Angel funding is the kind of early stage capital that many startups could use. Small amounts of capital and mentoring- a great combination.
Realizing the potential of catching very early stage deals, institutional investors are also heading the angel investing route. Recently Nasscom announced a 100 crore angel stage fund (available on the Business Standard site) Google has also recently picked up stakes in early stage funds like Seedfund, Erasmic and Ventureeast Tenet Fund II and Band of Angels.
It's growing pool of high net worth individuals, not just NRIs but home-grown experienced entrepreneurs and investors, armed with domain knowledge (mainly in technology sectors since a number of successes have emerged from there) who also have strong operating backgrounds. These individuals have a solid ear to the ground and are successfully mentoring young companies and entrepreneurs.
But by and large, I feel people hardly know what it means and how the economics work. According to a Business world article, in the US, the economics allow you to get a 10-30% stake in the deal but in India, these terms are less known. (Does anybody know more about the economics of this in India?)
While we can safely say there is a dearth of angel funding in India, I think the larger issue is that there is a dearth of early stage funding in India.