Mumbai: Networks of angel investors are set to start early-stage funds to bridge the gap between angel and venture capital funding.
The development is crucial in a country where the lack of funds forces more than half the start-ups to go out of business, analysts say.
Two of India’s biggest angel investment networks, Mumbai Angels and Indian Angel Network, will start early-stage funds in the next few weeks.
Mumbai Angels, a network of more than 150 angel investors, plans to start a so-called sidecar fund next month. Such funds are dedicated pools of capital that are managed by and typically invest alongside the angel network.
“Our sidecar fund is a special vehicle for investors (rich individuals) who have no access to deals or investment opportunities,” said Anil Joshi, vice-president, Mumbai Angels, which is currently invested in 30 companies and has exited seven. “It will be an early-stage fund and we are initially looking at raising $10 million.”
Sidecar funds are common investment platforms for angel networks in developed markets such as the US and Europe, but Mumbai Angels’ sidecar fund will be the first in India, Joshi said.
“It fulfils the funding gap between angel round and venture funding. The investments could be up to $3-4 million,” he said.
Joshi and Prashant Choksey, chief executive of Choksey Constructions, who is also a co-founder of the angel network, will lead the sidecar fund, which will limit itself to co-investing with Mumbai Angels.
Indian Angel Network, which has more than 175 angel investors, plans to launch its fund this month. “It’s an early-stage fund,” said Padmaja Ruparel, president of the Indian Angel Network, without giving more details.
More early-stage investment funds are needed in India as more start-ups are being launched and the need for capital is extremely high, analysts said.
Despite the presence of more than a dozen early- or seed-stage funds, nearly 60% start-ups shut in less than 18 months of their launch because of lack of capital, said Shradha Sharma, founder of YourStory.in, which tracks start-ups and maintains a database of fledgling firms.
“These angel networks have a brand recall that entrepreneurs relate very well to. We need more such funds,” Sharma said.
Such funds, however, will have to be fast in closing out deals to make a difference, Sharma said. “A lot of early-stage funds have been launched this year. What one needs to ensure is that constant investments are being made and that too at a faster pace.”
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