In 2016 – Oct 2018, $714 mn have been invested in the 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.
Another major challenge that we see today is with 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 this fragmented nature of reporting, some startups have shut down without a proper warning to their investors, which could have been avoided with a body responsible for reporting.
In an 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 2014 portfolio and has delivered 5+ >5x returns and 3 >10X returns.
LetsVenture now has a registered Angel AIF approved by SEBI. Starting Oct 1st, LetsVenture has started moving all investor commits through the Angel AIF. As an investor on the platform, and a member of the AIF, investors can continue to 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.
The SEBI Angel AIF is a Category 1 AIF, which allows angel investors to express an intent to commit a minimum of 25L over 5 years. In simple terms, it means that an angel investor can allocate broadly 5L to the startup asset class every year, for the next 5 years. Having said that, there is no pre-scheduled drawdown – they will be required to keep the allocation over the next 5 years and can distribute as they decide to commit. They can always decide which startup they want to invest in and engage with other investors during the process of the fundraise. Once the commits 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 SPV. This is a better model than the current LLP model which some investors use when they work with friends to pool investment into a startup.
Given that there is only one entity on the cap-table, investors can now invest smaller amount and diversify their portfolio. This will enable startups to become an asset class accessible to more and more investors with smaller corpus size.
Lead Investors are also going to get the benefit of Angel AIF. Under the new regulation, it will be easier to incentivize the 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 this Fund?
(a) An individual investor who has net tangible assets of at least INR 2 Cr excluding 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 ten crore rupees.
(c) An AIF registered under the AIF Regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.
“At LetsVenture, we have always believed that as a partner in Angel Investing, it is our responsibility to take care of investors’ interests and make the process of commitment, monitoring and exit management easy and efficient. This new vehicle will empower the 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,” LetsVenture said in a statement.
Source: BW Disrupt
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