VC Conf 2020 – Part 2

List of Panelists

– Ganesh Rengaswamy (Co-Founder – Quona Capital) 

– Abhishek Sharman (Founder – Carpediem Capital)

– PG Ponnapa (Founder – Limites Non)

– Paavan Nanda (CEO – WinZO)

– Pratap Thoppil (Co-Founder – Qwikcilver)

– Gyan Tiwari (Ex Founder – Mficient)

– Anindita Sampat Kumar (Co-Founder – Yogabars)

– Sudhanshu Goyal (CEO – ADmyBRAND)

Moderator

– Sameer A H (Founder – Vidura Capital)

Ganesh Rengaswamy, Co-Founder – Quona Capital: Sure thanks Samir. I’ll try to keep this brief. To set the context, we are a specialized fund for we invest only in Fintech and related verticals. Hence, we are more targeted towards financial services. So, on average, I would say in a year, in India, we go through the plans in a cursory way or have single meetings with close to 200 to 220 companies. Of these, 25 to 30 percent will probably go to the next stage. There could be various reasons for selecting them: right stage of business portfolio fit for us, quality of entrepreneurs or the idea, evolution of the core idea, capital being raised vs. what we think makes sense etc. But once we are at the next stage, we dive deeper on a number of other things:  understanding the plan better, understanding the market better and understanding the entrepreneurs better as well. After this process, the 25%-30% list is further trimmed down by two-thirds. For these companies, around 8 to 10% of the initial list, is where we spend considerable amount of time, anywhere from a few weeks to three quarters, where we work together with these companies and give them some targets. Out of these companies, we will then end up investing in 4 or 5%. This is how it typically works.  

Sameer A H, Founder – Vidura Capital: Okay, great! 

I’ll now move on to Abhishek Sherman. While tech startups investments get a lot of press, there is a bigger world out there for growth capital investments in non-tech ventures as well. Abhishek you have been doing this for 15 years now earlier at Sun PE and India Equity partners and then now at Carpediem Capital. So, what is your philosophy for catching high quality winning companies early in the life cycle? 

Abhishek Sharman, Founder – Carpediem Capital: We have a tried and tested approach. We believe that you see leadership skills in companies fairly early. We look at companies which are between  25 to 30 crores on the lower end and 175 to 200 crores at the higher end in terms of revenues. We are looking for essentially two or three things in these companies to be viable investments. The first one is that they can be defined as leaders. We can be very creative in the way we define leaders but usually leadership is in a geography or a subsector – that also is important. Secondly, we want to see some strong proof that the company can live within its means. So, they should already be in some ways break-even or profitable. To us, that’s a very important aspect because if we put in money and the growth capital expansion capital helps the company to expand in different ways e.g. setting up more stores, expanding to new markets or hiring more people and somehow if that doesn’t work out, but the company has the DNA to be able to cut to a certain size where they can again be self-sufficient, then the company can live to fight another day. Hence, it is these two key territories that we want to focus on: companies which are self-sufficient and companies which have shown some characteristics of being leader. The third key aspect for us is we want to ensure that we have got strong alignment of interest. Usually, we back first generation entrepreneurs and we take very significant stakes in companies – 26 percent plus and then we then employ a variety of other methods to ensure a strong alignment of interest. 

I think those are the key aspects of what we are trying to do and in terms of our theme, we are always trying to back creation of the consumer brand or creation of an organized service because those are the two most compelling opportunities in India at this point in time.

Sameer A H, Founder – Vidura Capital: Thank you, Abhishek, that’s very useful. 

From the investor side of the table now, I’ll hop on to the company side.

My next question is to Anindita. Anindita, the healthy food options market has generally not evoked a lot of investor interest simply because it’s perceived to be a small addressable market. However, things are now changing for the better with heightened levels of consumer awareness.  

So, can you please take us through the trials and eventual successes of raising funds across multiple rounds that have taken place in your company?  

Anindita Sampat Kumar, Co-Founder – Yogabars: We’ve primarily raised three rounds of funding till now, two from Fireside ventures and one from SAIF partners, and yes, you’re right. When we started in around 2013, a lot of the people that we used to go and talk to were of the view that health doesn’t sell in India. India is a taste market – health is not going to sell and that view was not only from people in the investor community but also from individual retailers, whom we asked to list the product. They were also of the view that India is not a health conscious market. In a way, we were lucky to succeed despite that view- there was a lot of perseverance and we raised funding even from friends and family right in the beginning. I think we got a little bit of impetus through that, and then we got some funding from banks as well because we put up our own manufacturing facility so there was some momentum which came prior to going into a proper formal funding round. 

This helped us to establish a market and made us believe that if we were able to sell in the market, it is something that we could sustain for some more time. It also  helped us internally tick mark some of those boxes about sustenance because repeatedly the view from the market at that time was that health does not sell. I think the shift in consumer perceptions and what the consumer wants, has been happening for the past four to five years. The last six months have obviously accelerated the shift. But I think the main driver which actually created that shift was Amazon entering the market, expanding out the market towards D2C which changed dynamics for a lot of companies, including us. I think that was a turnaround point for us and one that helped us grow. 

I think another thing that helped us was the growing ecosystem: the evolution of companies like Nature’s Basket or Foodhall, which went into more niche categories and that also helped us as they promoted the kind of categories that we were trying to grow in. It was also helpful that entire ecosystem evolved past just the big brands. Because I think, pre-2010, most of the FMCG market in the country was pretty much HUL, Britannia, Dabur, Nestle etc. Between those companies they covered roughly 80 to 90 ninety percent of products that they’re selling in the market. Hence, over the last decade, a lot of new developments that happened gave us a break in reaching directly to the customer and the customer’s taste and evolving needs. 

Sameer A H, Founder – Vidura Capital: Thank you Anindita!  

I will move to Paavan next. Paavan your entrepreneurial journey started at the IIM Calcutta campus, where you co-founded Zostel with six other co-founders. Please takes us through how it all evolved and do share with us the story behind bagging funding from Tiger Global within about two years of Zostel’s journey.  

