Best Time for Angel Investors in India, Says Keiretsu Cap's Matthew Le Merle | Vccircle

4/1/2016 Best time for angel investors in India, says Keiretsu Cap's Matthew Le Merle | VCCircle

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Monday, March 28, 2016 17:30 IST Best time for angel investors in India, says Keiretsu Cap's Matthew Le Merle

The coinvestment fund to help investors diversify portfolio. BY MANU P TOMS

Keiretsu Capital, the coinvestment fund of global angel network Keiretsu Forum, raised around $6.5 million for its first angelinvestor fund in 2015. It is now planning to start a seed fund in India. During his recent visit to India, Matthew Le Merle, a managing partner at the fund, said it was contemplating an India focussed fund in 2017.

The USbased crossborder network's Chennai chapter, its first in India, has invested a little over $1 million in earlystage startups, finishing its first year with around a dozen deals.

Matthew Le Merle, a managing partner at In this interview with VCCircle, Le Merle, whose Keiretsu Capital firm, Fifth Era, advises countries and companies on growing the digital economy, outlines the investment goals for Keiretsu Capital's funds and the opportunities for angel investors in India. Edited excerpts:

How do you see angel investing evolving in India?

This is the best of times to become an angel investor in India. The Indian government has been clear that it expects a major proportion of future economic growth and expansion – and gains in jobs and wellbeing – to be driven by technology focused companies. It expects the digital economy to be a very important force in India's future. And it is creating incentives and policies to stimulate this.

Angel investors back local Indian technology entrepreneurs when they first form their companies and get started. It is critical to India's success that more local investors are encouraged to become angel investors in digital economy companies.

At Keiretsu Forum in Bangalore, Chennai and, now, Mumbai, our goal is to educate and orientate investors to what it means to be an active angel investor. We welcome new members and ensure that they have the time and resources to see if this is a good personal fit.

What is the idea behind Keiretsu Capital launching funds?

Most of our Keiretsu Forum members are individual angel members who make a small number of direct investments in technology startups each year – perhaps three to five a Show http://www.vccircle.com/news/alternativeinvestment/2016/03/28/besttimebecomeangelinvestorindianowsayskeiretsus 1/4 4/1/2016 Best time for angel investors in India, says Keiretsu Cap's Matthew Le Merle | VCCircle

year. As a result, most of our members end up with a relatively small portfolio of 1015 technology companies that they have invested in. However, all of the academic research on angel investing shows that you need a portfolio of over 40 companies to have a high likelihood (greater than 90 per cent probability) of capturing the expected return for angel investors investing in groups which is very attractive – perhaps 25 per cent internal rate of return (IRR) or more.

This creates a challenge for our members. They want to invest in technology startups. They understand the returns can be attractive, and they need more diversified investments. However, practical constraints limit their ability to diversify.

So we asked how can we help our members create the desired level of diversification? Our answer was to create the Keiretsu Capital funds. These funds allow our members (and other interested investors who are not members) to make a single investment into the fund and have it spread across a portfolio of more than 40 angelbacked technology companies.

So the Keiretsu Capital funds complement the direct investing of our members into startups – giving them a larger and more diversified portfolio of investments. Meanwhile, for non members who decide to invest in the funds, we are providing access to investments that would not normally be accessible to them.

What is the stage and size of a typical Keiretsu investment?

Keiretsu Forum is an early backer of startups. We are typically the first organised investor in the companies we back – which means these companies may have already raised a formation round and even a seed round from friends and family besides founders’ resources. They then come to us to raise their next round.

In the US, the companies are looking to raise $13 million and the average Keiretsu Forum investment in 2015 was over $800,000. I am not sure of how Keiretsu Forum in India might differ from these averages, but since our chapters here are new, I would expect the total amount being raised to be quite a lot lower.

Keiretsu Capital funds top off the round once the company has presented, the angels have completed their due diligence and have determined their own investment interest. Then the fund typically adds $150,000$250,000 to the round.

How large is each Keiretsu Capital fund?

Since we are a memberdriven organisation, we allow the members to decide how much they wish to invest (beyond a minimum of $ 50,000 per fund). We are limited to 99 investors in each fund, and we were oversubscribed in Fund 1, raising around $6.5 million. This is more than sufficient to make investments in more than 40 startups.

Since we were oversubscribed in Fund 1, we created a second fund to ensure none of our members were excluded.

To date, we have not focused on speaking with nonmember investors. We have a minimum investment of $250,000 for nonmembers, and if we have interest from larger investors, then the total amount raised in a future fund may be larger. But since our focus is on backing companies in their formation to Series A stages, the amount being invested in each company is small.

This is very different from venture capital fund investments which are increasingly focused UPCOMING EVENTS on making larger investments after the Series A round. Indeed, in the US, only 3 per cent of venture capital fund investment is being made in the seed and earlier rounds today. As VCs have moved away from startup round investing, the role of angels has become even more important – today, in the US, angels provide around 80 per cent of the capital in seed and formation rounds.

Tags: Matthew Le Merle , Keiretsu Capital LLC , Keiretsu Forum

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