1Crowd is a bit of an outlier. While most crowdfunding sites display dozens of deals on their tickers, 1Crowd flashes only a couple. That is because the equity crowdfunding platform goes beyond matchmaking by co-investing with members, for whom it provides an institutional approach to investing.
Earlier this year, 1Crowd started a new chapter with the launch of its debut angel fund, marking the first close of the largely sector-agnostic vehicle at Rs 23 crore ($3.5 million).
Its portfolio companies include urban logistics services firm Mojro, realty-tech startup Zipgrid, community building platform Fourth Ambit and advertising-technology startup Proximit Media India.
In an interview with TechCircle, 1Crowd co-founder Anup Kuruvilla discusses the platform’s investment philosophy and surveys the broader equity crowdfunding landscape in India.
Can you describe your journey from being a crowdfunding platform to launching an angel fund?
We started off as an angel investment platform with the objective of growing the network. Our approach was not to tap the super-rich, but instead to target the affluent middle class. Logically, this is an asset class which should work in India because there are fewer investment avenues here.
However, we eventually found that it was not as easy as we thought because, for various reasons, there is a negative perception about crowdfunding in India. People think it’s illiquid and risky.
We made a few tweaks on the platform to change this. This included co-investing and not charging our investors a fee apart from profitable exits, where we would retain 10% of the returns.
We also reduced the minimum ticket size to Rs 5 lakh per investment. It’s a portfolio business, so we tell our investors to approach us with the intention of doing 20-30 deals.
How do you go about sourcing deals?
Our marketing is purely through word of mouth. A lot of sourcing comes from our network, members and well-wishers.
We are now reaching out to incubators and accelerators to establish a relationship where they could refer us the best ideas emerging out of their programmes.
What is your strategy for identifying potential winners?
I’m not a firm believer in hot trends. I invest today and expect to make an exit five years from now, so how am I supposed to know what will be the trending sectors then?
We concentrate on the founder’s calibre. If you’ve got the right founder, it means you have automatically got the right team and the right business plan. Since a lot of sourcing happens through our network, we strongly consider the credentials of the person who recommends a startup.
What is your investment philosophy?
We are sector-agnostic, focused on seeing some profitability and have a strong focus on exits. This compels us to be extremely careful with our investments.
The average deal size is around Rs 2-3 crore, and these are companies with a valuation of about Rs 10-20 crore. We do not consider ideation-stage startups, but look for ventures with a team and a product in place and where sales are already being made.
Startups that come aboard could be earning revenue of about Rs 5 lakh a month and our job is to work with them to take that figure up to Rs 50-60 lakh in two years.
If we achieve that objective, then we hope to get the first round of institutional investment, which is Series A. We will exit only at Series B or C, which is another two years from that point assuming that the company continues to grow.
We want to have the conviction, on paper, that this deal has the potential to give our investors a return of about 10 times within four or five years. There will be some failures, but we tell our investors that they should be looking at an Internal Rate of Return (IRR) of about 30%.
How many deals have you struck so far?
We typically do about a deal a month on the platform. There have been roughly 20 deals so far worth approximately about Rs 40-50 crore. Out of these 20 investments, four or five are follow-on deals, one company has already closed down, one company is about to shut operations, and the other 12-13 are going in the right direction. We would have easily looked at a pool of around 1,500 companies before sealing these 20 deals.
How closely do you work with your portfolio startups?
We have about 450 advisors and mentors on the platform with a wide range of expertise, and we add about five members a week. Either a 1Crowd partner or an advisor becomes a mentor or director on the board of each of our portfolio startups, with the mandate of scaling them.
We have a commercial agreement with the advisors with whom we share a part of our carry on exits. We work very closely with our portfolio startups to take them to the next phase of growth and that takes the biggest chunk of our time.
How has the concept of equity crowdfunding evolved over the years in India and is the change visible on the platform?
There’s a lot of noise at the moment over the concept. We see things are picking up. The perception is changing, and people are warming up to the idea of crowdfunding.
Crowdfunding is the way forward for people to get comfortable with the investment ecosystem. They can then graduate to investing in a fund.
It now takes us now about 2-3 months to close a deal on the platform. The fund now invests half of the deal amount, so it has become easier to close deals.
Our deals are already cooked because we are the lead investor, while other crowdfunding aggregators wait for lead investors.
This interview is part of our InvestorSpeak series in which leading angel, seed or venture investors share their insights on the startup ecosystem in India.