Among the several sessions that we’re looking forward to at the 2014 Sankalp Uncovention Summit that gets underway today is the one that will see four portfolio companies from the Intellecap Impact Investment Network (I3N) showcase their businesses. Apart from the companies themselves, the session will be an interesting look into how the I3N model itself is working in the marketplace. Interesting because the I3N concept — a managed angel investor network designed specifically for impact enterprises — is itself just about two years old.
Since its inception, I3N has grown a bit — it has 50-odd angel investors in its network and has completed seven deals (the seventh deal is in cleantech and will be announced soon).
A few days ago we caught up with Aditi Shrivastava, a former Goldman Sachs executive, who heads I3N, and talked about the impact angel network’s big targets for the next 12 months, how ti approaches investments and evolving a model to work more actively with family offices. Edited excerpts:
1. Tell us where I3N is right now by the numbers? What are the targets for the next 12 months?
The network is still a smallish group, about 50-odd members. These profile is a mix of serial entrepreneurs, corporate professionals and what we like to term intrapreneurs and, family business owners. Apart from individuals, the network also has a number of institutional investors as members. These include Aavishkaar, Omidyar Network, Unilazer Ventures, Village Capital, Accion and others.
We typically evaluate 120 new companies every quarter. We’ve showcase 34 so far to our members. We’ve completed and announced six deals. We are in the process of closing the seventh deal. This is in the area of cleantech.
In the next 12 months, we hope to grow our member network to more than 100.
2. How does your investment process work? How is it different, for instance, from IAN Impact?
The first big difference is in the way we evaluate deals. The due diligence is done by our internal team and we also leverage the Intellecap team, especially for domain expertise (I3N is promoted by Intellecap). When we evaluate the companies, apart from the basic business criteria, we put a lot of emphasis on the quality of the founders. How much of their own resources have they committed, relative to their personal financial condition? Will they stay in the game for the long term? Will they adapt? This is very important. The founders need to be open to inputs from the investors, probably be open to a pivot if needed.
Post due diligence, the companies are further evaluated by a 4-5 member screening committee. The composition of this committee changes every quarter. It evaluates 12-15 deals every quarter and shortlists 4-6 deals for the investor members.
The other big difference lies in the specifics of the deal itself. Since we’re working with a smaller group of investors, we expect them to make a higher commitment than other angel networks. So, the ticket size per member will typically be Rs 15-25 lakh ($25,000-$42,000). We usually invest between Rs 1 crore and Rs 2 crore per deal (between $160,000 and $330,000). Each deal will have a lead investor and a total of 5-6 investors on board. Finally, we may invest either in the form of equity capital or debt. We have that flexibility.
3. What are some of the typical traits of the entrepreneurs you see in this space?
The companies and the founders are usually more advanced than what you would normally see at the angel stage. Most have crossed the proof-of-concept stage and their average age since being founded is two years. Nearly 90 per cent are already generating revenues. The founders come from a more mature age group, usually in their late thirties or early forties. They are domain experts in their area of operation. Sometimes that can become an issue because they tend can tend to hardsell some things that may not serve them well in the longer term.
4. What’s been your experience with the mainstream investor community, in terms of follow-on funding traction for the portfolio?
It’s been mixed. We haven’t seen a lot of conventional venture capital investors bet significantly on the impact space yet. However, as I mentioned, we do have a number of institutional investors, mostly impact investors, on board as members and that helps. For instance, Unilazer Ventures was part of the angel round in Head Held High Services last year. LabourNet raised funding from Acumen and Michael & Susan Dell Foundation last December. Last month, iKure raised a seed round from ARUN and others. We do a lot of outreach with the investor community to build interest in the portfolio for follow-on rounds and that is beginning to show results.
5. Angel networks can now raise/ launch their own funds. Are you thinking along those lines?
There could be potential for a fund in future, though we’re not actively pursuing that option yet. We are, however, exploring other models to deepen our engagement with investee companies. For instance, we are looking at whether we could pick up equity stakes in companies in lieu of fees. We are also trying to see whether we can work more closely with family offices and private wealth managers. We’ve had preliminary discussions with some of them and exploring whether we could encourage them to set aside some portion of their available resources for impact investing through I3N. We would manage that corpus for them. But, as I said, these discussions are still at the very preliminary stages.
