Mumbai Angels, one of India’s first angel investing clubs, is on its way to launching a maiden sidecar fund of about $20 million (Rs 107.35 crore). The funds, to be raised from Mumbai Angels members, high-networth individuals and institutional investors, would be the first of its kind in India.
Sidecar funds are increasingly becoming a part of the global angel investment scene. These allow angel investors to be part of the follow-on investment in portfolio firms, or during series-A funding. “Many a time, new members miss out investing in a promising start-up. With sidecar funds, they would now be able to invest in a company that’s in the process of raising the next round of funds. Also, a sidecar fund would allow Mumbai Angels to continue to have a larger say in the investee firm,” said Prashant Choksey, founder of Mumbai Angels.
Founded by Choksey and Sasha Mirchandani in 2006, Mumbai Angels has come a long way in creating an angel investment eco-system. Over the last six years, it has invested in 50 companies.
Globally, entrepreneurs either launch angel networks or account for the majority of their members. But, Mumbai Angels has a fair share of Indian business owners. “I was investing in companies as early as 1997. I was part of Infinity Ventures, which invested in Indiabulls and Indiagames. Both gave good returns,” said Choksey. He realised though, entrepreneurs usually managed to raise up to Rs 50 lakh from family and friends, raising Rs 50 lakh-2 crore was difficult. “This amount is too high for a family to give, and your business is too small for a VC (venture capital) to come in. It is risky, too. We call this the ‘death valley’,” he added.
Choksey and Mirchandani decided to start an angel club when they realised they were spending too much time in coffee shops with entrepreneurs, missing crucial business meetings of their respective family businesses. “We tried to find out if there was any set-up in India doing anything similar but we didn’t get anything. Saurabh (Srivastava, who started India Angel Networks), too, was starting at the same time. But we wanted to focus on Mumbai,” said Choksey.
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He said it was Naveen Tevari, founder of InMobi, who laid the foundation of the angel eco-system. Today, InMobi, started as Mkhoj, is valued at $1 billion and has investors such as Softbank of Japan, Kleiner Perkins Caufield Byers and Sherpalo Ventures.
“In 2007, when Naveen approached us, we were more impressed by the team, rather than its business plan. We liked it so much that we gave him a cheque of Rs 2 crore at a go — no tranches, nothing. Naveen came back and updated us on every amount he was spending. He also changed his business plan thrice. When he finally got the business plan right, he told us he had run out of cash,” Choksey said.
InMobi’s final business plan was for a mobile ad network. Naveen and his team managed to raise about $7 million from Kleiner Perkins Caufield Byers and Sherpalo Ventures.
“Suddenly, the VC community started noticing Mumbai Angels. Earlier, VCs would not touch our deals. Now, we could co-invest with VCs,” said Choksey.
Mumbai Angels, which initially had just five to six members, now has a membership base of 150. As the network grew, the founders roped in experts to run day-to-day operations. Currently, Mumbai Angels receives 100-120 business plans every month, compared with 80 a few years earlier. It invests Rs 50 lakh-2 crore and acquires stakes of 15-20 per cent.
The process of selecting companies is spread over 45 days. Each company approaching Mumbai Angels has to pitch its business plan before the investors. Usually, each cycle allows 16 companies. This is then shortlisted to four, which make a final pitch to angel investors. Based on the business idea, investors can either invest in all four or any of the companies. “Currently, we are investing in about three companies every two months. There are aberrations, too. In the last six months, we have invested in eight companies; we would see four to five more,” said Anil Joshi, head (operations), Mumbai Angels.
The 45-day selection period is tightly managed; presentations to investors need to be crisp and within the time stipulated. Investors are allowed to know about the companies and all due diligence processes are followed. A term sheet is signed only when there are enough investors backing a business. After that, an angel investor gets a board seat.
Joshi said he believes Mumbai Angels’ pursuit of creating an eco-system is working. “Two years earlier, we had only one VC with us. Today, we have 12 VC members. We have made eight exits and 15 follow-on investments in portfolio firms,” he said.
Way ahead
Of the 50 companies it invested in, two have gone bust, while Mumbai Angels managed to exit eight. Choksey, Joshi and Mirchandani said the failure rate is a concern. “Generally, 25 per cent of our investments are supposed to go wrong. But in our case, we have had only two failures. Either Indian entrepreneurs are really good or we are not taking enough risks. We need to take more risk. Otherwise, how would you get that one big hit?” Choksey added.
