30 May 2017 16:32 IST

1Crowd: One face, many pockets

Funding platform connects angels with promising start-ups

It may appear that every day start-ups are picked up by angels for funding. While angel investment is gaining foothold, the fact is that there are too few investors — less than one thousand — for the thousands of start-ups in the country. And this capital constraint in the ecosystem is what curated funding platform 1Crowd plans to address.

“Angel networks are doing a great job in bringing more seed money into the system. But we need to broaden the scope beyond HNIs by bringing in the upper middle class as angel investors,” says Anup Kuruvilla, Co-founder, 1Crowd, a platform where angels come together and fund start-ups.

Reducing risks

That is a difficult goal as angel investing is illiquid and risky. For starters, there is no regulation as yet on investing platforms and it falls under the equity crowd funding segment. To reduce risk, 1Crowd only works with investors who meet SEBI’s accredited investor criteria. They also co-invest in every transaction to ensure alignment of interest with angel investors. Their revenue model is such that they make money only when their investors do.

The platform advocates a portfolio approach — investors are invited to put in a minimum of ₹5 lakh and recommends that investors consider spreading their risk over at least 15–20 start-ups over 2-3 years. It is also suggested that this portfolio not exceed 5-10 per cent of the individual investors’ net worth.

Kuruvilla says a robust diligence system and a strong network of over 50 mentors and advisors help in selecting start-ups for funding. Investors are given access to a term sheet based on which 1Crowd and investors would participate.

After investment, 1Crowd takes a Board seat in the start-up on behalf of the investors. “The start-ups funded do not deal with numerous individual investors. We are creating a ‘oneness’ for the crowd — aggregating numerous investors into one block and representing their interests — and that is what our name 1Crowd stands for,” says Kuruvilla.

He believes that exits are likely after 3-4 years through later rounds of VC funding and to a smaller extent from M&As. He notes that besides money, start-ups gain from the quality of its investors – professionals with tremendous experience. “For young start-ups, we offer a lot of hand holding. For mature ones, our members can help open many doors,” he says.

Selecting start-ups

“We typically consider start-ups that have been in existence for 1-2 years, where the team is in place, value proposition has been established, there is some revenue and they are looking for capital to expand their customer base. Investment amount tends to be about ₹1.5-2 crore per transaction,” says Kuruvilla.

He emphasises the importance of referrals and attention paid to the integrity of founders. “We prefer start-ups that come through known sources. I feel that if the business plan goes bad, there is nothing to be ashamed of. But if the integrity of the founder is found to be questionable, we have no excuse,” he says. There is a natural bias for entrepreneurs with over 10 years of corporate experience over out-of-college founders. According to Kuruvilla, technology-oriented scalable businesses and unique ideas that have a competitive moat are preferred. Out of 500-odd applications received in the past year, 50 were taken to the next step with full due diligence. Of these, 10 have raised over ₹20 crore. Of these, one start-up recently raised second round of funding from 1Crowd and external funders.

Good traction

The 1Crowd platform is about two years old and has about 400 angel investor members. Kuruvilla says nearly half of them are from outside India, primarily from Singapore, Hong Kong and Dubai; the Indian membership is growing rapidly and will soon dwarf the offshore base. 1Crowd has 15 employees in its Mumbai and Bengaluru offices.

1Crowd itself is a start-up and the holding company Zeva Capsol raised funds from investors last year for its operations and investments in portfolio companies. Other co-founders and directors – Anil Gudibande, Amit Ratanpal, Natasha Kothari and Parthasarathi Patnaik – are based out of Mumbai while Kuruvilla operates from Bengaluru. External investors include Ganesh Natarajan, Chairman of Nasscom Foundation, who is an Advisor and Director on the 1Crowd board.

Besides the funding platform, an incubation programme, Inspire, was launched in partnership with Christ University, Bengaluru. There is also a 3-4 month virtual acceleration programme geared towards more mature start-ups before they are considered for funding. 1Crowd has applied to SEBI for a ₹100-crore angel fund, based on the recently revised guidelines.

(The article first appeared in The Hindu BusinessLine.)

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