The evolution of early-stage startup investments in India

Angel syndicates or Angel networks are a new phenomenon in India. A syndicate is a collection of angel investors who invest together in early-stage startups. Most of the prolific early-stage investors in India are now angel syndicates.

Early-stage investments are fraught with risk. Most of the bets go wrong. Venture capital investments are quite speculative, and investments in early-stage startups are doubly so. Early-stage investors bet on founders more than the idea or the product. These investors have only 2 things to go by – founder pedigree and market size. It makes investments riskier.

Seed VCs used to fund early-stage startups in not so distant past. But it's becoming increasingly rare. Now VCs prefer to come in once the startups have established the product-market fit.

Startups have traditionally struggled to attract seed capital in India. Although we read news stories about IIT grads raising millions of dollars on a business plan, they remain an exception.

Most Indian entrepreneurs have to rely on their savings and the generosity of their friends and family members to embark on their journey. But things are quickly changing.

We are witnessing a new class of investors popularly known as Angels who back early-stage companies. Most Angels are ex-founders or startup employees who have made their fortune through startups. They understand the risks that come with early-stage investing.

Most angels invest through a syndicate. A syndicate is a collection of investors who pool in small cheques to fund a seed round. These investors can make multiple bets in a year because of small investment sizes. It helps them to diversify the risks.

Syndicates have become so commonplace that they constitute a majority of the top investors in 2021. Out of the top 10 early-stage investors in India in 2021, only Y Combinator and Blume Ventures don't rely on a syndicate.

This dominance of syndicates is a great sign for the startup sector. It means startup investing is slowly becoming mainstream. I expect more and more Indians to invest in early-stage startups once these angel investors start making serious money.

A bull run of early-stage startup investments awaits us. Time to prepare our war chests :).