Paavan Nanda, CEO – WinZO: Thanks a lot! So, yeah, this is a rather interesting story and one in which the role of IIMC Calcutta is a little more than probably in a usual startup story because it all started in the campus. We were seven founders – out of which four of us were batchmates in IIM Calcutta (2012-14 batch). Immediately after the first year, we all came back after our summer placements and one of my friends and ex-Co-founders, who was from the hospitality business, came up with this idea of starting backpack hostels. All of us during our undergraduate program and even during IIMC had gone to Europe for exchange program, and we’d stayed in youth hostels and were super fascinated about the idea of staying in youth hostels, an idea that was not prevalent in India. Hence, very quickly, everybody was on board and we had the whole of second year of campus – a time when there’s not much pressure – to start this startup, initially as a hobby project.   

But in just a couple of months, we got really serious about the idea and all of us pitched in around 3-4 lakh rupees each and got a corpus over 20 lakh rupees. Some of us also had education loans to pay and so also ended up “begging, borrowing and stealing” from our batchmates to get this entire corpus together. With this corpus, we started two properties: one in Jodhpur and the other one in Jaipur. In just a couple of months, the properties were reaching break even and customers who were coming on board were loving it and we had three more co-founders who were hands-on operating in those cities. 

Hence, it all started making sense and suddenly drew a lot of attention from all our batchmates, juniors and seniors. There was a good vibe in the media as well that, we have started this backpacking chain or youth hostels. This is how it all started like that, When it came to financing, post the initial corpus of 20-25 lakh rupees, we financed through business plan competitions. There is also an interesting anecdote here for people who are attending this event out of their business schools. We applied to one of the B-school competitions in the second year and we realized in a matter of a hours presenting that we won the first prize of Rupees one lakh. This made us think that this was a good way to raise some capital and over the next two or three days we ended up applying to each and every business plan competition which was to be conducted in India or abroad.  

Over the next three months or so, we participated in 16 business plan competitions out of which we ended up winning 15. It was a fabulous run for us and helped us raise about 50 to 55 lakh rupees and it also got us a lot of attention from investors as well as the media. Some of these were really prolific B plans – for example we won IIT Bombay’s Eureka, the Richard Ivey Business Plan in Canada and the Wharton India economic forum. We won some really top accolades before the time we were about to graduate. Luckily, we had a term sheet, a seed round just before graduating. I still remember most of the folks who were dressing up in business formals for their placement interviews, while we were negotiating term sheets and it was a great experience. 

We graduated in 2014 and scaled Zostel the whole of 2014. The seven of us had a lot of firepower in our belly but we soon realized that maybe Zostel as a youth hostels or backpack hostels in itself was not that big of a market opportunity in India at that time. Hence, somewhere towards end of 2014 and start of 2015, we thought about entering the budget hotel model – something which Oyo was doing at that time, being a couple of months ahead of us in the market.  Hence, we added Zo Rooms as a brand to the portfolio and that also drew a lot of attention towards us, which was not given to Zostel and the hostel industry. 

We then proceeded to further raise capital for the company and then Tiger happened. We were actually a bit fortunate that Tiger invested in us and it’s an interesting story. For a couple of months before we met Lee Fixel, the person who was heading Tiger, we were trying to raise money. Around then, we took a term sheet from another prolific investor, but that fell through at the last minute on the eve of the SHA. 

This was a big setback – as we were running out of money but we got to know that Lee Fixel is traveling to India. We already had a meeting scheduled with him but somehow managed to re-schedule that meeting and meet him while he was in India. We met him at 2 pm afternoon 14^th, of April (or May), 2015 and within the next 18 hours – by 7 or 8 am in the morning, he told us he was happy to partner with us.   

It was a pretty thrilling experience and we ended up scaling immensely from there and 2015, was all about scale or rather, blitz scaling. 

Sameer A H, Founder – Vidura Capital: Great! Paavan that was a fascinating story, thanks.   

Paavan: Another interesting bit – out of the initial 20 lakh corpus, one of the founders actually contributed 7-8 lakh rupees, which he won by winning a poker tournament on PokerStars. So, it was literally like a pennies to millions story for us.  

Sameer A H, Founder – Vidura Capital: Thanks. I will next move on to Pratap. Pratap, raising money from VCs is just one part of the equation, however sustaining and enhancing the demand for investment in the subsequent rounds is quite a different ball game. Having raised multiple rounds over the last decade successfully, can you throw some light on what went right for Qwikcilver during successive rounds of fundraising? How does one ensure, increasing investor interest over time? 

Pratap Thoppil, Co-Founder – Qwikcilver: Thanks Sameer! It was good to get this download from Ganesh. where he’s probably captured our own journey for the last 10, 12 years in those two, three slides he showed us. We have gone through lots of things mentioned there, we have not gone through some of the things and we have done contrary to what he has advised us to do. We have also not done some of those green things that he advised on but still we have survived and carried on. Paavan talked about this setting up on campus. It was fantastic to hear. On the other hand, I come from the era, when I was on campus when Narsimha Rao and Manmohan Singh announced the liberalization of the economy (1991-93 batch, and Manmohan Singh was the chief guest at our convocation) 

I am from that era of past and present so helping to bridge the generation gap. During my time on campus, we never had this wildest idea of setting up a company. We were doing what Paavan told people did in second year in both the first year and the second year. We were enjoying life inside and outside the campus and attending some classes in between. 

A confession to make, while I head a Fintech company but I got just a B minus in my Fin Acc course on campus, which just goes to show probably that college degrees or grades don’t matter. Surely, you wouldn’t find my name on any of the boards up there on campus. 

But on a serious note, Qwikcilver is a Fintech company, a SAAS company and a consumer product company, all in one, for the last 10, 12 years and it’s been a big journey for us. You referred to four of our investors – four VC funds that we raised money from include Accel, Helion, Amazon and Sistema. We were the first startup in India technology space that Amazon invested into, and we were pleasantly surprised when that happened. After that the Indian arm of a Russian fund called Sistema invested into us. Over our journey, we had our own VC fund also, which went into mergers. 

We were initially invested into by a fund called Erasmic which was the original avatar of Accel way back in 2006, 2007 and 2008.  

When Accel came into India they bought Erasmic and therefore, we became part of the Accel portfolio in India. So, I do have a lot of anecdotal incidents and can narrate tales about funding. This is from the era when SAAS was not sexy, VCs were very hard to find and startups was not the coolest thing to do. So compared to Paavan and team, who set up a company on campus – which is so cool – in our time, coming from a typical South Indian family of parents working in public sector, we just had to find ourselves a job. Hence, I got into IIM Calcutta after managing to crack CAT.  

