LetsVenture AIF Information

I am writing regarding our proposed changes to the LetsVenture (LV) AIF PPM. It is important to address and explain our position as some investors are labeling this as “sneaky” - I believe we could have avoided a PPM consent and termed it as a platform fee, which we did not, as we want to ensure complete transparency to our AIF investors. Having said that, I think it is right to clarify our position.

Background: 

We started as a tech-enabled investing marketplace in 2013 when there was a lack of information asymmetry in angel investing. LV actively worked with other players in the ecosystem to ensure we had an easier way to invest in startups. The Cat 1 - Angel Fund was created with this intent – to ensure angel investors have an easy vehicle to invest in startups, with a clear definition of accredited investors. This also protected founders as they did not have investors directly on the captable.

LV today has a Cat-1 Angel AIF license approved in 2018. We have close to 4.5K investors who have invested across 900 schemes. As we were the early pioneers of the AIF, we had created the PPM with certain cost structures in mind.

Facts about the Angel AIF:

1. SEBI defines an angel investor commitment of Rs 25 lakhs over five years. After five years, they have to be re-onboarded the AIF (run the KYC again to ensure they meet the accredited criteria).

2. Investors have a commitment of five years. Startups are operational beyond five years, and LV as the manager continues to work with our founders.

3. In full transparency, we charge an Rs 25,000 onboarding fee (one time) and an investment fee of one to two percent with a Carry of three to five percent on exit. We don’t charge a management fee every year to cover the costs of the fund over five years (While my PPM allows an onboarding fee of Rs 50,000 with a transaction fee of up to five percent).

4. We were the first in the ecosystem to reduce the Carry from 20 percent to 10 percent (this is capped) in the interest of the average angel investor on the platform and AIF. I didn’t see any rallying behind this by anyone (certainly not any lead investors) when we believed this would be a great way to ensure that wealth creation for the angel investors is protected.

In the last year, as we complete five years, we realized a few points:

1. More startup founders need help. Many founders are in distress. Many startup founders are restructuring, flipping, getting acqui-hired. In all these cases, there is no Carry at exit to cover the operational costs. While we all lose, there is an additional operational cost to be managed by legal and operations. We could choose to be non-participative or choose to actively engage and recover some assets for our investors. This costs us money, which was not accounted for.

2. There have been changes in compliance (like DEMAT for AIF units), and additional compliances to ensure we continue to protect our investors, and that involves costs.

We had issued a change in PPM to address these costs. We had proposed a three percent exit fee (this was only for companies where there was an exit on loss, with no Carry).

However, pursuant to feedback received from our investors, we would like to update our note on Exit Fee point to reflect the following:

Action on next steps:

1. Exit expenses towards a company winding down costs, corporate action costs, external legal fee on mergers/acquisition, restructuring and any other cost reasonably incurred by the Manager or Scheme to comply with any SEBI / Regulatory rulings in the future shall be separately charged on cost basis.

2. We plan to organize a call with our AIF investors to explain the changes and the rationale for the same.

While it is good to see investors reach out, I would have been delighted had we got similar feedback when we reduced our Carry to cap it at 10 percent. I know many leads who moved away because they wanted to continue to charge the 20 percent fee – participating investors may not have internalized this.

In spite of all that is being said, I want to reiterate that as an organization, we stand for high ethics and transparency. When we run a platform with 5,000 investors, it is easy to miss the finer details and the effort being put in to create a collaborative ecosystem. I have had the Press reach out for clarifications on our pricing models. Hence it is important for everyone who wants to understand the details.

Thanks for your continued support. Being a founder has never been easy!