First casualty of new early-stage investment norms accelerator-cum-seed fund Hatch shuts down fund

18 Jul, 2013

VCCircle_HatchMumbai-based startup accelerator-cum-seed fund Hatch Business Incubation Services LLP (not to be confused with Chandigarh-based incubator The Hatch, which recently saw the exit of its top executive team) has shut down as its small fund size did not make it eligible to run the fund under the new guidelines for angel funds or venture capital funds.

Hatch posted a Facebook message, stating that due to the unfortunate scenario brought into effect by new SEBI regulations, Hatch's fund has to be shut down as it cannot operate a fund less than Rs 20 crore and it doesn't see the need to run a fund with a corpus of more than Rs 5 crore. It also added that it is closing down in India and will proceed to work on the Indo-US startup corridor. Its website has been pulled down as well.

The development was first reported by StartupCentral, which said the closure happened two months ago.

Last month, market regulator SEBI came up with fresh norms for angel investment and prescribed a minimum investment corpus of Rs 10 crore for angel funds. This was half of the minimum corpus of Rs 20 crore for venture capital funds, which are to be registered under SEBI's Alternative Investment Fund norms as per the notification issued last year.

Hatch sought to invest anywhere between $50,000 and $100,000 in a startup, Sudarshan Narayan, co-founder & managing partner, told Techcircle.in.

"It is easy to be an individual angel investor in India now and even in future, we don't foresee a problem with individual investors. But to establish our seed fund, we needed to be certain of what's going to happen next," said Narayan.

Besides the fund size and individual LP investment size, the Hatch team did not have clarity on the tax implications on the returns generated, he said. "All these, along with the fact that we ourselves didn't want to operate a fund of more than Rs 5 crore while focusing on idea stage ventures, made us take this decision. And we didn't want to remain just an accelerator," said Narayan. He, however, did not specify the fund's corpus that had been dissolved.

The market regulator came up with several guidelines for the startup ecosystem in India including those for angel funds and angel pools. It also put a rider that investment in an investee company by an angel fund shall not be less than Rs 50 lakh and more than Rs 5 crore, and shall be required to be held for a period of at least 3 years. This also did not gel with the minimum investment ticket size of Hatch.

Talking about the plans to focus on the startups in the Indo-US corridor, Narayan said he would be setting up an incubation centre either in Mysore or in Bangalore, along with a select group of investors and entrepreneurs, to select potential tech companies to incubate. These firms will be in healthcare, education, consumer internet, social and media space. "These concepts will be originated here in India, will have development centres here, but the market focus will be the US," he said.

The firm was started in 2011 and claims to have invested undisclosed amount in two companies so far. On its Facebook page, Hatch mentions only one portfolio company, Hammer & Mop, a service provider that focuses on cleaning and continued upkeep of high-end premises. Besides Hammer & Mop, it also mentions: Portfolio – restaurant startup (coming soon).

(Edited by Sanghamitra Mandal)