An early-stage startup usually struggles to raise funds. Founders typically have to run after multiple angel investors, spend considerable time and effort explaining the idea, and negotiate with investors on the termsheet, the formal agreement stating the terms and conditions of the investment.But now, as the startup and angel investing universe has expanded, a host of technology platforms have emerged to bridge the gap between startups and investors, and ease the whole process of investment. LetsVenture, founded in 2013 by IT professional Shanti Mohan, was one of the earliest in the space and is by far the biggest today , but there are others like Termsheet.io, Enablers, VentureCatalysts and Angle Paisa.
They screen the startups and do a certain amount of due diligence so that investors know they are dealing with reasonably eligible candidates. They have tie-ups with legal entities that both sides can go through, saving a significant amount for resource-constrained startups, and some have standardized termsheets that reduce a lot of the headaches and cost.
Neha Khanna, founder of Enablers, says the company spends around three weeks trying to understand the founders and the business before they list it on the platform. “We replace advisers who would usually charge a high price and would want to be on the board of the company ,“ she says. Enablers, started in March last year, has over 40 startups and 100 odd investors listed on its platform and has helped close 7 deals so far, all transactions between Rs 1crore and Rs 5 crore.
Once the founders and their product-market fit have been evaluated, the platforms help the startups and investors gauge the fair valuation.“Traditionally , after the entrepreneur shakes hands with an investor, the lawyers of both parties come into the picture and there is a lot of uncertainty involved till the last minute. The legal and financial evaluation may take up to six months,“ says Vivek Durai, founder of Termsheet.io.
Termsheet replaces that process to an extent with a pre set ready-to-sign termsheet that is prepared once a startup has put together the necessary data to launch a funding round.The documents are sent to all parties involved and leaves no room for negotiations. With this, deals are often completed within a week. Termsheet’s first deal was the one in which electric scooter maker Ather Energy closed a million-dollar funding round with Flipkart’s founders Sachin and Binny Bansal.
While most platforms focus on high value investors, Angle Paisa’s USP is its lower investment bar. “Usually , in other platforms, the minimum ticket size is Rs 2 crore.We connect companies with individuals who are ready to invest as low as Rs 50,000,“ says founder Himanshu Kumar.
Sharad Sharma, co-founder of software product asso ciation iSpirt and an investor on the LetsVenture platform, said that funding platforms operate in a winner-take-all market. The platform that has more active investors will attract more startups, creating avirtuous circle, he says, indicating that LetsVenture, with over 1,600 investors, will have an advantage.
Sharma expects LetsVenture to do 50 deals this year and the other platforms to collectively do another 70 deals. Given that around 250 angel invest ments are expected to happen this year, the platforms would together account for almost 50% of the total deals.
The platforms make money by charging a fee or a commission on the transaction.Angle Paisa takes 5% of the profits that its investors make. Termsheet charges a 1% commission on deals. LetsVenture charges investors a membership fee and charges startups a deal fee.
And although the current funding slowdown might be affecting late stage investments, Khanna of Enablers says platforms like hers are gaining momentum. “A startup and an investor value us more now than ever, since both the parties are looking to connect with the right set of people,“ she says, adding that they get interest from over 600 startups every month.