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

January 2021

My Funding Picks, Opinion, Venture Capital

Every Monday, I review the funding activity of the previous week and pick three favorites. This week, I picked Tech plays as my favorites.

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Every Monday, I sit with my team to review the funding activity of the previous week. From that list, I pick out three companies that I would have loved to invest in or find founders doing similar things. Here is my rationale behind this weekly exercise. 

Last week, 20 startups raised $612 million, starting 2021 on the right track as the previous few weeks’ slowdowns get shaken off. Besides, the first leg of vaccines getting distributed means that economic activity should get a further boost. I suspect that 2021 could be the year that India produces it’s most ever unicorns! 

This week, 12 deals were in the early-stage rounds (compared to 7 last week), making my weekly analysis cut. After sifting through the news (aggregated from Tracxn, Inc42, and YourStory), I picked three as my favorite funding news from last week! 

Name: Toothsi 

Amount Raised: $5m from Ramakant Sharma and Siddharth Shah. 

What does Toothsi do? 

Edited from AngelList: Toothsi is a new age startup in the dental space providing smile correction services at home. Toothsi utilizes revolutionary Clear Aligner technology to make teeth straightening hassle-free and affordable. A desirous patient can access superior quality, transparent, and convenient alternative to conventional braces treatment at home. 

Why do I like Toothsi? 

The concept of shipping invisible braces got pioneered by Zia Chisti over 20 years ago with Invisalign. Invisalign is available in India but priced at the premium most segment of the market with a ₹1.50-3.50 lakh ticket size.  

Toothsi is priced much more reasonably in the ₹50,000-65,000 price point with several EMI options to make the service affordable. It will be interesting to see Toothsi’s scale with their ₹4000 / month model and if they could scale an online-only direct-to-consumer medical device in India.   

Name: Zerone Microsystems 

Amount Raised: $1.3 million from IAN and TCA. It also saw participation from angel investors. 

What does Zerone Microsystems do? 

Edited from Tracxn: Zerone provides a POS app named ZUP POS to businesses for accepting payments. It facilitates payments via credit/debit cards, bank transfers, and wallets. The app is available on Android devices. 

Why do I like Zerone Microsystems? 

Digital payments and smart devices are ubiquitous in modern-day India, and their penetration in the deepest corners of India increases every-day. Therefore if your smartphone could double up as a POS device for collecting payments, it could truly make your business “mobile.”  

There isn’t any defensibility in the physical contraption; therefore, the moneyspinner will be the tech-stack Zerone builds around their device. 

Name: Finsall 

Amount Raised: Rs 2.4 crore in a seed round from Unicorn India Ventures, with participation from SEA Fund and other angel investors. 

What does Finsall do? 

Edited from Tracxn: Finsall provides Insurance premium financing for consumers. It offers financing solutions to individuals who are not able to pay full insurance premium upfront. Funding of insurance premium is carried through business associates using a B2B mobile app. It provides financing for multiple policies, including employee benefits, medical & personal accident insurance policies, motor vehicles insurance policies, construction equipment, and others. 

Why do I like Finsall? 

Insurance penetration in India is increasing due to rising incomes, increasing urbanization, and a better understanding of the product. However, most Indian insurance policies require upfront annual payments that become a significant impediment for salaried people.  

Providing EMI options on insurance policies was not acceptable to the insurance authorities; therefore, the financial innovation eluded this space. However, Finsall breaks that barrier, and their offering could usher in a fresh batch of insurance seekers!   

Analysis, Investments, Opinion, Venture Capital

As investors make fresh equity allocations for 2021, they have a wealth of choices, especially eiyh alternative assets. It was about time for someone to ask me to compare the costs of investing in mutual funds or PMS vs. VC

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Yesterday, I pitched 3 family offices to invest in our fund. Oddly enough, I got the same question in each of those pitches that did not get asked while raising more than 80% of our fund.

How do your management fees compare to the management fees of a mutual fund or a PMS? 