There’s no handbook about how to fix everything in a company. Our company is doing fantastic now but a lot of things we did was like shooting in the dark. We took a lot of decisions just based on our gut, and more often than not, our gut was wrong rather than right but we just stuck to what we were doing. 

I think looking from the VC’s perspective, it’s so much more challenging for them. Ganesh you did allude to it also because there you were talking about the large number of projections from different companies. Each of these entrepreneurs believe that they’re going to change the world in their own domains of experience and they “fabricate” these stories about how they are going to change the world. It’s going to be that much more difficult for the VCs to decide which of these stories to believe in and which ones to doubt especially when there’s nothing of that existing at all right now.   

It was quite similar with us: we said we were going to change the way of gifting in India. Some of the VCs were very polite to us while others just said “it’s bakwaas” in so many words. ”Who is going to do this? India is a cash country. Taking a dabba to a wedding matters more than a gift card. Gift cards are very impersonal and cold”, this is what even the best of VCs told us. I guess each of us has gone through that in our respective journeys that you’ve heard more No’s than Yeses. What worked for us was that me and my other two co-founders laughed it off. Nowadays, I guess there’s a big rat race for funding but the advantage we had was that there was no such pressure on us back then. We didn’t have something big to live up to or a big reputation of having succeeded and we didn’t really think about what the future held. We just thought we’ll build a good platform and we believed we built a great platform.  

That’s when Erasmic happened. In the US, gift card is a huge, hundred billion dollar plus industry and like Ganesh said, lots of VCs are not founders themselves but they’ve come from the US so gift card is a known terminology from the US. So Erasmic had seen the potential of gift cards and seen the category scaling up over the decade in the U.S in the 90s and early 2000s. So they thought that they will put in some money into us. Before that we had raised some money from friends and family. We were also pitching to Helion at the time and they had not committed. But when Erasmic decided to invest and Helion also decided to pitch it, but we were too small for them. Hence, while they matched Erasmic’s investment into us, but trusted Erasmic to manage the investment. 

One good thing for us which probably got us repeat rounds was that we were able to achieve all that we set out to do. I’m talking of the metrics we set out to achieve: we did not suddenly have some grand vision, we just built specific targets around GMV, number of customers, and number of cards in 2009, 2010 and 2011. It wasn’t anything too scientific, of course, there was some kind of methodology, both bottoms up and top down.   

This was because while raising raising funds, when we went with a bottom up estimation of numbers, the funds told us to give a top-down approach. Conversely, when we went with the top-down approach, they wanted to look at the bottom-up approach. So, all in all, we had 25 different Excels of all kinds of top down, bottom up, lateral and horizontal models to arrive at what we’re doing and why we’re doing. Remember, there was no syndicated data or syndicated reports available of what is this category all about and we wanted to change India’s gifting behaviour – so that was the context in which we were operating in then. 

Hence, the first round came in together which is Helion and Accel and because we were able to meet our metrics year after year, the second round was easy as there was considerable interest in keeping invested in us from both and so, we didn’t have to go to anybody else.  

We had supposedly a fantastic 2020 vision of how the category will grow but from the VC side they couldn’t fathom what we were doing. To give an example, when Flipkart came in their pitch was that they were going to be the Amazon of India. Hence, it’s very easy to figure out. Companies now pitch like “we’re the Uber of the industry”, and so VCs and people are able to relate to that category. However, the gift card category is not very VC friendly, and not many VCs have invested into many categories, even on the fintech based categories. 

Hence there wasn’t a lot of precedence but we were very clear that as first generation entrepreneurs, we would need to have a VC backed  company. As first generation entrepreneurs, it would help us to have a good VC team “advising” us or even whipping us in order to take key strategic decisions, rather than trying to do it on our own. That was the reason why we went pitching to VCs. On the other hand, we were also okay if VCs did not invest in us – it would not have been the end of the journey for us. That was our approach all again – this should be a VC/PE driven entity. The good thing (or maybe the bad thing) for us was that nobody else was doing what we were. 

As Ganesh mentioned that there will be lots of other copycats coming into your category – however there was no one coming into our category, which made us wonder why. Why wasn’t anybody copying us or even venturing into what we are doing? Were we so great that it was difficult to copy or were we doing something so stupid that nobody wanted to walk down our path? 

So, we built this SAAS cloud platform company, going to big box retailers and enterprises saying that we will manage your gift card portfolio for you. So we went to the Tatas, Birlas and Ambanis and they would tell us, “Why do we need you? We’ve got our people. Why should we need a five-member team of startup with a badly spelled company sitting out of a basement in Koramangala?” So, it was a bit of a struggle. 

Thankfully, one thing led to another and we just started getting signups. We were very clear that we will approach enterprises who are leaders in their respective domains. It was hard to crack an enterprise deal back then in India. No-one knew what SAAS was, there was no startup community back then, and we were targeting the biggest retailers in 2008-2010 period. Also, enterprises in India as clients can be an extremely tough deal. 

Organized Retail itself was just picking up then and wasn’t yet established. They were busy scaling up their own business and opening up new shops and stores rather than looking at a startup providing gift card category services. It was when e-commerce came about. We weren’t too hopeful about e-commerce in all our worldly wisdom as we didn’t think it will work in India. We were hopeful of the offline market because in the US in the offline space, every big box retailer and even a small store in the US has gift card. 

We believed we had a great platform and so, we thought, in India also, offline is the way to go because India is a market of grocers and of shopkeepers. Now when online came about, we just signed on a few online players. We met with Sachin and Binny [Flipkart founders] when they were operating out of the same basement in Koramangala and they believed in gift cards because they came in from Amazon and Amazon’s gift card portfolio is huge in the US. 

So, they believed in gift cards but they were so busy doing their own things – they could have built their own gift card, but luckily for us they didn’t have time – and so they decided to outsource gift card to us. They integrated into our platform in 2009 and they had a fantastic UI and of course as customers even back then we loved Flipkart. Flipkart after signing on became a proof of concept for us, because we were still getting only limited traction from the biggest retailers who were still busy opening new stores. But never in our wildest vision we expected Flipkart to become what it was going to become then. 

