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New Delhi. Teacups in hand and butter biscuits within reach, a handful of local technology titans debated the future of some young Indian entrepreneurs on a summer Saturday.

After grilling five teams over several hours, the group, the Indian Angel Network, put two promising startups on the shortlist for potential financing.

‘’The Angel Network is really trying to help breed innovation,” said Padmaja Ruparel, the president of the organization. “Our efforts are really going into driving the economic engine of India.”

Even though India is famous for its software industry, it hasn’t been a conducive environment for up-and-coming technology companies. Unlike in Silicon Valley, startups here can’t easily access capital, tap into a network of serial entrepreneurs or hone their ideas through incubators.

Wealthy individuals and organizations like Indian Angel Network are increasingly filling the void, providing initial capital to young companies with strong prospects.

It’s a small but growing class. In the last five years, angel investors plowed less than $200 million into startups, based on data from Venture Intelligence, a Mumbai-based research firm. In the United States, the angel investor market topped $20 billion in 2010 alone, according to the Center for Venture Research.

Angel investing is a high-risk, high-reward game. Since startups often fail before they make any money, the investors, who typically invest less than $1 million, are betting that a few will take off — earning returns as much as 10 times their original outlay. In India, they’re basically hoping to find another Nandan Nilekani, the co-founder of the software exporter Infosys, or the next Azim Premji, the billionaire chairman of Wipro, one of the world’s largest technology service companies.

Entrepreneurs in India have faced even tougher odds. Until 1991, the country had socialist economic policy, with most industries dominated by state-owned firms or a handful of large business conglomerates like the Tata and Birla groups.

Back then, upstart projects often were stalled by bureaucratic hurdles. Saurabh Srivastava, the chairman of the India Angel Network, who founded the software company IIS Infotech in 1989, said he had to wait two-and-a-half years to get permission from the government to start his company.

Analysts say it’s unclear whether angel investing will become enmeshed in India’s business culture as it is in Silicon Valley, or whether it will crumble if early investors suffer too many losses. While conditions have improved significantly for India’s entrepreneurs, they still face numerous challenges, including a weak infrastructure and a poor education system.

Many of these new investors are “the first wave of people who kind of made money in their first venture and sold off probably 10 years back,” said Arun Natarajan, chief executive of Venture Intelligence. “Time will tell what will happen when a real downturn arrives. Will some of these guys stick to safer investments?”

The New York Times