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Are there any kind of benchmarks around angel investment valuations in India, especially with respect to business plans that are just on paper? First of all, organised angel networks, such as Indian Angels Network, Mumbai Angels or even seed funds rarely fund paper plans. So the real first cheque – Rs 50 lakh or less – comes from FFF (family, friends and fools).

To find out what is the right valuation for the first cheque, it would be worthwhile  to study the valuations in later funding rounds. The organised angel networks usually operate between Rs 6 crore and Rs 15 crore pre-money valuations, in post-beta companies. The size of  deals ranges between Rs 1 crore and Rs 4 crore for equity stakes of between 15 per cent and 30 per cent. Seed stage funds also have similar valuations; usually investing less than $1 million (approximately Rs 4.9 crore) for stake above 25 per cent.  Although, of late, some deals have started happening in the $ 2 million (approzimately Rs 9.8 crore) ticket size, post the FFF round. A few have raised even $4-5 million seed rounds for e-commerce SEM budgets, but that may not happen again for a while.

So a very lucky company will raise $2 million after their first Rs 10 lakh or Rs 50 lakh cheque, at a pre-money valuation of say between Rs 15 crore and Rs 24.6 crore ($3 million or $5 million). Assume a Rs 15 crore pre-money valuation. At this point you would expect the angel investor to multiply their money by 2-4 times. This gives a pre-money valuation range of between Rs 3 crore and Rs 6 crore.

If the company has to settle for a Rs 2 crore round at a Rs 6-8 crore pre-money valuation, the angels stand to barely double their investment.

It is important to note a few things:

1. While the promoter gets compensated with salaries, MSOPs (full form) etc. and the investors have their preference rights, the FFF gets the worst of both worlds.
2. Many a time, they are forced to take exits at deep discounts. So their downside is unlimited but upside is capped.
3. Large part of the initial cheque goes to co-founder salaries

Suggestions for FFF angels in India:

1. Play in the safe range of Rs 2-4 crore valuations and write small cheques less than Rs 50 lakh in total. You may need to provide more for the long winters.
2. Take partial exits if you like the plan going forward. But when in doubt, take full exits if feasible.
3. If you continue to be invested, retain as many rights as possible
4. Don’t try to take more than a 20 per cent stake. It will surely mean that you will have to exit in some future rounds to make room for others.
5. Convince co-founders not to take salaries till the next round.

About the columnist: Anand Lunia is executive director at Seedfund where he leads investments in technology, Internet, education and retail startups. He has 15 years of experience as an entrepreneur, venture capital investor and corporate executive. An IIM Lucknow alumni, Lunia was co-founder of one of India’s earliest elearning companies, Brainvisa Technologies (acquired by Indecomm Global Services) where he created the business plan, led the team in fundraising and facilitated the exit of the company’s venture capital investors, earning them five times their investment. Follow Lunia on Twitter.

Barely ten days after Amazon scripted a soft entry into the Indian ecommerce market with comparison shopping site Junglee, homegrown players have started to feel the pressure of major league competition. Bangalore-based Flipkart, which headlines the second coming of ecommerce in India, has been the first to react. This afternoon, the Accel Partners and Tiger Global-backed ecommerce startup announced the acquisition of Gurgaon-based peer Letsbuy. The details of the deal have not been disclosed, though Flipkart co-founder and CEO Sachin Bansal said in a press statement that the acquisition is a part cash and part equity transaction. Letsbuy’s 350 employees will continue to function independent of Flipkart.

Founded in 2009 by Quasar Media founder Hitesh Dhingra and Amanpreet Bajaj, Letsbuy raised $6 million in Series A funding early last year from Helion Venture Partners, Accel Partners and Tiger Global. The company, says sources in the venture capital industry, has been in the market for a second round of funding for some months. This, however, could not be officially confirmed. It  is likely (though not clear yet) that Letsbuy’s venture capital investors have acquired stakes in Flipkart in exchange for their stakes in Letsbuy. Executives at Helion, one of the investors in Letsbuy, declined to comment on the deal.

Incidentally, Tiger Global is a common investor in Flipkart and Letsbuy. It entered Flipkart in 2010 with a $10 million investment and followed up with a $20 million round last year. An unconfirmed January report by Mint suggests that Tiger Global and Accel (which invested $1 million in 2009) have invested $150 million in the company as part of its fourth round of funding, which values Flipkart at $850 million. It may be recalled that during the latter part of 2011, various media reports suggested that Flipkart was in talks with private equity investor General Atlantic for a similar-sized investment but at a valuation of over $1 billion.

The acquisition announced today indicates that venture capital investors, who poured nearly $400 million into the ecommerce sector in 2011, have also reacted to the Junglee entry. In setting up a platform that essentially aggregates deals from smaller ecommerce sites in India, Amazon now has an inside track on ecommerce in India without the attendant risks. While Junglee drives up its online traffic, the costs of customer acquisition, an area of concern for most local players, delivery of goods and payments (cash-on-delivery requires significant investments in logistics) will be borne by its partners. Junglee’s entry, though a soft launch of sorts for Amazon, potentially turns the ecommerce business in India on its head. Consolidation through mergers and acquisition, or even the shutting down of weaker local players, could dominate ecommerce in 2012. Larger players like Flipkart, on the other hand, will seek to buff up by buying assets. In effect, it will set up the playing field nicely for Amazon when it does make a full-fledged entry.