In 2013, Amazon came into India and we approached Amazon while they were looking for a third-party provider. India is the only market in the world where they actually outsource gift card portfolio to a third-party startup. Now when in 2013-14, we were in the market to raise another round and both Helion and Accel wanted to invest into us but they both had exhausted their investment funds by that point. This is  another challenge in the life cycle of a startup – there can be scenarios where even if the VC or PE wants to invest but in their books they can’t invest into the same startup. Hence that did not work for us. Both of them had very few exits and had invested into a number of startups and hence could not invest into us even though they wanted to. By then, we had signed on Amazon as a customer and when the business team of Amazon got to know that we were in the market for raising money, they expressed an interest into investing into us, which was highly surprising for us. 

What has helped us consistently as I said is meeting the metrics we set out for without being too sure of whether we are in the right path. We were definitely fortunate and all the forces conspired to make certain things happen and hence that’s why four rounds have happened. 2 of the investors have been with us for over that last 11 years. 

Each of the VCs had a cash exit last year which was one of the few instances in India where a successful cash exit happened. It was a good story overall: A SAAS company seeing a cash exit, and for the exiting VCs too – to believe in the potential of Indian companies. As a team, we weren’t looking for an exit, but the VC’s needed to have an exit and they exited in 2019. Since the exit, for the last one and a half years, we’ve had a new set of investors. The investors of Pine labs invested into Qwikcilver through Pine labs but all of us continue in the company. The team has been together through pre-fund raise, during the fundraise as well as post exit. This has helped in scaling the business to an extent which would not have been possible had this not been the case. I tried capturing 12 years into five minutes and it was difficult but I hope it was relevant and useful. 

Sameer A H, Founder – Vidura Capital: It was very useful, Pratap. So, to distill some of what you said, I think you were pioneers in this market and the market was very small when you started but it kept expanding thanks to your efforts. The product was very good, and the team was very solid which helped you outperform your own projections, which continued the trajectory of investor interest. Hence, thanks for those insights. 

I will now move to Ponnapa. So far we have had a chat with VC investors and startup founders who’ve raised money. Ponnapa is someone who has often recommended to startups to think beyond VC capital. 

So Ponnapa, can you please elaborate on this strategy in detail because there’s a world out there and a large number of startups which do not have VC funding and who continue to make profit and survive. 

PG Ponnapa, Founder – Limites Non: Thanks Sameer, it’s a real pleasure to be here. I didn’t realize that I was the senior most guy in this group. Well, this is my background. I graduated in 86 and in 86, we were the first occupants of the White House [a hostel in IIM-C campus]. In fact, when we moved in there was still construction work happening and we were not able to occupy the ground floor because those rooms were still not done. The other interesting titbit was that on campus there were only four computers at that time among approximately 240 students spread across the two batches and hence getting access to those computers was very difficult. If you wanted to do anything with computers, you had to wake up at six in the morning and go and register there, otherwise you could not get space and time. For so many of us that was too much of an effort, hence we didn’t even see the front end of a computer until we graduated.  

But to come back to the question that you asked, Sameer, sorry, what I ended up doing was quite accidental and not planned. This was not a long-term strategic option that I had. I started mentoring my first company while I was running AOL India around 2010. I really liked what I was doing: playing the role of a motivator and someone with whom startups could bounce off strategy ideas, like some of the points Ganesh had mentioned. By 2012, I had already spent 26 years in corporate India – 11 of them as a CEO and so I was looking for the next challenge – and decided that maybe there was an option to do it full time. That is when I trod down the path to try being a mentor cum angel investor in the startup ecosystem. 

Hence, I started working with a couple of companies. This is when you realize that the odds of getting funds at an early stage from a VC – like Ganesh was talking about – are really low. It is very tough for a VC to decide and it’s quite tough for a startup to even reach that level where you can be in the consideration set of a VC for multiple reasons. You can even have the best product – and like Pratap has very nicely captured, some top VCs have passed on an opportunity thinking it won’t work only to regret it later. Hence, it’s very difficult for even VCs to take these decisions. 

When I was working with some of these companies and realized that there was serious potential in them. The first junction of a startup is how do you raise enough money to move it to a scale by which a third party can look at it and sees the metrics and it makes sense for them to invest. So over a period of time – I’ve been doing this now for roughly nine years full time so have some experience and learning, I’ve distilled my thoughts for this session.  

The first type of funding is typically what I call “faith and trust” funding. The faith and trust funding is by individuals or teams which typically know the founders. You will generally not be able to raise too much money in this because in India typical ticket sizes for an investment is around Rupees 10 lakhs. If you are lucky, you might get more but if five of your friends are willing to support you that’s about Rs 50 lakhs on average. Now the key thing after acquiring this first round is to be able to reach some metrics where you can go to what I would call high risk angel investors. These high risk angels like ideas and concepts and want to see some basic metrics – they don’t deep dive too much – but are willing to take larger bets at this stage. From high risk angels, you can raise typically between Rs one to three crores. High risk angels are people with larger pockets e.g. the CEO of a large company for whom writing a cheque worth Rs. 25 lakhs is not a big issue – but who would like to see some metrics before investing into your idea. 

After the second round of funding, you come to the third level which are the follow-on angels. Now these angels are the mass market: this is typically any guy who’s a senior corporate executive in India, for whom it is easy today to write a cheque worth Rs. 10 lakhs. However, they don’t have the ability to take the high risk bet and they want more metrics in order to invest. They want to understand the product-market fit and see some hard numbers before investing. For example, for a B2B startup, they might want 10 customers onboard, while for a B2C startup, they might want 10,000 customers. These investors need some numbers which are understandable for them. Moreover, the follow-on angels look up to the high-risk angels who have already invested, and believe a large part of DD is already done by them. The high-risk angels are also big names which attract the follow-on angels and hence they are willing to come onboard.  

Now, I’m not saying that VC money is not needed but there’s a right time at which VC money becomes relevant and easy. I’ve seen companies that have spent a huge amount of time chasing a VC and it’s a binary decision. These companies could have spent up to four months in meeting VCs demands and then the VCs are sorry for some reason for not going ahead with investing in them. It is very tough for a founder who’s spent 30 percent or more of his time compromising on metrics that VCs want or compromising on other asks that the VCs might have – only to have failed in order to raise money. 

