happen.

Launched in 2015 by Anant Goel, Ashish Goel, Anurag Jain and Yatish Talvadia, Milkbasket is a hyperlocal delivery company that delivers grocery and milk to consumers. It has so far raised around $35 million.

Bansal, who had earlier invested in the company (in his individual capacity), this time decided to lead a $5.5 million round along with a consortium of angels through his network Inflection Venture Partners and the company’s existing investors: Blume Ventures, Kalaari Capital, Mayfield India, Unilever Ventures and BeeNext.

Conventionally, angel investors invest around Rs 5-10 lakh in companies since they come in during the early stages of deals. However this round saw a bunch of angels investing a whopping $2 million out of the $5.5 million, a feat in itself.

Seizing an opportunity

”Late-stage startups, which appeared to be out of reach for angels on account of high valuations, are now not seeking a big spike in their valuations during the current round. In some cases, valuations haven’t been revised upwards from the last round, which is now giving an opportunity to angels to enter a high-potential startup at a late stage,” Bansal told Moneycontrol.

As more and more venture capital firms start hoarding funds for their portfolio companies and are reluctant to invest in fresh startups due to the pandemic, angel investors are taking this as an opportunity and writing bolder cheques in late-stage startups.

Other angel interventions

Milkbasket is not the only one; multiple startups across the fin-tech and artificial intelligence space, among others, have seen similar participation from angel investors in growth-stage rounds.

A case in point is rural Fintech startup Jai Kisan, which received investments from high-net-worth individuals, including Rajiv Sahney (New Vernon Capital) and Sanjay Mariwala (Omniactive) in its Rs 30 crore round, which was led by Arkam Ventures., an AI-first SaaS business, saw participation from AngelList and angel investors’ consortium LetsVenture in its $5.1 million Series A round.

Another startup, Agnikul, which works in the space-tech domain, also saw participation from LetsVenture in its $3.1 million pre-Series A round.

According to LetsVenture, 15 percent of the new angel investors it added on its platform in the first half of 2020 are investors from Tier 2 cities. Altogether, it added 742 new investors with137 in June alone.

LetsVenture closed 44 startup investments till June this year as compared to 55 deals in all of 2019.

“Ten of these deals (H1 2020) were co-led by VCs like Nexus Venture Partners, Accel and 3one4 Capital, which also shows that angels, via a platform like LetsVenture, are participating in slightly later stages” said Mohan.

“As valuations get tempered, people are recognising that this is a good time to allocate funds to the private market,” said Shanti Mohan, founder, LetsVenture.

New faces

Interestingly, apart from the known faces, many new individuals are joining the brigade, mostly consisting of CXOs of top companies.

“The entry of angels in late-stage investment rounds has seen a significant increase. Earlier, only business owners, preferably HNIs or startup founders, who had accumulated some wealth, invested as angels in companies. Now, the pool of angels has expanded as more and more CXO-level executives are interested in investing,” said Bansal.

A lot of these investors have conventionally invested their money in stocks and real estate and both of these sectors are now plummeting.

“The notion of a public market being risk free has gone away while in startups, success rates have started to go up. Coming in at late stages also gives the angels some sense of security as many venture capital funds have already invested their money in these startups. So, these stages are less risky for them than the early ones,” said Bansal.

Inflection Point is in talks to participate in more such late-stage rounds and is likely to close at least four deals in the next couple of months.

“VCs are saving cash more for their own companies, so a lot of bridge rounds are coming mostly to angels,” said Sweta Rau, founder of White Ventures.

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Priyanka Sahay
first published: Jul 24, 2020 09:01 pm