LetsVenture, one of India’s premier platforms enabling angels, family offices, and foreign funds to invest in startups and VC funds, recently registered an Angel AIF (alternate investment fund) with SEBI (Securities and Exchange Board Of India). Starting October 1, all investments on the LetsVenture platform are being routed through this new vehicle.
The SEBI Angel AIF is a Category 1 AIF, which allows angel investors to express an intent to commit a minimum of INR 25 Lakh over five years. In simple terms, it means that an angel investor can allocate broadly INR 5 Lakh to the startup asset class every year, for the next five years.
“Angel AIF will now enable startups to have one investor entity on their cap-table and hence make paperwork and follow-ups easier for founders,” said LetsVenture, in a statement shared with Inc42.
This also means that investors can now invest amounts as small as INR 1 Lakh through this new vehicle and diversify their portfolio further. “We believe this is going to open the startup asset class to many new investors enabling $135.93 Mn (INR 1000 Cr) into the early stage. (In the last five years, investments worth INR 450 Cr in the early stage were enabled on LetsVenture),” added LetsVenture.
As an investor on the platform and member of the AIF, investors can simply log in and engage with the startups. Once they decide to commit, before the closure of the round, they will need to go through the process of signing up through the AIF.
LetsVenture is backed by investors such as Accel, IDG Ventures, Infosys founder Nandan Nilekani, Wipro chief strategy officer Rishad Premji, Tata Group chairman emeritus Ratan Tata, IT veteran Mohandas Pai, and Singapore-based entrepreneur Karan Thakral.
LetsVenture: The Number Crunch
- In a typical angel investing cycle, an average Series B round happens in 48 months
- LetsVenture has closed its first investment cycle, delivering an IRR of 34% for its 2014 portfolio and has delivered five over 5X returns and three over 10X returns.
- There are 1,8000+ startups and 3,000+ investors on the platform.
- In the last four years, LetsVenture’s startup investment experience counted 170+ rounds with $70 Mn, 34 next rounds, seven acquisitions, and eight exits with over 5X returns
In a draft shared with Inc42, LetsVenture further explains the need for Angel AIFs and the reasons why angel investing is broken in India. Here are a few edited excerpts of the same:
Why Is Angel AIF Better Than LLP?
In Angel AIF, there is no pre-scheduled drawdown — investors are required to keep the allocation over the next five years and can distribute as they decide to commit. They can decide which startup they want to invest in and engage with other investors during the fundraising.
Once the commitments are made, the investment goes through a scheme in the AIF and they will hold units in the scheme. “When we say ‘a scheme within the Angel AIF’, think regulated special purpose vehicle (SPV). This is a better model than the current LLP model that some investors use when they work with friends to pool investment into a startup,” says LetsVenture.
Given that there is only one entity on the cap-table, investors can now invest smaller amounts and diversify their portfolio. This will enable startups to become an asset class accessible to more and more investors with smaller corpus sizes.
Lead investors are also going to get the benefit of Angel AIF. Under the new regulation, it will be easier to incentivise lead investors by providing them with a carry option. This will make them entitled to a percentage of profit the other investors make at the time of their exit.
Who Can Invest Through Angel AIF Fund?
(a) An individual investor who has net tangible assets of at least INR 2 Cr excluding the value of his principal residence, and who:
(i) has prior experience in investing in start-up or emerging or early-stage ventures, or
(ii) has experience promoting or co-promoting more than one start-up venture; or
(iii) is a senior management professional with at least ten years of experience.
(b) A body corporate with a net worth of at least INR 10 Cr.
(c) An AIF registered under the AIF Regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.
Why Is India’s Angel Investment Space Fragmented?
Between 2016 and October this year, $714 Mn has been invested in early-stage startups in India. Yet, the market seems fragmented with many structural flaws in the system.
One of the key challenges that we see today is the presence of multiple individual investors on a startup’s cap-table and the time required from the founders to manage all of them.
“For any document that needs a signature of every investor, I have to spend almost one-two weeks in follow-ups. At the time of our Series A round, there was an opportunity given to some of the existing investors and some of them came onboard right away while some were not interested. The whole process took us around one to one-and-a-half months. Even till now, only four of the 18 investors have been able to secure FIRC from the RBI and I am still following up for the remaining 14 investors. If there is one entity that internally manages all of that, that will be a huge time saver for founders like me,” added Rajat Garg, co-founder of MyUpchar.
Another major challenge that we see today is in the reporting of companies. Startup reporting, for a long time, has been broken in the early-stage ecosystem with no regulations in place. Due to the fragmented nature of reporting, some startups have shut down without proper warnings to their investors, which could have been avoided with a body responsible for reporting.
“This new vehicle (Angel AIF) will empower investors to diversify their portfolio better as well as take away a lot of burden from the founders as now the fund will do the reporting and coordination with investors,” adds LetsVenture.
According to the Inc42 Datalabs H12018 Funding Report, the number of angels and VCs that took part in Indian startup funding decreased by 14% each. At the same time, the growing popularity of angel funding networks and platforms is further increasing the count of angel funding deals, over the seed and bridge funding deals.
The Indian startup ecosystem is thus at an interesting junction. LetsVentures’ initiative to further catapult the angel investments in the country via its new vehicle, Angel AIF, will thus be welcomed by the angel investing community.