Hence, my strategy is using angels to reach a situation where your odds on chance for a VC funding become that much better. Many people who know me know that I’ve been mentoring a company called Perfios for many years.  When Perfios started their journey, most companies said data aggregation and data analysis for banks is never going to work. I was part of pitches to tier 1 VCs who all passed on it. We went down the angel group path and we raised reasonable money to a level where we were almost break even as a company. We had almost 40 to 50 Fintech companies using us at the back end and then the same VCs wanted to invest. So, using angels makes it an easier sell as your product market fit is a little better. You can then look forward to a Series A or a Series B. The other thing which happens sometimes when you succeed with good angel money is that you can potentially skip a typical series A (say, a $3-5 million range) and directly go to a large series A ($10 million plus range) because your metrics start getting so much better. 

Well, sure getting to angels itself is a full-time job and it does suck a lot of time and effort for the founder and typically many of the companies where I mentor I actually play a large role in this. For example, 10% of my IIMC batch has invested in at least one of the companies that I mentor in some form of the other. So, that’s how this whole ecosystem grows but you need somebody who will be able to literally handle this. This process sucks a lot of time and there will be NO’s every single day. For example, a guy who invests in one company will not invest in another company and hence it’s a humongous task. 

However, it definitely improves the odds, on chance of a company raising some money and reach a better milestone – at which junction it becomes easier to get serious VC capital. That’s the story which I’ve been telling everyone. 

Sameer A H, Founder – Vidura Capital: Thanks, Ponnapa. I do have a follow-up question. Like you mentioned some of your portfolio companies have eventually raised VC money. Specifically from a fundraising perspective what kind of preparation did you ensure with those companies before the VC conversation started. Can you please take us through this? 

Ponnapa:  I don’t think there’s anything drastically different there. It is similar to what you would typically do for any VC except that you will now target a VC who is not an early stage investor but a mid-stage or later stage series A funder. However, the metrics are the same, the DD remains the same, you have to tell them the story about your metrics, about what your plans are, what your prospects are and what are the potential revenue streams. It’s a full-fledged thing and there are professional I-bankers who will actually build all those scenario plans. It’s a serious game but you have to do the entire full nine yards when you’re raising anything upwards of five million. 

Sameer A H, Founder – Vidura Capital: Got it, great! Sure thanks! 

I will now move on to Sudhanshu, who after graduating from IIMC worked with the Adani group briefly. He then started his entrepreneurial journey and from what I hear from organizers, he’s a very perseverant entrepreneur. While the VC ecosystem has still not warmed up to the opportunity in the sector where he is operating, he has been working towards it with lot of discipline. My question to you, Sudhanshu, is that when you have an ambitious plan in place but VCs have still not warmed up to the opportunity to invest in your sector, how do you sustain and keep your motivation high and wait for the VC tide to turn in your favour? 

Sudhanshu Goyal, CEO – ADmyBRAND: Thank you Sameer and the organizers for inviting me to the panel. The other participants on the panel here have either raised money already or have invested in startups on their own while I am yet to find a backing from any VC, and am some way from raising money. Hence, thanks again. To answer your question, I feel perseverance is the only key to sustain in an environment where VC’s do not really look into opportunities in your sector. As Pratap also mentioned, as founders, if your sector is not getting any interest from VCs, you seek validation from your early customers to build a success story, and that’s what we as a company are doing today. We are in the process to get our metrics up and running, Hope this answers your question.

Sameer A H, Founder – Vidura Capital: Thank you Sudhanshu. I will now move on to Gyan. Gyan, you decided to exit your venture Mficient by getting your team acquired by one of your investors. The primary motivation for the same was because the company wasn’t scaling up to your satisfaction, although you had raised a good amount of angel money from fairly reputed investors. You then entered IIM-C for your higher studies. So, what are some of the key lessons that that you would like to share with us, especially in the context of equity raise? 

Gyan Tiwari, Ex Founder – Mficient: Sure – thank you for having me. We started Mficient in 2015. Back then, I was leading North India sales for a SAAS company and was working very closely with the founder. I realized there was an opportunity in the market in the mobility space based on what was happening in India. If you look at the West and China, people started with desktops, graduated to laptops and then went on the mobile devices. In India however, everyone was directly getting exposed to internet on the mobile devices directly. Hence, we thought that though mobility had picked up on the B2C side, there was a lot of opportunity on the B2B side. wherein you can have greater employee engagement, greater flexibility in enabling remote working if you could take the business side of things on mobile devices. That was the thought process behind Mficient. 

Moving on to the fund raising aspect, specific learnings from my fundraising initiatives is something I have written extensively about. I like to focus on two key learnings which are close to my heart because I’ve been consulting a lot of startups for the past two three years and I see many of the new startups making the same mistakes that we did. One of the key learning I had pitching to all of these angel investors is that you can’t pitch to each and every investor you can come across. Not everyone is going to invest in your business and not everyone is made to invest in your business. For instance, if you’re running a B2B business, it makes sense to have an investor onboard who can help you get clients through their CEO connects or who can guide you on how to flesh out the Go-to-Market plan correctly. A friend of mine, to give an example, who was running a B2B business raised money from a politician and it did not work out at all. Hence, it’s very important for you to figure out who’s the right guy to invest in your startup and also why do you want to raise money for him. A lot of times, the founders, especially those who start immediately after graduating from engineering institute etc.,  probably don’t value themselves much and hence are open to receiving money from whatever source they can get it, not understanding how it can be detrimental in the long run.

I still have the excel I was maintaining when I was raising money which contained the list of potential investors. I pitched to close to 100 investors and finally raised from 18 investors. You can imagine the kind of mental and physical energy that goes into each and every pitch. I pitched to VCs, angel investors and to whoever I could get hold of.  The reason why these people entertained me and gave me time was because we had a very reputable and good quality lead investor. So, while most of them had already decided they were not going to invest in us, they wanted to see what the product was all about which had influenced that lead investor to come on board. Looking back, I also feel that as an angel investor, you should only invest in a startup if you can add value or if you know there is someone else who can add value on whose experience you can piggyback. A startup founder expects the angel investor to help him scale and make him a VC fundable startup. This is one thing which I feel could have been better for us. Even in the initial stage there was no VC except for Tiger and Soft Bank who we had not pitched to. We prepared very hard for a pitch and after a pitch, all we got from VCs was that we were too early for them. This was something we could have avoided and saved a lot of effort. I highly recommend entrepreneurs to figure out who they want to raise money from and to understand what the investment strategy of the guy they are pitching to: is he really going to add value if he going to invest?

