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Exclusive: Here is one investing group which got an exit from one of its deals even before officially launching. Mumbai Angels, an angel investing forum based in India’s commercial capital, exited DVD rental company Madhouse in just six months when it got bought out by Seventymm.com early last month. It might have been an exit that came too soon. However, says Sasha Mirchandani, one of the founding members of Mumbai Angels, “We are happy and there is no reason to complain.”

When this group (along with Delhi’s Band of Angels) invested in Madhouse about six months back, they couldn’t even talk about it openly since they were yet to take a formal shape as an organisation. It was just an informal gathering of young, high networth individuals like Mirchandani (whose family owns Onida Group), Prashant Choksey (whose family once owned a part of Asian Paints), Shantanu Surpure (a Silicon Valley returned lawyer advising VCs and startups) and Praveen Chakravarty (who runs the India office of US private equity fund of funds Thomas Weisel Partners).

The idea of an angel investing forum for Mumbai was born in November 2006. Delhi had its own angel group called Band of Angels, but Mumbai did not have one. Says Mirchandani: “We felt angel investing is a very local thing, and the city needed one such forum.” The idea found a following among likeminded well-heeled individuals, and it soon became a reality.

Getting Formal

Mumbai Angels is not an informal club anymore. It’s registered as a trust under section 25. It has a management committee and a board of eight people, which include Javed Tapia, a board member of Red Hat India, and entrepreneurs Manoj Maheshwari and Anand Jhaveri, besides others. Among them, four are in charge of deal origination and screening of business plans. The other four form the membership committee. Once business plans are shortlisted, they will be put them up to a wider group of some 25 angels who are part of the group, which include successful entrepreneurs and executives like Ranjan Kapur of O&M. A meeting is held every six weeks where selected entrepreneurs make a presentation to the members of the forum.

One important thing: Mumbai Angels does not make an investment directly. It’s not a fund. The individual members (usually three or four of the Mumbai Angels members) will make the investment and become shareholders of the investee company in their individual capacities. One or two members will take a board position in the company, who will represent the Angels in the company. The investment amount could be in the range of $200,000-$500,000.

Interestingly, they have already invested in two companies - mobile-based local search firm mKhoj ($500,000) and US-based search marketing firm NetElixir ($200,000) - besides Madhouse ($200,000). Now deal origination is happening at a frenetic pace, and if the founders are to be believed, two or three more deals are expected to be closed in the next one month.

Why Mumbai Angels?

It’s simple. “There is a dearth of organised angel investing in India,” says Praveen Chakravarty, Director, Thomas Weisel Partners India, and one of the founding members of Mumbai Angels, “Entrepreneurs don’t have to run to 20 different golf courses to get access to start-up funding.”

There are a large number of venture capital funds who have set up shop in India. However, they will look at only those companies which have a product and team in place, and some amount of revenues. So who will fund companies before that and make them VC-ready? That’s where forums like Mumbai Angels and Band of Angels will play a role.

Chakravarty also believes angel investing has to be a local phenomenon. (In the US, even VC investing is local with Silicon Valley based firms investing largely in startups based in that area.) He says: “We all do 18-hour day jobs. It’s impossible for us to look at deals in other cities.” Moreover, angels personally involve in guiding startups much more than VCs do. Says Mirchandani: “We have to be right on entrepreneur’s head.” So that helps if both the angels and the entrepreneurs are based in the same city.

Experienced, Passionate & Young

They are a bunch of passionate risk investors. Thirty-five year old Mirchandani left his family business (Mirc Electronics which owns Onida brand) a few months ago and became an Investment Director with BlueRun Ventures in their Mumbai office. That’s not a decision the scion of every business family of $500-million-sales-a-year will do. Mirchandani reports to Sujit Banerjee, a partner based in Silicon Valley.

Mirchandani has been investing personally since 1999-2000 – and had even formed his own investing fund called Cocoon Ventures. Some of his investments included analytics firm Fractal Analytics, marketing communications company TheoryM and supply chain optimisation firm Algorhythm. Although he folded up the fund in 2003, investing has remained his passion.

Late last year, Mirchandani wanted to start an angel fund. He already knew Prashant Choksey, one of the scions of the Choksey family, who sold their stake in Asian Paints in 1997-98, and has been angel investing like him. Then they exchanged notes with other likeminded individuals like Surpure and Chakravarty. Soon Mumbai Angels was born.

For Choksey, venture investing is not new. He was a limited partner in Infinity Ventures, the VC fund founded by Saurabh Srivastava and Pravin Gandhi. It had investments in companies like Indiabulls and Indiagames. He has also been personally investing. Choksey recently acquired a GVFL-portfolio company Colortek India Ltd, which makes liquid colorants used for colouring plastics. Currently, he is busy kicking off a low-income housing project in Mumbai. “It’s a new concept and will probably do to housing what microfinance did to lending to the poor,” says Choksey.

Since the members of Mumbai Angels come from various backgrounds, there is some role for everybody. For instance, due diligence could be done in-house. One of the founding members is Shantanu Surpure, who is the Managing Advocate of Silicon Valley and Mumbai-based law firm Sandhill India Partners. Surpure’s specialisation is legal advice for startups and venture capital funds on structuring deals, legal due diligence and so on. Chakravarty, a BITS Pilani and Wharton graduate, will bring his fund of funds experience at Thomas Weisel to the table. End of the day, angels are a key part of the venture capital dealflow chain.

(Picture: From top to below: Sasha Mirchandani, Shantanu Surpure, Prashant Choksey and Praveen Chakravarty.)