While I explained that VC fund management fees are several times lower than that of a mutual fund, I had to prepare a quick excel to show the difference. On the surface, an equity Mutual Fund, PMS, or VC fund charges about the same fee range, i.e., between 1 to 2% of the assets under management. However, the big difference is how a Mutual Fund or PMS manager defines its assets under management (AUM) versus the VC fund manager.

The VC fund manager defines their AUM as the amount invested by the investor, i.e., if you commit ₹1000, then throughout that fund’s life, the AUM on which they calculate the management fee remains ₹1000.

For the Mutual Fund or PMS manager, the AUM definition is the current market value of your investment when they levy their fee. Therefore, if your investment is marked up 40%, the Mutual Fund or PMS manager’s fees will be charged on ₹1400 and not on the original investment. Those numbers add very quickly for a long term investment and could be eye-popping on an apples to apples comparison.

Assuming a 30% IRR over the fund life, the management fee paid in the 10th year for an equity MF generating 30% IRR is 20% of the original investment!

The same fee would continue to be 1.50% for a VC fund.*

YearInvestment AmountMutual Fund / PMSVC Fund
01,0000.00.0
11,30019.515.0
21,69025.415.0
32,19733.015.0
IRR30%42,85642.815.0
Management Fee1.50%53,71355.715.0
64,82772.415.0
76,27594.115.0
88,157122.415.0
910,604159.115.0
1013,786206.815.0
 Total Fees831.1150.0
   Mutual Fund / VC Fund5.54x  

The better the fund performs, the more the MF manager takes every year, regardless of whether they are selling or holding their position. On the flip side, the VC fund manager takes a profit share only AFTER they have sold their investments and return the principal plus a hurdle rate to the investor. Therefore, mutual funds can argue that they are a less volatile investment option (although there anecdotal evidence that they are not) in comparison to VC funds.

However, they are by no means “cheaper” for investors.

I made a simple worksheet for showing the difference in fees. You can access it here.

*in most cases, it is lower as the management fee gets calculated on the net value remaining in the fund, i.e., the principal amount minus the exits or write-offs)

My Funding Picks

Every Monday, I review the funding activity of the previous week and pick three favorites. This week, I picked Consumer, AI, FinTech and HRTech plays as my favorites.

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Every Monday, I sit with my team to review the funding activity of the previous week. From that list, I pick out three companies that I would have loved to invest in or find founders doing similar things. Here is my rationale behind this weekly exercise. 

Last week, 9 startups raised $20 million. The first few days of a new year are usually slow; therefore, I expected the low deal count. The positive public market momentum, substantial GST collections, and the expectation that India will catch up quickly in the race to vaccinate the public against the scourge of COVID-19 are all going to become factors in a strong finish to the last quarter of the Indian financial year.  

This week, 8 deals were in the early-stage rounds (compared to 17 last week), making my weekly analysis cut. After sifting through the news (aggregated from Tracxn, Inc42, and YourStory), I picked three as my favorite funding news from last week! 

Name: PadCare Labs 

Amount Raised: Undisclosed investment from technology startup incubator Venture Center under BIRAC’s LEAP Fund. 

What does PadCare Labs do? 

Edited from Website: PadCare Labs is a product-driven company that creates solutions that change the way people experience hygiene. They believe that technology can pave the way for innovation. They combine it with design and quality to create products with standards. 

Why do I like PadCare Labs? 

In a country with more women than Europe and the US combined, the low penetration in sanitary pad usage has been an investment interest area for a long time. Recycling and waste management is another area that piques my investment interest. Therefore, when a startup combines my interests into one, I’m interested in the business!  

I like what the PadCare team is doing, and it could have a significant impact. However, I believe that they could increase their market potential by 

  • Designing a much better-looking machine 
  • Offering a smaller or more portable design 

Nonetheless, they are doing something exciting, and I’d love to continue to track this journey. 

Name: Credit Nirvana 

Amount Raised: Undisclosed amount from institutional investors in New York, USA. 

What does Credit Nirvana? 

Edited from Tracxn: Credit Nirvana provides an AI-enabled debt collection service to lenders. It uses machine learning for real-time external & lender’s data extraction. It has a robot collection platform that undertakes debt collection by executing personalized digital collection, including digital payments. It engages with the customers via communication channels such as Whatsapp, chatbots, text messages, e-mails, robocalls, and more. 