The second thing which I feel I could have done a better job of was to focus on the metrics the investors wanted to look at. The SAAS based startup where I was working before was not really a top-notch product and hence when I started Mficient, all our focus was on getting the best quality product. We did not really focus that much on the sales side of things. We had recognition from NASSCOM and Entrepreneur India and some lead investors on board. The lead investors had invested looking at the product and had slightly different philosophy. Now when we went to pitch to the investors, the investors also congratulated us on building a great product. However, for their investing decision, they were not too concerned about the product but rather about the customers we had sold to. They asked us questions like, “Who is the target segment that you’re going to go after?” and “What is that you achieved on the sales side of things?” We were actually not ready for these questions as we always thought that because we have built a great product, we are going to get funded. Everyone is going to get extremely excited about what we have built and they’ll be funding us. Surprisingly (or unsurprisingly), it is not like that. 

Like I mentioned, I’ve been working with a number of startups over the last three years. Just two days back I came across a startup with very seasoned professionals – though first time entrepreneurs but veterans of the industry and i was surprised to see them making the same mistake of emphasizing on their product rather than target customers. Hence, it’s not a mistake which only recent engineering graduating founders make. 

Therefore, it’s better to focus on the metrics which makes sense for our investors. All these Indian investors and these VCs are pretty smart and they know where the actual challenges lie. As an engineer, you can build a great product but it’s more difficult to sell – at least for Indian enterprises. Building a good product and selling it are completely different dimensions and require different skills and VCs and investors evaluate on those parameters as well. These are the two key learnings that I had. 

Sameer A H, Founder – Vidura Capital: Great Gyan! Thanks for all those insights and as you rightly mentioned a good advisor and mentor early in the life cycle of the company can make a big difference. I do have another question for you. You talked about building a great quality product and quality of a product gets initial traction but eventual success occurs due to business fundamentals: things like are we pricing the product correctly and are we scaling up the business rapidly enough. Solving for questions like these maintains the growth momentum. So, how important is founding team composition to solve some of these challenges? 

Gyan:  The second problem that I mentioned: creating focus on the right side of metrics that the investors expected from us being businessmen. We were not just engineers, we had a business to run at the end of the day and they expected us to focus on the right metrics: “Who are you going to sell to? What is that price that you are going to charge? Why would you have the right to win and why would a particular competitor not wipe you out?” It is important in order to answer these questions to have a founding team which kind of complements each other well. Unfortunately, we were both very engineering heavy at that point of time and these were some of the things we could not really focus on. For example, when we realized that no matter how many investors we reach out to, we would get the same feedback of not having enough initial traction and that we had to focus more on sales, we decided it was high time to onboard some customers. We had an enterprise mobility platform and the first three customers that we acquired were Axis Bank, Dalmia Cement and Hindalco. This acquisition of clients got us pretty excited that things were finally sorted and we had big names as customers to go back to the investors with. However, the feedback we got then threw us off again. Their feedback was on the lines of, “What is that you’re trying to prove? You are not a horizontal company, nor a vertical company but a platform. You have these three customers which are from different spaces: two in manufacturing and one in banking. What is the story you’re trying to tell? What is the DNA of your company? Are you going to target manufacturing only because you can’t target everyone at the same time?” Ideally, we should have figured these out in the very beginning itself when we were fleshing out our GTM plan. 

If we had some angel investor who could have mentored us or some advisor onboard or if we had the complementary skill sets in the founding team that would have helped us to sharpen these aspects better. 

Sameer A H, Founder – Vidura Capital: Great thank you! My next question is to Paavan. You mentioned blitz scaling earlier in the discussion – it always seems to get VCs more excited. So, can you share some hacks you know that you particularly used for rapidly scaling up in the early stage of the companies, both in your earlier venture and the current one? 

Paavan Nanda, CEO – WinZO: Without sounding very generic, it’s all contextual. I think at the end of the day, it depends on the kind of DNA you are building in the company. Initially you are in a phase where you are figuring out the product market fit – at that point of time what’s required is multiple tweaking of your product and a lot of iterative testing. Getting the right speed of development to match the speed of market is something which is important in the right composition to get the product market fit. 

Once you cross that stage in the business in a space which can get highly competitive, you need to adapt further. To give you an example in 2015, when we entered the budget hotel market through ZO Rooms, Oyo was already there with a couple of months of head-start. They were ahead of us in terms of the business, in terms of financing and in almost all manageable metrics. The market was also growing very well and we were number two in a category where the largest player was ahead of us, and there were at least four or five other VC funded ventures like Fab Hotels and Treebo following us. There were another 15 to 20 companies who were trying to raise VC money to become relevant in this space and gain a lot of traction. 

It was an interesting period and a lot of ways in which you can play the game. You need to stay relevant in the space and to have a good tight handle on your unit economics. You also need to make sure that the organization and the speed at which you are growing your organization is correct. For example, ZO Rooms was a very operations heavy business and we ended up hiring around 500 odd people in a span of eight months. With such massive hiring, the overall culture can totally go for a toss so I think it’s really critical to keep a good handle on your steering when you are pushing the accelerator because that can actually do a lot of damage. I have seen this with my previous venture, being completely frank and it being an open discussion, we weren’t very proud of how we scaled and it wasn’t the right way to scale. And it was probably the reason that ZO Rooms collapsed and we had to face the music at the end of 2015.  

The right way is probably the way we are doing it in this current venture WinZO where we are again in a very positive space. WinZO is basically, a real money vernacular gaming platform. Gaming as we all know has suddenly become a darling of the Indian ecosystem alongside Ed-tech so now again there’s a lot of traction and the space is warming up with a lot of players coming in. And a lot of folks across the Indian ecosystem are asking us “Why aren’t you advertising so aggressively during IPL?  Look at Dream11 they are capturing the market. See how MPL are doing 10 different things.” However, at the end of the day as founders we’ve learned our lessons well. We now know how to pace it out, how to reach the metrics that we are set out. We now have a lot more focus on product and on sustainable metrics. This wisdom has really come with the experience. Some of the senior folks on this panel have shared some beautiful experience, which was really great listening to it but sometimes it’s only when you burn your own hands that you actually learn. 