That makes 2012 a make-or-break year for Flipkart. The Letsbuy acquisition allows it to deepen its presence in electronics, a category it entered last year. Books, the category with which founders Sachin Bansal and Binny Bansal started the company in 2007, now account for less than half of the company’s revenues ($11.2 million for the financial year ended March last year). The company has projected nearly $100 million in revenues for the current financial year. Letsbuy is the Bangalore-based e-tailer’s third acquisition so far. It bought digital content platform Mime360 las year and on-demand publishing firm weRead.com in 2010.

Read our previous posts on Flipkart

• Which way will Flipkart’s Bansals go?
• Is Accel eyeing a 25X partial exit from Flipkart?

Images Courtesy: Flipkart and Letsbuy

Mumbai-based online gaming startup Gamiana Digital Entertainment has raised an angel round of funding of under $1 million from Indian Angel Network (IAN). The company will use the funds to launch its first multi-player game, Jamia Online, in Turkey at the end of this month. It will follow shortly with the launch of an English language version of the game for global markets, including India. The three-year old startup expects to raise its next round of funding in about nine months to support further scale-ups.

“Part of the funds raised now will also be used to build the publishing team,” said co-founder Vishal Golia, speaking to newspersons at a teleconference to announce the deal. The company employs a team of 15 developers in Mumbai, and also collaborates with individual domain experts in the US. While Golia did not disclose any growth targets, he said that Jamia, which has been launched in beta test in Turkey, has already received 200,000 registrations. It is also currently developing its second product — Vinashi, which is a real-time strategy game that targets both high-end and low-end mobile handsets.

Gamian was founded in late 2008 by Golia and Burak Balik. The executive management team also includes Sumeet Maniar and Tyler Kim, who oversee strategy, business development and operations. The company follows a free-to-play model and expects to generate revenues from the sale of virtual goods or premium features within the games. The global gaming market, said Maniar, turned in $75 billion in revenues last year, of which $14 million was online gaming. “On an average, about 10 per cent of gamers are willing to pay to play and that is a significant market,” he said. The company’s target markets, apart from Turkey and India, include Brazil and Philippines.

This is Delhi-based IAN’s first investment in the gaming segment. “We think the market in India will grow significantly, especially in Tier II cities,” said IAN member Chetan Shah, who joins the Gamiana board.

Lok Capital, the Rockefeller Foundation-backed social venture capital firm, has emerged from a tough 2011 with a realigned investment game plan. From being focused only on the microfinance sector, the Gurgaon-based firm now has a broader mandate to invest in healthcare, education, employment services and other financial services businesses. The recast follows its declining fortunes in the domestic microfinance sector where growth has come to a virtual halt due to a series of regulatory issues over the last 18 months. Lok Capital’s maiden fund has $18 million out of its corpus of $22 million invested in microfinance companies.

“We’re still on track to return the capital from Fund I. With some luck, a modest return is definitely on the cards,” said Vishal Mehta, co-founder and partner at Lok Capital. The microfinance portfolio includes companies such as Bhartiya Samrudhi Finance, also known as Basix, Spandana Sphoorty Financial and Ujjivan. “We’ve already exited three out of the nine companies,” says Mehta. The social venture capital firm’s Fund I is now fully invested.

New investments will be made from the firm’s recently launched $65 million second fund, dubbed Lok Fund II. The fund formally completed raising capital in December last year and has already made an investment — $3 million in Bangalore RuralShores, a BPO firm that employs rural citizens. A second deal, says Metha, is in the offing. “The overall focus will remain on social inclusion and bottom-of-the-pyramid, though we will now cover new sectors,” added Mehta. Lok Capital was launched in late 2000 with a grant from Rockefeller Foundation. Apart from Mehta, its founders include IDFC managing director and CEO Rajiv Lall and former Actis (South Asia) chief Donald Peck. Since its launch, the firm has attracted other institutional investors such as International Finance Corporation and KFW.

Mehta and his team started raising the second fund nearly two years ago, amidst the growing crisis in the microfinance sector. While the fate of the microfinance portfolio still hangs in the balance, the broader focus may now help ease investor concerns on returns. Investment ticket sizes from the new fund will be larger – between $2 million to $8 million per deal. One key advantage of larger deal sizes is that it will enable Lok Capital to pick up larger stakes in investee companies.

On Friday afternoon, we visited the Mumbai offices of Jigsee, a Toronto-based startup that has developed a video streaming application for mobile phones. The application can be downloaded from mobile app stores and employs a patent-pending streaming technology that helps deliver continuous video on wireless networks with data rates as low as 50 kbps. Jigsee Beta was launched in India in August last year. It currently clocks 100,000 users per month and India is among its largest markets.