But then, Angel investors are different: they are not in it solely for the money. And their willingness to bet on new entrepreneurs provides a vital ingredient to economic growth.

A relatively recent addition to the Indian capital scene, Angels are starting to make a difference to entrepreneurial growth in the country.

Angels are usually the first external investor in a startup company, sometimes even before friends and family, though usually after. Their investment comprises their time, networks, expertise and personal funds - all dedicated to helping the new entrepreneur shape and build his business at the very beginning. They generally invest between Rs. 25 lakhs and, at the top end, about Rs. 4 crores (~$1 million) into a given startup.

What drives the Angels?

Investing in new ideas and new companies is risky business. Of every 10 investments, perhaps one or two might be highly successful, some will plateau early, and most will fail. So what drives these savvy individuals to spend so much effort in an apparently foolhardy activity?

Fun, emotions, learning. "I am basically looking for people through whom I can live vicariously…If I'm just a passive source of money then it's not so exciting," laughed Sridar Iyengar, former President of TiE Global and Angel in more than 15 companies. "Emotions and feelings," concurred Tripat Preet Singh, who turned Angel when he was only 27, and is now with NEA-Indo US Ventures.

According to Pradeep Gupta, founder and CEO of Cyber Media, and co-founder of Indian Angel Network, formed 18 months ago, "I think the real motivation is, 'Let's give, let's ensure that some more things happen.' And of course in the process, if the thing works out, you also end up making money."

Perhaps the moniker 'Angels' derives from their desire to help new entrepreneurs. R. Ramaraj, founder of Sify.com and recently-turned Angel, explains "I will invest in opportunities as an Angel Investor because I found that seemed to be the hardest point of time in an entrepreneur's life."

The role of Guardian

"A good doctor - some house calls but always available on the phone when you need," is how Pradeep Gupta describes his role as Angel.

In fact, an Angel's engagement with the entrepreneur - which ranges from providing high-level advice, to making connections, and, in some cases, helping execute daily tasks - seems to be as important as the funds they invest.

Samir Singh Bajaj, CEO, Jakaal Designs raised funds from Tripat Singh in early 2005 to start his manufacturing. "Mr. Singh helped me make the business plan. We used to sit in his office and work. I am a design person and numbers don't make sense to me…he did it all for me even till six months back". Today one can find Samir's shoes at some of the top retailers in the country.

The halo effect

Whether by helping entrepreneurs stay on track, or jump-starting their businesses, the Angel's role is instrumental in helping new entrepreneurs become successful faster.

"I would have scraped and scrounged for the money, but instead I've gotten to this stage in half the time," says Vijaya Verma founder of YOS, a healthcare company, recently funded by Rajesh Jain, formerly of Indiaworld, and Dr. Aniruddha Malpani.

Tripat's investment in Samir's company accelerated its growth by five years, Samir believes: "Otherwise I would have sold a few paper designs and built a consulting business for a few years to earn money, and then jumped into manufacturing."

Amit Agarwala of Amdale Software Technologies summarized a more personal aspect to an Angel's involvement. "The entrepreneur is the loneliest person in the organization. Where do they go and cry or vent their frustrations? Even if it's balancing personal and professional life, it's the Angel who comes to the rescue."

Sorry - it's personal

Ironically, the business success results from investing styles rooted in personal tastes, rather than systematic analysis. The intensely personal nature of Angel investing is reflected in deal choice, terms - even in the deal documentation..

"Hey, I want to see the product of the company I invested in...you can walk into a retail store, you can walk into a medical store and say: see, there is my money in action," explained Sridar Iyengar.

Some Angels, like Sridar, are willing to consider any sector that might grab their interest. Most Angels, however, prefer to invest in sectors where they have personal experience and networks - this benefits both the Angel and the entrepreneur. The Angel is better equipped to evaluate the deal, while the entrepreneur is likely to receive more help in building his business.

When it comes to the structure of the investment, some Angels, usually those who are part of a formal network, do use a fairly straightforward set of terms, negation process and documentation. Others approach things differently.

For NS Raghavan , "the relationship we have with the portfolio company is not one of investor and investee. It is more of joint venture partners."

Finally, it's about trust: "in fact, I have invested in one company where I don't think I have seen any paper work," smiled Sridar Iyengar.

The challenge for entrepreneurs...and for India

Finding one's Angel match is one of the key challenges facing new entrepreneurs. There simply aren't enough Angels to support the entrepreneurs in India today.

"It's very difficult to find an Angel investor. And once you have found one, you can't afford to loose him." says Samir Bajaj.

Samir's experience mirrors the overall scenario. "There is a shortage. To create a healthy pipeline of companies, one needs Angel funds to be at least 15% of total funds available in the system, in my assessment. Currently, it is negligible," explains Rafiq Dossani, Senior Research Scholar at Stanford University, who recently analyzed the availability of equity funds in India.

So while the difficulty for the entrepreneur is to find one of the rare breed, perhaps the broader challenge is to increase the number of Angels in the country.

This challenge remains all the greater for the personal nature of Angel investing - one can't increase the supply, for example, simply by changing interest rates.

Angels: where will they come from?

The key ingredient exists. According to Rafiq, "There is no shortage of capital in India."

One of the reasons for the shortage in Angel funding, Rafiq believes, is that "an angel has to be able to understand the project being funded. It is still early days for such understanding in India."

More investors earning their wings

But there is some good news out there for entrepreneurs. The number of Angels in India has increased over the past two years, evidenced by the emergence of Angel investing networks, including Indian Angel Network (IAN), The Chennai Fund, and Mumbai Angels.

The IAN, started as Band of Angels 18 months ago, now boasts 60 members from all over India. "We plan to expand up to 100 members over the next few months," says Padmaja Ruparel, who runs the network. The Chennai Fund, started only a few months ago, brings 24 successful entrepreneurs and industrialists into the Angel game.

Contributing to this trend is the slew of first generation entrepreneurs who have sold companies in the past few years. With some free time and available cash, they are turning to Angel investing with energy and enthusiasm.

And Angels themselves are accelerating the pace of conversion. Ramaraj was recently in Kerala, sharing the 'how-to's' of setting up a network with a group of potential Angels.

Ramaraj, who chose Angel investing over starting another company after he sold Sify.com, explains an outlook shared by many, "I think somebody willing to support entrepreneurs today can contribute to building entrepreneurship in this country."