In summary, I think blitz scaling has various aspects to it. I wouldn’t say that founders should only focus on a very sustainable way to build your company and not go after growth. So, at the end of the day I think there is some sense to it. You should also follow your common sense: when there is something that’s not meeting the eye, and considering you all are a group of fairly smart people, then there must be something that’s actually not right. Hence, you need to do things which are reasonable and digestible to you as a company and to your DNA. There are different kinds of people: some are very speed hungry, some discipline and systems hungry. You need to understand what your DNA as a founder, as a team and as a leader, What kind of partners: investors and advisors would you have on board, and as per that decide your journey forward. It’s important to understand that it’s a long journey: no market is captured in six months or one year – that’s just a myth. Even the more serious investors come with an eight to ten year horizon. There’s a statistic I vaguely remember that the typical duration of a startup is three times of the duration of a marriage in US. So, that’s how long you’re going to get married to your idea, to your company and your system. Nobody is going to take your business away overnight. Hence, you need to build a sustainable journey so that you don’t get burnt out, can avoid the mistakes and avert falling into the proverbial pit. I can share a number of anecdotes about it, but maybe they will get a bit too personal. [Laughs] 

Ganesh Rengaswamy, Co-Founder – Quona Capital: When you asked the question on blitz scaling, I was going to put up my hand saying, it’s a very bad lesson to teach people. I don’t think I have to say too much anymore though because Paavan has more than comprehensively answered that question. The first investment that I participated in at Greylock was LinkedIn and we all, know how LinkedIn evolved. However, I am not sure under what frame of mind that the book Blitzscaling was written. It was written more by the co-author than Reid Hoffman. The book teaches so many wrong lessons to people that it’s scary. 

I also saw the debate in the Greylock boardroom when we invested in series B in Facebook at 500 million and people just laughed back then. The senior partners said things like, “There’s no way we are signing up for this” and in hindsight, the decision to invest was completely justified but you can’t take the example of a Facebook, LinkedIn or Twitter and write a book that this is how entrepreneurship should be done. 

There are some new hedge funds coming into the country and some old ones which have been talked about sufficiently on this panel who can be too much focused on speed over sound business principles. While the color of money is same, the color of human beings and their ethos and principles is not the same. Hence, if you team up with somebody whose DNA is not what your DNA is you are bound to get jagged in life. There is one hedge fund we have talked about today which left 60 companies orphan in India in 2016. For hedge funds it’s pump and dump because the venture is not their business, but entrepreneurs don’t understand this. They line up the day they realize somebody is writing a USD 30 million check for something that doesn’t even deserve Rs 3 crores because it’s too early probably right now. 

I would love for Paavan to tell your story to a wider audience – to some founders I know who badly need to hear this because I’m probably 10 years or so older than you and hence they’ll probably listen to somebody who’s closer to their age. New founders absolutely need to hear this perspective about success stories and the vast amount of money that is being thrown about. On TV and the media, nobody talks about how long and hard the journey is to build real companies because people who make mistakes are shy of talking about them in our country. So, we keep hiding them and keep glorifying things which should not be glorified. 

Sameer A H, Founder – Vidura Capital: Absolutely. Thank you for these perspectives. Changing topics now, all other things remaining same, higher growth gets more attention than lower growth. So, this is where I want to take Abhishek’s perspective. Abhishek, in the past you have invested in brick and mortar companies like Mannapuram, which scaled up quite rapidly when their journey started, there were multiple competitors but their superior scale-up made them stand out from the crowd. What was their approach to scaling up which resulted in fantastic shareholder value creation alongside profitable growth? 

Abhishek Sharman, Founder – Carpediem Capital: I think first of all it is very important for a company to be in the right forest. If you are fundamentally in a market which is going through dislocations, you can see opportunities. For example, in our case most of the times we are backing companies which are going through a phase where the industry is moving from unorganized to organized and the shift is happening in a meaningful manner. 

When we invested in Mannapuram, it coincided with gold loans becoming mainstream. We had to do a lot of work on it because gold loans at one point of time were seen as ostracizing and usurious. Hence, we had to work hard to break that barrier – we came up with a marketing campaign with Akshay Kumar on TV and started the slogan, “Ghar par pada hai sona, to kaahe ko rona – Mannapuram Finance.” But the idea was that our investment in that company coincided with that phase when gold loans became mainstream from being a sort of side show. 

Similarly in case of Quess, it was time for organized member staffing services to become mainstream in India – there were certain synergies that people were seeing because of which it made sense for them to put in that extra cost for the facilitation that came with having one partner across multiple locations. 

So, the first reason was that we were in the right forest. The second is that we backed entrepreneurs who had the vision to do something large and who ended up achieving what they set out to achieve. Setting out to achieve means to put a certain amount of thought and integrity into the process of defining those goals and then achieving them. There’s a difference between wishing and setting out to do something. Hence, I think we were very fortunate that we backed entrepreneurs who had the vision and who themselves had the good fortune of having some good teams around them and they were in the right forest. Lastly, I think they succeeded because they got good access to the right kind of capital structure at the right points in time. Many of these companies used a combination of internal accruals and a combination of debt and equity. For example for Mannapuram, equity is only a small part of the capital and a large part of the capital comes from debt. When we invested in Mannapuram, 85% of the book was one single NBFC called Fullerton, and it was a four hundred crore book. By the time we exited, it was a 10,000-crore book with more than 30 lenders and very well diversified. I think we helped these entrepreneurs with the capital structure very well: with the right kind of capital at the right points in time. 

Moreover, I think while we are looking at companies which are so-called brick and mortar companies but many of these are very strongly technologically enabled, which leads to a whole ambit of operational efficiencies. Other thing which was very important in all these companies which did very well was how they made operating leverage count. I think if you were to look into companies that do well when they scale up and companies that fail, the key difference would be in how they play the operation leverage. The good part for us was that all these companies became much more efficient, powerful, accretive and cash generative as they became larger. 

