The key to a good solution lies in the approach to a problem: I pay particular attention to how founders are approaching a particular problem set. For example, Groupon and Hotel Tonight are both B2C discount and deal apps. However, Groupon started by positioning itself as a customer acquisition tool for merchants, while, Hotel Tonight focused on selling excess room inventory that the hotel would never sell. Groupon is a dying franchise today, while Hotel Tonight is growing strongly. Correct positioning matters.
Judging founders is hard: Despite many investments, I still make judgement errors, particularly when it comes to understanding the long-term commitments of founders and their working relationships with each other. The safe way would be to invest in only those founders that I have known for a while, however, that would limit my universe of opportunities drastically. So I try and align the founder incentives as close to the investors in terms of stock investing, salaries, budgets, etc.
Your biggest success as an investor? Realized Exits
Pennar PEBs (From seed to IPO in 4.5 years, 16X returns post-tax)
Carwale.com: From seed to my exit via M&A in 4 years– 6X. Went up another 5X after my exit.
EzeTap: From seed to partial exit in 4 years – 5X.
HCG Global: From early stage to IPO in 13 years – 6.8X
What do you look for in a company? As an investor, I look for large platform shifts that are occurring around us. These large shifts change the rules of the game for the impacted sectors and we look for founders with ideas on how to capitalize and drive these platform shifts in their favor. Smartphone adoption was a huge platform shift and its normal to launch a ‘mobile-first’ company today. Similarly, ‘Aadhaar’ is a massive opportunity and we are likely to see ‘Aadhaar First’ ventures with identity at the core of their service. Globally, we will see more and more ‘AI First’ ventures till AI becomes a core layer on most organizations, just like the internet has become today.
We look for founders who have a clearly articulated problem set with a deep understanding how their solution is 10X better than what exists now. Then we look for the founders’ execution ability, domain expertise, etc. Of course, if the company has traction, that tilts the scale in their favor a lot.
How do you work with the startups that you invest in? I am an active investor so I like to take an advisory or a board role in leading or co-leading the seed round. I help the founders shape their vision into a well-defined business strategy and work with them closely in the first 6-12 months of the seed investment, where they are building the playbook for success.
Once the company has found a viable economic rhythm and growth velocity with a good team in place,I consider my active role redundant. After this, I step in only at critical junctures where the company’s capital structure is involved.
You have been an entrepreneur too. What learnings as entrepreneur can you share with startup founders? The buck stops with you: Your startup is 100% of your life, and probably 1% to 5% of your VC’s overall portfolio. While the VC has funded you, he doesn’t own your company. You alone are responsible for your venture’s ultimate outcome.
You are always selling: Get used to it. You can never stop selling. Essentially, you are selling a new paradigm to all your stakeholders and you have to keep doing it till you have changed the status quo in your favor.
The boring stuff matters: The secret to success lies in not ignoring the boring stuff like making budgets, product roadmaps, listening carefully to what your team members’ are saying, especially when they don’t agree with you. Never delay firing a bad apple. The more you procrastinate, the worse the problem becomes.
What makes a good angel investor? Venture investing is inherently risky with a 95% casualty rate over a 3-5 year period. It’s important to acknowledge this statistic going into an investment, regardless of how exciting the team or idea is. Once you know the odds are stacked against you, you are at a good place to start your due diligence. Focus on team, product, market and traction.
Try and build a portfolio, instead of concentrating your bets in one or two companies. Be open to new ideas because new paradigms rarely sound plausible till they become a reality. Who would have believed in 2009 that a billion Indians would be biometrically identified and with a universal ID number that sits in an open cloud. Back then, we didn’t even know if we could trust our census data. A few years from now, we will evolve from a data poor nation to one of the most data rich nations in the world.
Your first investment to the most recent, what has changed? First of all, today is far better time to be investing in internet startups in India, than it was back in 2007. The market is massive and it’s growing fast. The current VC funding slowdown is healthy because now the venture market is functioning normally. Valuations are becoming more realistic and funding is around true traction. For the first time in our nation’s history, we have a government, which understands technology and is supporting it with enabling legislation and policies as well as infrastructure like Aadhaar (India Stack). This is an amazing time to be a builder at any level in India’s internet.
Talk about the startup/angel ecosystem. Is it evolving? We are in early stages of creating an angel eco-system and still have at least a decade to go, before startup investing can actually become an asset class in India. However, folks are generally collaborative and help out each other and that’s a good thing. It’s still very hard for founders to find good angels and we need more experienced entrepreneurs re-investing back into the startup system with their time, money and wisdom.