About Me

 

Utilizing this digital window to share my understanding of the funder and founder relationships and….
several other things that intrigue me!

November 2019

Analysis, Investments, My Funding Picks, Venture Capital

I am starting a new section for my blog. Every Monday, I will share my favorite early-stage startups that have raised money (i.e., <Series C) in the last week. This exercise is a win-win on several levels: It helps me develop the

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I am starting a new section for my blog.
Every Monday, I will share my favorite early-stage startups that have raised money (i.e., <Series C) in the last week. This exercise is a win-win on several levels:

  • It helps me develop the right habit of reviewing deals that took place last week.
  • I am going to write this blog every Monday so that the news is fresh and relevant.
  • It offers perspective to the founders (that read my blog) on the themes that I find interesting; therefore, I expect (fingers crossed) to create a new deal sourcing mechanism!
  • I’ll attempt to connect the start-ups I discover here, with the start-ups in my portfolio; it opens up the possibility that both startups could work together for mutual benefit

Several platforms provide weekly reports on funding news, but I am going to concentrate on YourStory, Inc42*, and Tracxn. These three sources offer the best-researched information on Indian start-ups; therefore, if I utilize all three, there are remote chances of missing out on exciting funding news.

  1. Svami – $1 million

I learned about Svami from my friend and co-investor, Nikunj Shah. A month back, he was raving out about Svami when we met at our offices. At that time I regretted it was too late for AVF to get into the company as the deal was beyond the fund’s investment mandate. Even then, I continue to track the venture, that just raised a $1m round led by Rukam Capital Trust.
Svami team’s branding strategy and their passion for their product is something that other D2C brands could emulate. They have opened up a blue ocean in the premium beverages space with their tonic waters. I recognize that I may have a bias on Svami as I see synergies in distributing their drinks through Daalchini’s smart temperature-controlled vending machines, or through VistaRooms’ to the luxury home rental’s customers.

  1. myHQ – $1.50 million

I am personally extremely bearish on the coworking/co-living space. My pessimism stems from the numerous co-working pitches that I have heard from the founder, real estate groups, and family offices. Each of them claims that they will achieve a pole position in the coworking space within the next 3-4 years with 1 million seats. Unfortunately, when I hear this promise so many times and from so many people that it is easy to see the space over-capacity and low realizations in the future for this space.
What concerns me the most is that none of these promising founding teams has kept tabs on the number of seats their competition is building. I suspect that in the next 12-18 months, there will be a slew of shutdowns consolidation and belt-tightening.

If I am this negative on the space, then it is a pertinent question as to why have I put this round led by India Quotient on this list?

What aroused my interest is the Work Cafes model on the myHQ site. While not precisely similar, it reminds me of the Anticafé model that I saw in several places in Paris. Their concept is simple. They charge their users by the hour that includes food and drinks effectively, making it a coworking café. I found the idea intriguing enough to attempt incubating the idea in-house but could not find the right people to get it going.
Therefore I chose myHQ because of the Work Café model because, in my opinion, it is an idea worth exploring!

  1. Perfios – $50 million

It is difficult to call a 12-year-old company a “start-up,” but I like Perfios’ tech stack that makes credit assessment, monitoring, aggregation, and fraud detection easier for banks and NBFCs.
As an early investor in Karza Technologies, I understand and appreciate the pain point addressed by Perfios, and it is the leader in its space. The new round led by BVP and Warburg, the company, shall be utilized to expand Perfios’ geographic reach and to make acquisitions. I believe that Perfios and Karza could provide a killer product for banks and NBFCs if they worked together as the former utilizes company data to make assessments and Karza uses proprietary databases for the same.

  1. WMall – 64 crores

I am intrigued by the influencer marketing and social commerce space, and WMall offers the best of both worlds. As an early investor in Coutloot, I have followed this space for the past few years, and it will be interesting to see who will dominate this space.
*I am an investor in Inc42 through Artha India Ventures

Entrepreneurship, Investments, Opinion, Venture Capital

Waking up to the unearthing of a 2,000 crore scam at Karvy Stock Broking was precisely the sort of news fintech entrepreneurs and investors did not need. Ironically, this news would flash within a few hours of Andreessen Horowitz’s Anish

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Waking up to the unearthing of a 2,000 crore scam at Karvy Stock Broking was precisely the sort of news fintech entrepreneurs and investors did not need. Ironically, this news would flash within a few hours of Andreessen Horowitz’s Anish Acharya and Seema Amble publishing a brilliant discussion on Does Zero Fee Trading Pay Off. Seema and Anish share their views on the impact that a start-up like Robinhood brought to an age-old business-like Chares Schwab and whether zero-fee trading can make money, or will it eventually lead to the demise of the incumbent.
To give you some context:
On October 1st, Charles Schwab announced that they would no longer charge any trading fees or commissions to their customers. On the day of the announcement, their stock fell 15% as the news spooked investors as to how the move would affect profitability. However, the investors had their fears allayed as a mid-November article said that the brokerage saw a surge in new account openings. The news led to a stunning rebound in the stock as it surged almost 50% from the bottom!
The incumbent’s response to a disruptor was to copy their strategy and transform their own business! It led to a win-win situation for them as Schwab earned new business, increased assets under management, revenues, and their investors have become more prosperous. The incumbent’s move to recognize that way of doing business had changed speaks volumes to the sort of culture that must exist at the upper echelons of Schwab.