You hear headlines about revenues doubling but losses tripling of many companies. The good part about the companies we invested in were that as revenues started going up – well, there was there was no losses to begin with – the profits grew faster and that to me is the hallmark of a good company. The essence is that you must be doing things today in a better manner than what you did yesterday and you should be able to do things better tomorrow than what you’re doing today. That’s the journey you as a founder should undertake. The panelist here talked about this being a long hard journey but the journey has to be fun. And when today is a better day because you learn from what you did yesterday and added to that, the journey is fun. I think we saw a lot of that learning curve in these successful companies. 

Sameer A H, Founder – Vidura Capital: Great and thank you for these inputs Abhishek. I will now go back to Ganesh. We are in a world currently which is volatile, uncertain, complex, and ambiguous. Often, things don’t pan out the way in which the investors and founders would have envisioned at the time of investment. Can you share some insights on how better-quality companies bounce back from challenges to get on the growth path again? 

Ganesh Rengaswamy, Co-Founder – Quona Capital: That’s a really loaded question two minutes post-closing time. We can go on forever [laughs]. I think it all starts with the foundational principles of what the founders want to do and constantly trying to validate that hypothesis. A lot of us fall in love with our ideas – the investors and the entrepreneurs both – and sometimes we just keep going without bothering to test ourselves, which is very important especially in the early years. It depends on the founders fundamentally – the right kind of founders are usually able to build teams that are better than the competition in the market and these teams can then navigate the challenges thrown by changing landscape. 

For example, we operate in a regulated space where regulations can change anytime. By the way, a lot of VCs don’t touch regulated space but eighty percent of our companies are in regulated spaces because of the financial services angle. Hence by definition, we are trying to back people who understand how the system and the regulatory context works. Like me, they might not agree with a lot of things in the regulatory context but they still need to first understand the context and the system and then have that hacker mindset to solve for the challenges put forth by the regulatory system.   

Something I have learnt in the last seven to ten years is to always have a plan B, I’ve even known super cautious founders who have a plan C as well. They have a plan A,B,C for everything – A,B,C for funding, A,B,C for hiring the team, A,B,C for partnership with a company – be it Amazon or Flipkart or Google or whoever. Some entrepreneurs are that good in planning for the future and mitigating those challenges, and I really try to learn from them. 

Plan A almost never works and for example when Covid hit in March, the first instinct of a number of the entrepreneurs was to shut everything down, roll back and preserve cash. However, the smarter entrepreneurs within 30 days said, “I need to test out whether this is a 12,18,24 month scenario for me or I am actually going to do better in the new scenario.” One of the companies in our portfolio, ZestMoney, which is in a space called buy-now-pay-later, a space which is exploding around the world during Covid. Three of the largest buy-now-pay-later companies in the world have tripled their valuation – all more than 10 billion USD in market capital around the world – and the business is growing, just like ZestMoney’s business is growing. 

But it took 30 days to understand that the crisis was not going to impact ZestMoney the same way it impacts everybody else. Hence, every business has to decide that yes, even after rolling back 40 or 50 percent in cost, where and when do they need to start investing even through these times if the impact of their business is going to be different. Hence, while it’s hard to give one single silver bullet answer but the only thing I’ll say is it’s really about the people, the team and how much they have backup plans in place, and how can they keep testing their plans all the time. The successful companies are those that don’t just sit on sit on glory just because something works today but are constantly changing.

Sameer A H, Founder – Vidura Capital: Thank you Ganesh. While I had a few more topics for discussion but due to paucity of time, I’m told by organizers to wrap this up. We will open the floor for questions – if people in the audience have any questions for the panel members feel free to drop them on the chat window. 

In the interim I want to invite Aso Shanglai, the founder of C-marketplace. As part of this, Aso and Sandeep have also collected data from some of the startups and have tried to rate them in terms of their investability score and attractiveness etc. Aso, if would be great if you can throw some light on what you have done on that front. 

Aso Shanglai: Thanks Sameer. Thank you to the panellists for participating in this. There’s been a lot of information and knowledge which has been shared. I actually didn’t want to participate – in the sense that I didn’t want to be a co-host or take any time to speak – and just wanted to listen in and learn. However, somehow I got pulled into it and so some of my attention was diverted. I’ll be transcribing this entire discussion and it will be available on the website also for people to go through in more detail if they’re interested.  

Now for the investability score: we had discussed this concept earlier with Ganesh and Ganesh told me not to pick it up as it will be very difficult and time consuming. Moreover, I also realized that this is not my cup of tea as I don’t have any great understanding of the entire startup ecosystem. Hence, this is where Sandeep from Hackstrap stepped in and expressed his interest and availability in doing such an analysis.

The analysis is quite simple: we considered the 4 Ts: 1) Team, 2) Traction, 3) Timing and 4) Total Addressable Market. Some weights were given to each of these criteria – the entire working would be shown to the founders who had submitted their decks for this exercise. There were 18 companies which participated in the assessment, and out of those companies, the names of those companies whose score is 60 and greater (out of a total score of 100), will be displayed. A word of caution – please don’t take these ratings as final or something that ends your entrepreneurial journey, but it rather provides you an outsider view of where your company is currently on the investment lifecycle, based just on the presentation you have shared with us. We have not done any other external research on your or other companies. 

So now on to the results. We’ll announce the top three companies according to us in terms of investability attractiveness. The first company is SabkaMandi (CEO and Founder: Naveen Prajapati), which is into connecting retailers and company channels  The second one is Conduira Education & Training Services (Founder: PV Rama Sasank) which is into employability and higher education support. The third company is GoldenPi Technologies (founder: Abhijit Roy) which is a marketplace for bonds and debentures. 

I also wanted to highlight these companies in the hope of some of the VCs and angels who are listening in: These are some of the good companies to invest in and I just wanted to share that. Once again, thanks to all of you for participating. It’s back to you Sameer. 

Sameer A H, Founder – Vidura Capital: Thanks Aso, I think we are good to close the session. There was one question which I believe Ganesh has answered on the chat window itself. Let us keep the momentum of collaboration going. I think with that remark, I would like to close the event unless anyone has anything else to add here. Thanks to everyone for participating!