‘Angels must interact more with portfolio companies to ensure returns.’

Posted on March 7, 2016 by K4 Bangalore
Originally Published on The Hindu Business Line

Angel investors – wealthy individuals who invest in and mentor start-ups – will be better off writing small cheques for a number of ventures rather than restricting their investment to just a few companies, according to Matthew Le Merle, Managing Partner, Keiretsu Capital.

He told BusinessLine here that angel investing is a hit-driven business and the more diversified portfolio that an angel investor holds, the better are his or her chances of making a decent return.

Keiretsu Capital is a co-investment fund that has been started by Keiretsu Forum, the US-headquartered global angel network. Members of Keiretsu Forum can invest in these funds. Keiretsu Forum has 46 chapters across the world, including two in India – in Chennai and Bengaluru.

According to Le Merle, given the risks involved, angel investors should set apart 5-10 per cent of their net disposal networth for investing in start-ups. The most practical thing for angels to do is to hold a highly diversified portfolio, not just in terms of the number of ventures but also in terms of the sectors they have invested in.

To ensure better returns on their capital, the angels should be personally involved in doing the due diligence and interact more often with their portfolio companies. Those angels who interacted with their portfolio companies at least twice a month got a 3.7 times return on their capital in four years than those who interacted with the companies only twice a year, in which case their returns were just 1.3 times in a little over three and a half years. Another requirement was that angel investors should have sector expertise in the sector they are investing in.

“Investors who would like to see attractive return on their capital will be wise to join in and be active in angel investing groups,” said Le Merle.

Le Merle said there were no immediate plans for Keiretsu Capital to launch a fund in India, but investors wishing to participate in Keiretsu Capital’s co-investment funds in the US could do so. Keiretsu Capital’s second fund of $10 million was open and Indian investors could participate in that. So far, the second fund has raised $2 million. Like the first fund, of $6.1 million, the second fund too would invest in US-based tech start-ups.

A handful of Indian investors had put in money in the first and second fund so far, he added. Keiretsu Capital would shortly launch a real estate fund in the US.

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