When Ram Gollamudi, chief executive of Edutor Technologies, a Hyderabad-based start-up that develops and markets learning platforms for touch devices for K-12 students, heard about Hyderabad Angels from a friend, he was quick to approach them for funding. After presenting its business plan, in March, Edutor received Rs 2 crore from Hyderabad Angels, a network of angel investors focused on early-stage businesses. Of the amount, entrepreneur Sashi Reddi invested Rs 1 crore.
“The biggest difference between Hyderabad Angels and other networks is access to qualified customers and capital. The association with Hyderabad Angels also adds credibility to fledging businesses like Edutor. Their (Hyderabad Angels) access and network helped us with business development and tie-ups. Also, their business acumen helped us hone our business and go-to-market strategies,” says Gollamudi.
So far, Edutor is one of the four early-stage firms the two-and-a-half-year-old Hyderabad Angels has invested in.
| “There are some norms of investing, how a lead investor represents a group and how follow-through investments are done”
B V R Mohan Reddy
CMD, Infotech Enterprises and founder member of the network
| “What start-up companies, which just have an idea, lack is early-stage funding. This triggered us to start the Hyderabad Angels”
J A Chowdary
Founder & chairman, Hyderabad Angels
| “We seek a strong management team, with committed founders serving a fast-growing market with a differentiated offering”
Former CEO of AppLabs and founder member of the network
| “The angel investors are mostly serial entrepreneurs with a background in technology and other areas. And, all are willing to mentor start-ups”
VP and centre head, Progress Software and founder member of the network
“Venture capitalists usually invest in late-stage companies, which already have a lot of prototypes, customers and revenue traction. What start-up companies, which just have an idea and want to raise some funds to kick it off, lack is early-stage funding. This triggered us to start the Hyderabad Angels,” says J A Chowdary, founder and chairman of the Hyderabad Angels’ board.
Since its inception, Hyderabad Angels has roped in about 70 high net worth individuals, from not just the technology sector, but also from areas such as construction, hospitality and the film industry. Entrepreneur Chandrakiran Mallarapu, who is launching MedStar, a healthcare company focused on chronic disease management and who has been part of the Hyderabad Angels secretariat since the last two years, says the network has only one restriction, in terms of investments. “We don’t want to invest in infrastructure and realty firms. Other than those, we are game to other sectors. We are strong buyers towards technology, healthcare and clean technology, as these companies don’t need much capital. We prefer less capital-intensive companies, as we can prove their concepts with investments of Rs 1-2 crore,” he says.
So, what does Hyderabad Angels look at before investing in early-stage companies? Sashi Reddi, founder and former chief executive of AppLabs, which was sold to Computer Sciences Corporation last year, says, “We seek a strong management team, with committed founders serving a fast-growing market with a differentiated offering. The team must have the flexibility to adapt to the rapidly-changing market conditions, the ability to attract other strong players to join their team and a credible vision.”
Chowdary says so far, Hyderabad Angels has received about 500 business plans. Of these, about 40 companies have been shortlisted, of which four companies have received average funding of Rs 2 crore each. Chowdary, however, says Rs 2 crore is not the benchmark investment. “We felt it is a kind of ‘sweet-spot’ for us in each early-stage company.”
“The number of business plans we are receiving is actually rising just by word of mouth, not just from Andhra Pradesh-based firms, but also from those based in Mumbai and New Delhi. This (the increasing number of plans) is a big overload for Hyderabad Angels. We, however, don’t want to keep our plans to our chest, and are, therefore, sharing some of the successful plans we had shortlisted to other networks like Mumbai and Chennai Angels,” he says, adding early-stage companies were looking to Hyderabad Angels not just for money, but also for continuous mentoring.
Ramesh Loganathan, vice-president and centre head, Progress Software, says Hyderabad Angels is more than just an active angel network; it is an ecosystem acceleration initiative. “The angel investors in the network are mostly serial entrepreneurs with a background in technology…in software and other areas…many have global education and work experience. And, all are willing to mentor start-ups. The angel network is also making serious efforts to get corporates (global product, technology players in Hyderabad) to engage these in whatever way possible,” he says.
While some Hyderabad Angels members prefer to be active in making lead investments, some opt to be a part of a group. For instance,
B V R Mohan Reddy, CMD of Infotech Enterprises and founder member of the network, has been investing as part of a group for about two years. “There are some norms on how investments are done as a group, how a lead investor represents a group and how follow-through investments are done. Given my role as CMD of a 10,000-people company, I have not been a lead investor and only invested as a part of a group,” he says.
Hyderabad Angels has been sector-agnostic and the group believes there are opportunities in many sectors, he says. A key driver for investments is the market size and the entrepreneur’s vision and execution capabilities.
“Entrepreneurship is very essential for an industry’s growth. While many individuals get ideas, they require funding and mentoring to execute these,” Reddy says.
Though Hyderabad Angels is open to all sectors, members like Sashi Reddi are primarily looking at technology-related investments. “I have invested in two companies (Edutor and GIBSS) through Hyderabad Angels. I was the lead investor in both, investing Rs 1 crore in each, with an additional Rs 1 crore coming from other members of the network. I plan to make at least two investments a year, if the other investors take the lead. Otherwise, I would take the lead only for technology-related companies that I am passionate about,” he says.