1Mby1M Virtual Accelerator Investor Forum: With Utsav Somani of AngelList India (Part 2)

Sramana Mitra: I’m going to double-click down on a bunch of points you made. You said the angel networks like Mumbai Angels work like glorified VC funds versus AngelList. Elaborate and contrast the fee structures.

Utsav Somani: Everyone is structured in a different way. They help different people. The offline angel networks are places where people like to meet companies and see them pitch in person. They take a longer decision cycle. At AngelList syndicates, we enable people to write lower check sizes, but we pool capital and people make faster decisions. Every coin has two sides.

Sramana Mitra: What about the fee structure though?

Utsav Somani: Our fee structure is closer to a venture model where we take a portion of the carry on exit. We are closely aligned with the success of the company. We do not chase numbers.

Sramana Mitra: AngelList is acting more like a venture fund. You’re saying that the angel networks in India are working more like investment banks.

Utsav Somani: Yes. We are actually registered as a venture fund with the regulators. We’re creating these deal-by-deal LPs. Instead of doing a blind pool of capital, we create LPs on a deal-by-deal basis. LPs can choose. That’s the uniqueness of this model.

Sramana Mitra: How does that structurally get played out in India based on the regulatory infrastructure there? Are your leads’ deals AngelList investments or are they SPVs?

Utsav Somani: It’s a parent entity which is registered as a venture fund. Whenever our syndicate leads sign up a deal, we create a sub-SPV below that parent entity on a deal-by-deal basis. There is a substantial cost for us.

Sramana Mitra: That’s an internal entity.

Utsav Somani: It is regulated. We have to file proper documents. We have to submit quarterly reports as well.

Sramana Mitra: It’s a complex structure. It’s a more complex structure than any regular venture fund. Do you have a sense of what pool of capital you’ve amassed in AngelList India at this point?

Utsav Somani: I wouldn’t be comfortable disclosing that at the moment.

Sramana Mitra: What sized checks are we talking about? You said you are co-investing with all the top VC funds in India. I guess there are two questions in there. What is the check size from the AngelList syndicate? What are the details of working with these venture funds? The way we view angel money is, it’s a precursor to venture money. If your requirement is that a VC needs to be in the deal, that changes the nature of the investment.

Utsav Somani: Exactly. That’s a very good point. People go to angel networks to build out an entire round. They want to pitch the entire seed round to the entire network and raise that. That’s why the decision cycles are much longer. At AngelList, there are VC brands that have a good track record and good judgment.

Then the lead gets an allocation of $100,000 out of a million dollar round. Out of that $100,000, he puts in $10,000 himself. Once that syndicate gets pooled into a single check, the lead, on exit, will earn a 15% carry. People pay for access on AngelList.

Sramana Mitra: What is the benefit for a VC to have these angels on the deal? As far as I can see, it’s a story of too much capital and too few good deals. Whatever deal you have access to, why are you going to let these angels come into these deals?

Utsav Somani: Naval Ravikant famously said this line, “Venture capital is a combination of three things: money, control, and advice.” At every level, all of this is going to be bundled. If it’s an early-stage deal, the VC will not spend too much time helping your company out. If you have 10 value-added backers, they can help. That adds so much value than even one single venture capital check where they send one analyst to help your company out on rare occasions. You really want these value-added backers. Instead of crowding your cap table, we pool them into a single entity.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Utsav Somani of AngelList India
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