India’s angel ecosystem must be built on informed trust

As entrepreneurial energy plays an ever-larger role in India’s success story, we present a package of weekly opinion articles by members of TiE, a global organization for startups and entrepreneurs. From the rural reach of India’s startup revolution and the easing of capital and compliance challenges to the role of angel investors, how startups and micro, small, and medium enterprises must grow together and how best to track innovation, TiE authors cover a wide spectrum of relevant issues.

In 2000, when we started MeritTrac, the Indian startup ecosystem as we know it today did not exist. There were no incubators, very limited institutional funding avenues and almost no established playbook for first-time entrepreneurs.

Our first investment came from an “angel investor” in Shivamogga. He did not have a formal accreditation certificate. Nor did we have the credentials, revenues or valuation benchmarks that founders routinely present today.

What we had was an idea, an early plan and the conviction that we could build something meaningful. He trusted us with his money. For us, that cheque was never merely a financial transaction. It was an act of faith and an enormous responsibility. As entrepreneurs, we knew we had to live up to that trust—not only by striving to deliver returns, but also by remaining transparent, acting with integrity and treating the investor’s capital with the respect it deserved. That experience shaped my understanding of angel investing. At its best, it is not capital flowing anonymously into an asset class. It is a relationship between people, built on informed judgement, shared conviction and mutual accountability.

Over the past 25 years, India has successfully democratized entrepreneurship. Startups are no longer confined to Bengaluru, Mumbai, Delhi or a few elite institutions. Ambitious entrepreneurs are emerging from Mysuru, Shivamogga, Indore, Coimbatore, Jaipur, Bhubaneswar and hundreds of other cities and districts. We must now ensure that access to early-stage capital is democratized alongside entrepreneurship.

Angel investors occupy a unique place in this journey. They step in when an entrepreneur may have little more than an idea, a prototype or a handful of customers. At this stage, institutional capital is often unavailable. The angel investor provides not just money, but also judgement, mentoring, networks, credibility and, sometimes, the confidence that keeps an entrepreneur going. This is especially important in tier-II and tier-III India. A young founder may not have access to a venture capital fund, but may know a respected local entrepreneur, senior professional or business leader who understands the market and is willing to back her.

This is why the current conversation around the regulation of angel investing deserves careful consideration. Investor protection and market integrity are essential. Angel investing is inherently risky, and no framework should allow unsuspecting individuals to be drawn into investments they do not understand or cannot afford to lose. But we must also ask whether financial accreditation alone is an adequate measure of investor sophistication?

Does a prescribed level of income or net worth automatically confer the ability to evaluate a startup? Conversely, should an experienced entrepreneur, industry leader or professional who has built businesses, managed uncertainty and mentored founders be excluded merely because they do not meet a particular financial threshold?

We should not confuse wealth with wisdom. Financial capacity is certainly relevant because an angel investor must be able to absorb a loss. But sophistication may also arise from entrepreneurial experience, prior investment activity, domain knowledge or substantial senior operating experience. In angel investing, these attributes are particularly valuable because the investor often participates in building the enterprise, not simply financing it. The answer, therefore, may not lie in adding more layers of regulation. It may lie in enshrining informed understanding and trust within the framework itself.

Could investors qualify through a combination of financial capacity and relevant experience? Could they complete a standard risk-awareness programme and explicitly acknowledge the possibility of losing their investment? Could there be a graduated pathway, allowing newer investors to begin with smaller exposures or participate through organized angel networks? Could networks take greater responsibility for investor education, transparent disclosures, conflict management and deal-level documentation? Such an approach would not dilute safeguards. It would make them more meaningful.

A signed form should not become a substitute for understanding. Equally, accreditation should not become a substitute for judgement. The objective must be to create investors who genuinely understand what they are entering, founders who recognize the fiduciary and moral responsibility attached to accepting capital, and networks that uphold strong standards of conduct.

Organized angel networks can play an important role here. They allow investors to evaluate opportunities collectively, learn from experienced members, diversify risk and access structured information. They also help founders become investment-ready and prepare them for future institutional capital.

Regulation should strengthen these networks as responsible intermediaries rather than unintentionally make participation so restrictive that angel investing retreats into informal, invisible channels. Most importantly, policymakers must listen directly to founders, angel investors and entrepreneurial communities outside the metros. A framework designed only through the lens of large financial institutions may overlook the relationship-driven nature of early-stage investing and its importance to emerging ecosystems.

India’s next generation of transformative companies may begin with a conversation in Shivamogga, Surat or Shillong—not in a venture capital boardroom. The person backing that entrepreneur may be a local business leader investing not only capital, but also reputation, experience and time. Twenty-six years ago, an angel investor trusted a group of first-generation entrepreneurs like us. We understood that his trust carried an obligation. We worked hard to honour it. As India designs the future of angel investing, we must preserve that fundamental compact.

Strong markets are built through sound regulation. But great entrepreneurial ecosystems are ultimately built through informed trust—and by ensuring that everyone who gives or receives that trust understands the responsibility it carries.

Madan Padaki is an entrepreneur, ecosystem builder, angel investor and TiE charter member.

This is the sixth part in the series. Next week: Deep Kalra on how failure is not the problem, silence after failure is.

Read the previous part: MSMEs and startups: converging for growth