What Are RUVs? A Game-Changer for Startups Seeking Angel Investment

Raising capital from Angel Investors is crucial for many early-stage startups, but one of the biggest challenges founders face is the overwhelming paperwork. While more wealthy Indians are investing in startups, the process remains cumbersome. From signing multiple term sheets to managing a crowded cap table, founders can find themselves caught in an exhausting process that often slows growth. In our TICE Educate Series, we bring you this insightful article: RUVs: A Solution for Indian Startups Seeking Pre-Seed Funding.

The Challenge of Raising Pre-Seed Capital

Consider a founder looking to raise Rs 2 crore in a pre-seed round. This amount is generally too small for most venture capital (VC) firms, many of which prefer larger investments. Despite India’s booming VC activity, there is a significant gap in pre-seed funding, leaving startups with limited options: government grants or angel investors.

However, government grants are often out of reach due to specific eligibility criteria. This leaves angel investment as the most viable option for many founders, especially those with networks of friends, family, or former colleagues willing to invest.

Fragmented Funding: Managing Small Contributions

Raising Rs 2 crore from angel investors presents its own set of difficulties. No single angel investor is likely to offer a Rs 1 crore cheque. Instead, founders often find themselves gathering smaller contributions—typically Rs 5-10 lakh—from numerous investors. This process requires multiple pitch meetings, convincing people of the business idea, and managing the legal documentation for each individual investor.

The complexity only deepens from there. Each investment involves signing separate shareholder agreements (SHAs) and term sheets, which can turn into a logistical nightmare. As the cap table grows crowded with numerous investors, managing equity becomes more difficult. For many founders, this fragmentation becomes overwhelming, slowing down business operations.

The Rise of Roll-Up Vehicles (RUV): A Simpler Approach

Thankfully, a solution is gaining traction in India: the Roll-Up Vehicle (RUV). Originally pioneered by AngelList, this founder-friendly structure is now being adopted by multiple platforms with Alternative Investment Fund (AIF) registrations. RUVs simplify the fundraising process by consolidating all angel investors into a single entity, streamlining the paperwork and making it easier to manage multiple small contributions.

How RUVs Work?

1. Formation: A platform creates a Special Purpose Vehicle (SPV), a legal entity to pool all angel investments.
2. Investment: Investors transfer their money into the SPV’s bank account.
3. Funding: The SPV then invests the pooled capital into the startup.
4. Shareholding: Investors become shareholders in the SPV, not the startup directly.

Benefits of RUVs

• Simplified Documentation: Startups only need to sign one SHA with the SPV.
• Reduced Paperwork: The RUV process minimises administrative work, freeing up the founder’s time.
• Improved Efficiency: Founders can focus on business growth rather than getting bogged down with investor relations.
• Investor Protection: RUVs provide a buffer between the startup and its investors, reducing direct interaction with multiple shareholders.

Instead of signing separate agreements with each investor, the startup signs one SHA with the SPV, which consolidates all contributions. Investors then become shareholders in the SPV rather than holding direct equity in the startup. This structure simplifies the founder’s life, providing a layer of protection between the business and its investors while streamlining legal processes.

The Efficiency of RUVs

RUVs allow startups to focus on growth and operations, cutting down the time spent managing investors and paperwork. Platforms offering this service typically charge a fee of 1-2% of the capital raised, which covers SPV management and documentation handling.

For Indian founders, using the RUV structure is a practical option, as long as the chosen platform is registered with the Securities and Exchange Board of India (SEBI). It’s crucial for founders to conduct thorough research and due diligence to ensure they’re choosing a platform that aligns with their goals and complies with regulations.

The Future of Angel Investments in India

As more Indian platforms embrace the RUV model, the early-stage startup ecosystem is likely to become more efficient and founder-friendly. By reducing the paperwork burden, these platforms enable founders to concentrate on the most critical aspect of their venture—scaling and growing their business.

For startups raising angel capital, the RUV innovation offers a significant step forward, streamlining processes and creating a more accessible fundraising environment.

Disclaimer: This article draws inspiration from various LinkedIn posts by Pushkar Singh, Co-Founder of Tremis Capital. Pushkar is renowned for his workshops that guide founders in the process of raising capital.