Why do I like Credit Nirvana? 

As an investor with a sizeable exposure in the lending space, I am supremely interested in the credit collection space; therefore, this was a no-brainer. Credgenics, a similar venture to Credit Nirvana, made the cut in Week 45 of 2020. 

Name: Vauld 

Amount Raised: $750,000 from angel investors and HNIs. 

What does Vauld do? 

Edited from Tracxn: Financial services for cryptocurrencies. It offers services such as lending & borrowing crypto using token-based crypto assets, trading of cryptocurrencies, buying & selling Crypto, and more. Crypto funds allocated for lending get lent out to borrowers with a float maintained for withdrawals on the platform. It also provides APIs to enterprises for offering crypto services such as wallets, lending, exchange, and more. 

Why do I like Vauld? 

Now that India is warming up to Crypto, it is starting to make sense to have a relook at crypto platforms. 

Vauld utilizes the old (but now banned) badla financing system from the Indian stock markets and applies it for the Crypto space. However, I believe that their APIs would become the more significant business in the long run as the spread for lending or borrowing will reduce if Crypto does become ubiquitous. 

It will be more interesting to see if an India-based platform would have the ability to capture global volumes required to make the profitable while staying within India’s strict financial laws. Vauld could be a bellwether for the Indian crypto scene, so definitely something to follow! 

Honorable mention: GigIndia 

I excluded GigIndia’s raising an undisclosed amount from Anjali Bansal and Vineet Patni since I they made the cut in Week 29 of 2020. 

Entrepreneurship, Learning, Opinion

It is counter-intuitive but true! Founders make things difficult for themselves by offering too much because…

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The post to kick-off my 2021 blogging year got inspired by two things.  

The 1st was a piece of advice I received from the owner of a leading Mumbai based bakery brand. He was sampling the 4 cheese spreads my sister sent for the new year’s party, where both of us were in attendance. My sister recently started an artisanal foods business from her home kitchen.  

From the 4 cheese spreads, he loved 3 and “did not care” about the 4th one. He recommended that my sister focuses on just selling the 3 cheese spreads and eliminate the 4th choice. He explained that the consumer business, especially food, is one of recall and repeat.  

Therefore, if someone tried the 4th cheese spread first, that person would not come back to try the much more amazing first 3 spreads. Not only would she lose a set of customers, but these people would also alienate others by complaining about their own not-so-great one-time experience.  

Instead, if she concentrates on engaging with the clientele that loves her 3 cheese spreads and keeps coming back for it, i.e., her fans, they will tell her the next best thing that she should do for them. She can create customized items for her fans and test them out with other fans. Whatever clicks with most of her fans becomes the new item to her menu! Through this process, her menu will only have things that her fans love, and each item will be a best seller.  

On the flip side, her fans will forgive her for the experiments that do not work out. She tried something based on their advice, so in a way, they have ownership over the experiment. Besides, they will always come back for the 3 spreads over which they became her fans.  

While he spoke about just her food menu, I found his simple yet profound advice applicable to most startup founders. A founders’ common belief is that if they offer several options, then the customer will “eventually” get enticed by one and buy. In most cases, the exact opposite is true.  

Too many options create decision fatigue, a condition in which an individual makes irrational choices or avoids deciding at all – both scenarios that do not bode well for you as founders. Therefore, a limited number of options is better.  

The next question to answer was whether a limited choice, slowly expanding product portfolio could create large enough results. That is what I found this tweet, i.e., my 2nd inspiration for this post 

Casper became a unicorn by offering just one type of mattress, without any offline presence, and delivered mattresses directly to one’s home. It created a ripple in a multi-billion-dollar industry, and today its portfolio has expanded to include pillows, bed frames, sheets, duvets, blankets, etc.  

The incumbent brands allowed Casper to capture the customer’s mind space by offering too many options that confused them. Casper was the more straightforward choice.  

Therefore my recommendation to my sister is that showing too many menu items will confuse her customers. Her real genius will be in keeping things simple.  

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