Excl: TiE Kerala setting up angel-cum-seed fund to 'lend' to startups

The Kerala chapter of TiE (The Indus Entrepreneurs) is planning to come up with a new form of seed fund for lending money to entrepreneurs in the state. The fund is expected to be in place by January 2013, according to a top executive involved in the initiative.

The organisation has formed a legal entity under Section 25 of the Company Act which means it would act as a non-profit organisation. The Kochi-based fund will be sector agnostic but will focus on verticals such as IT, industrial, agriculture, manufacturing and cleantech, among others.

"This is going to be a new concept," said K Chandrasekhar, executive director of TiE Kerala. According to Chandrasekhar, the new fund will work on a different set of rules, compared to the angel or seed funds which typically pick equity stake.

"Our mission is to promote entrepreneurship in the state. So, unlike VC funding, we will lend money to startups at a nominal interest on a fair payback policy. However, like the angels and the VCs, we will also offer mentoring services to these companies," he told VCCircle.

According to Chandrasekhar, the concept is still in the incubation stage and the members of TiE Kerala have not discussed the structure of the new fund yet. "TiE Kerala has 40 members and we are still in talks with them on the amount to be put into the fund. Many members have come forward to invest in the seed fund," he added without sharing the names.

Besides its members, TiE Kerala is also in talks with individual businessmen in the state to make it a huge fund. A person close to the development has told VCCircle that some of the locals who have shown interest in the proposed fund are related to business establishments like the Muthoot Group, Manappuram Finance, Eastern Spices and Accel Frontline.

"Each individual is planning to put in Rs 1-5 crore," the source said on condition of anonymity.

"The SEBI's (Securities and Exchange Board of India) new guidelines stipulate that a new angel/seed fund can be started only with a minimum of Rs 5 crore. So we are awaiting the market regulator's approval to take a decision on the size of the fund," said John Paul, president of TiE Kerala.

Paul said that a better picture of the investment style and structure of the proposed fund would emerge by December. "We are working on the name and the size of the fund. However, we expect to announce the fund in early January next year," he added.

There are several region-focused angel funds in India, such as Kutchi Angel Network (KAN), Mumbai Angels and Hyderabad Angels. However, each network has its own working model and focuses on specific verticals only.

KAN invests in startups and early-stage ventures promoted by Kutchi entrepreneurs. It invests across all sectors except real estate, hotel & restaurants, alcohol, poultry, fisheries, leather manufacturing and tobacco & related products.

Hyderabad Angels is a group of individuals, all of them seasoned business men and woman. They essentially invest their own capital in startups and the model is different from those of traditional VC and PE models which have more rigid investment guidelines.

The Mumbai Angels provides a platform to companies to present their business proposals and seek funds & advice from entrepreneurs, professionals and executives with expertise in startup ventures. However, as an entity, it does not make any investment.