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“Can’t Build A Business On Fundraising KPIs”

Angel Investor Apurva Salarpuria on how he evaluates startups for Angel Investment

Apurva Salarpuria is the Executive Director of the real-estate giant Salarpuria-Sattva Group. Established in 1986 in Kolkata, Salarpuria-Sattva is a leading national Property Development, Management and Consulting organisation today. Apurva started investing in 2006 and has since made over 47 Angel investments apart from overseeing the Salarpuria Family Office’s startup and fund investments. Some notable startups in his portfolio include: Bira 91, Epigamia, Vahdam Teas, Paperboat, House of Masaba, Niveshi &  mCaffeine. In an interview with LetsVenture, Apurva shares his insights on how he evaluates startups before making any angel investment.

How did you venture into the world of Angel Investment?
The Salarpuria-Sattva Group is more than a 30-year-old adventure in India’s real estate sector. While we started in Kolkata, a lot of our commercial real estate development work has taken place in Pune, Hyderabad and of course, Bangalore. And it was in Bangalore where I first ventured into angel investing. I was developing a commercial real estate property here in 2006-07. This is when Gaurav Jain and Pallavi Gupta approached us looking for space to set up a few outlets of Mast Kalandar.

To be honest, I was awestruck by the audacity that these new-age entrepreneurs were showing and the risks they were ready to take, and all of that with very limited resources. Coming from a traditional business background, I was excited about this opportunity and after a thorough analysis, our group decided to take up equity in Mast Kalandar so that we could not just help them with space but also strategise connects. And as they say, there was no looking back.

In due course of time, I started investing in more such startup companies and it became clear to me that we should allocate a portion of our family office funds into this space too. As a family office, we have invested into a few VC funds including IDG (now Chiratae Ventures), Blume  and Fireside – these are purely financial investments. Till date, I have invested in more than 47 companies.

How was your Angel Investment journey with Mast Kalandar and how did it help you grow?
Soon after we took up equity in Mast Kalandar, Footprint Ventures became the first institutional investors in them.  Then, Helion came on board too. I have seen their journey from scratch to a peak of 60 restaurants and now back to scratch. Today, they run they run one or two outlets as a lifestyle business.

When I reflect back I can say that, one, they mis-timed the whole cloud kitchen piece. They needed to have been a lot more nimble on catching up on things. Two, unfortunately the institutional funds once they come onto the cap table start looking at the business from the narrow point of view of going from one fund raise to another and Mast Kalandar became a victim of that – where their business KPIs became the KPIs of the next fundraise and when the funding tap dried out for a few years they suffered. So while you have to hit the ‘right metrics’ for the next fundraise, you cannot lose sight of your business goals. As a business owner you have to wrest control of your business away from the investor even if he is putting in a lot of money!

To complete this circle of conversation what did the Mast Kalandar experience teach you about dealing with later stage investors and helping your startups raise the next round?
There is only one piece of advice that I give to entrepreneurs who are looking to fundraise: Be conscious of the quality of the Angel investor you are bringing in.

I would like to cite an example of Epigamia here. It’s a big success story now but 3-4 years consumer brands were not all the rage when Rohan Mirchandani, the founder of Drums Food was looking for his Series A. They had received three term sheets with drastically different values. They chose to go for the one with the lowest value as they found it to be most genuine. This term sheet bought in 40% less capital. They were giving up a lot of equity but the investor was a Belgian family office that has genuinely brought in a tonne of value.

Another thing that entrepreneurs should understand is that their investors will keep changing with every round. In each round they must find a way to balance the cap table. Even if it means making the round a little larger, giving away a little more equity, but getting an investor who will have your back.

When it comes to your family office investments, what percentage of your entire pool of capital have you allocated for VC funds. How much for direct investing in startups?
We have allocated approximately 10% of our entire family office corpus to the startup space for angel investment. Out of this 10%, roughly half is for investing in VC funds as an LP and the rest for my direct funding. On the direct investment side, we recycle some of the capital back into the investment pool (based on exit scenario).