Unfortunately, I cannot say the same for the business houses in India. Their shady business tactics, lack of ethics, and underhand dealings have cast a shadow on their industries and as a result of that, on the newcomers.

It is a known fact that the IL&FS fiasco cast doubt on the entire NBFC space and led to an exodus of top-tier professionals. The pressure intensified as a host of top-tier NBFCs defaulted on their obligations leading to an almost blanket freeze in lending or investing to companies in this sector – including start-ups, which were the hardest hit.
Now, this Karvy fiasco will cast doubts in the minds of customers of start-ups like Groww, PayTM Money, and many others that are attempting to disrupt the investment space. I estimate that we are a few months away from the same freeze in funding investing tech that was witnessed in lending tech this year.  All I can tell fintech founders is that they must conserve resources. A cold hard winter is setting in on their space.

Only the fittest will survive, but they must endure.

Entrepreneurship, Investments, Learning, Opinion, Venture Capital

Earlier this week, I wrote an email in which I explained the reasons why I was passing on a deal that my team and I had tracked for more than three months. The eventual reason for letting go of this deal finally

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Earlier this week, I wrote an email in which I explained the reasons why I was passing on a deal that my team and I had tracked for more than three months.

The eventual reason for letting go of this deal finally dawned on me when I re-did the calculations for the cost it took for this venture to acquire a new customer (or a unit of “new” sales). When I completed this exercise, I could finally appreciate the vast disconnect in the way the founder and I saw the same traction numbers and the valuation for the company.

First, this is how I recalculated the cost of new customer acquisition, starting with a net gross sales number which was done by:

The NGSn number must be positive, and only when if the Gross Sales / NGSn > 2x it piques my interest.

Next is how I calculated Net Sales (new) or NSn:

The NSn number is usually and understandably, negative – profoundly negative when a start-up is experimenting with different marketing strategies early in their development. However, NSn must turn positive before raising your pre-Series A round as it is a clear indicator of achieving product-market fit.

Those preparing for Series A rounds should get to NSn / NGSn > 0.5x as a clear indicator that each rupee invested in marketing delivers an ROI of 2x or more.

Unfortunately for the founder in my example, the NSn number was deeply negative, i.e. in the -0.5x range. I concluded that this start-up was raking in less than the amount of money and effort invested in marketing, i.e. product-market is not yet achieved. The fact that the NSn / NGSn ratio was touching almost -1x in their best sales month made it difficult for me to assign any positive value their traction.   

*I say new sales or new customers because usually any returning customers do not (and should not) cost the company marketing rupees. In the case that returning customers cost the company marketing money, then the budget for that should be kept separate. Remove these returning customer costs from each line item from the formula, to ensure that the ratios are accurate with correct data.

Entrepreneurship, Learning, Venture Capital

Most founders deem that their relationship with their board will be adversarial and combative. I assume that the founders must get sleepless nights before the board meeting. Maybe it provides the founder flashbacks to the nights spent they spent rolling their beds as

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Most founders deem that their relationship with their board will be adversarial and combative. I assume that the founders must get sleepless nights before the board meeting. Maybe it provides the founder flashbacks to the nights spent they spent rolling their beds as they tried to present their school report card to their stricter parent, usually their dad.

Why do I think that?

The creative ways I see founders avoiding calling (forget conducting) board meetings as if it were the plague. Founders drum up excuses for delaying the board meetings, much like my classmates and I did to avoid submitting our signed and acknowledged report cards. Founders get sick; then a family member gets sick, then the ICU and next the morgue. Next when the health issues run out, then the team members are blamed; the reporting systems cop the blame – the list is endless. It is comical to witness the founder’s unnecessary creativity. However, the board is not a founder’s dad, waiting to rap them and it does not need to be that way.

That start-up boards must not have an adversarial relationship with the founders. This relationship should not disintegrate into that abyss is the responsibility of the investor board member and the founder.

For starters, the board must not get into the day-to-day working of the company unless there is a crisis, and the board must over-ride the management – it is rare but required. How can a founder avoid this situation is to be honest, in the founder’s hands.

A first step to building trust in the board-founder relationship is for the founder to get into the habit of organizing, conducting and following-up on productive board meetings.

  • A board meeting must be conducted every quarter – at the very least.
  • Some start-ups may require monthly board meetings, but a long-term plan of conducting monthly board meetings is onerous – on the founder and their board.

An important distinction that many founders fail to make is that a board meeting is not an investment pitch, but neither is it the investor update. A board meeting’s purpose is to get into the meat of things that the founders are working on versus the sizzle that sold to current and prospective investors.

If you, as a founder, are confused about what to discuss at your board meeting, I believe that Mark Suster’s How to Prepare for a Board Meeting to Make Sure you Crush It is a must-read for you.

Essential points that Mark delves into are the importance of a well-thought-out agenda, a solid deck and providing enough time to your board members to prepare for the meeting.

Now, if you’re scratching your head on what goes into a board deck, then Bryan Schreier’s post on Sequoia Capital’s website, aptly titled, Preparing a Board Deck should be in your reading list. 

A start-up founder that has an adversarial or a laissez-faire relationship with its board members is losing the plot. The best situation that a founder could wish for is a well-functioning board is their sounding board and guide for the road ahead. The board gives the founder a third party and a bird’s eye perspective on their venture’s progress because founders lose their objectivity in the day to day function of their ventures.

But it is important to note that the responsibility of creating the right board relationship must begin from the founder and supported by their board members – not the other way around.