As a family office, what is your investment strategy? What stage do you prefer to get into and any sector preferences?
One, we invest into other venture capital funds because we don’t think our size and quantum of investment in this space warrants a separate fund structure. Investing in VC funds as an LP gives us access to technology startups, which is not our forte; also this helps us diversify the risk.

With the advent of mobile phones and e-commerce, we wanted to invest in the “consumer-tech” space. But, we didn’t have enough expertise to make angel investment in the space directly; therefore, we sought out early stage funds like Blume, IDG (now Chiratae) and Fireside.

From the point of view of direct investments we only look at three sectors – FMCG/consumer, real-estate tech and hospitality. The latter two segments are primarily the fields in which we operate as a business group. Hence, we leverage our expertise to open relevant doors for entrepreneurs. In the FMCG/consumer space I gained interest after observing the changing mindsets of Indian consumers in the last decade.

The Indian consumer is today confident enough to trust Indian products instead of just trusting anglicised brands, Indian or otherwise. Interestingly, when I invested in Bira 91, they were importing beer from Belgium. But, they were confident to go with an Indian branding. The Indian millennial consumer is changing, she believes in quality; and if the product or service of an indigenous brand is top-notch, she will most likely opt for it.      

My angel investing thesis back then (2009-10) was that Indian home-grown brands will thrive. Unlike today – where everyone is talking about “insurgent consumer brands” – there were no funds looking at that space. And why not? Unlike the IT and software sector, the consumer space exhibits a linear growth rate. This is because at the end of the day it is a brick and mortar business. Even if you start online, to gain mass market you will look at offline distribution. But my early belief in this space has worked well. There were very limited people betting on this and therefore a lot of good deal flow automatically came by way.

But now we have a lot of VCs aggressively entering the consumer brands space, dedicated funds as well as a lot of tier one ‘tech’ VCs making carve outs for this space. What are the red herrings to watch out for as a lot of dollars spill into this sector?
If you ask me, the brand life-cycle has reduced significantly. So, it is getting easier for these consumer startups to fit into a typical VC’s lifecycle. Today, VCs are mostly investing in brands that are direct to consumers (DTC), niche or premium brands. These brands get sold to a larger conglomerate and therefore they fit well into a VC lifecycle.

But if you are an entrepreneur that is looking to build a consumer brand that is IPO-able then it cannot be done the “VC way” – that is a challenge I foresee. For example, Neeraj Kakkar of Paperboat is very clear that he will not sell out; they want to create an Indian FMCG conglomerate. So, Paperboat has a lot of family offices on its cap table. This money has more patience and longer return cycles.

Also, VCs want to sell out their stakes in consumer brand ventures to PE. As long as the business is in good stead, there is an opportunity to exit to the next stage. However, it becomes challenging for a company when it wants to go public. This is because it is least likely that its early-stage venture funds will stay on till then. For an entrepreneur, it means looking for appropriate VCs every few years!

Speaking of your investments in the hospitality and real-estate space, do you see any of those becoming an acquisition for the Salarpuria-Sattva group?
We have made some angel investments in some co-living and co-working startups and those could become M&A opportunities but we don’t make the investment with that target; the lens is always a financial one. Our other investments in this space are ancillary to the industry, like the Indian School of Hospitality or a real estate project management startup. We use these products and services and they give us a view into the progress in this sector but we don’t see ourselves running a technology company.

You mentioned that your family office has a 10% allocation to startup investments. Do you see this percentage increase in the upcoming years? Are you looking at other geographies for startup investments?
I believe that investing in start-ups is the most financial risk one can take. Setting aside the risks and diligence, the percentage might increase marginally, but not dramatically. Ultimately, it is an illiquid asset class. So, we will not allocate more in percentage terms but the quantum as you can imagine will organically keep increasing.

We have actually done a few angel investment outside India but with startups that have an India connect. One such company is Singapore-based TapSquare. Though this company operates in South East Asia, it has an Indian founder. In my honest opinion, the market in India is growing and will continue to grow in the upcoming years. I understand the macro environment here and therefore, I don’t see the reason to venture out.

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