Plus, venture capital

Venture Capital (VC) firms in ‘startup land’ are undeniably a source of relentless intrigue and mystique – rightfully so, some may say. For, VCs seem to possess seemingly magical abilities (for instance):

(a.) To ‘foresee’ or as one blog elucidates, envisioning the future that propels society forward.

(b.) To bestow mythical, elevatory titles – unicorn, decacorn (astartup valued > $10 billion) and hectacorn (a startup valued > $100 billion).

Week on week, we awake to read countless tales that revolve around a singular theme – venture capital. Rich with proclamations of abundance, of successes, and of transfigurations from oblivion to stardom.

In the Indian context too VC firms undoubtedly exert an undeniable influence on the ecosystem at large. Close to 10% of India’s 80,000 startups have received some form of funding. A number that’s growing at a staggering 19% CAGR.

But, what is often overlooked as a consequence of the mythic-ness of the industry is that venture capital firms too are near constantly seeking a potion of startup and entrepreneur who have the highest potential of de-risking their commitments. A need that takes a number of expressions, including:

1. Potent keywords – ‘IIT’, ‘IIM’ and ‘McKinsey’. Rationalized with a bevy reasons from an apparent risk taking appetite to leverageable alumni networks.

2. The ‘social proof’ that a second time entrepreneur brings to the table. Case in point, Accel’s Rebound program.

Leading to the ‘pool’ of investment worthy startups becoming remarkably and unsurprisingly limited.

Any attempt to pierce a veil – necessitates a 360 view. Flipping perspectives, from that of an investee to an investor. So, what must a firm (today) do to distinguish and differentiate itself? I.e., looking beyond the basic, mandatory promise of capital to attract the best and brightest.

Q1. Are there certain ‘standout strategies’ that VC firms (primarily in India) have adopted? The outliers.

Q2. What is starting to be included in the expanding definition of an investment?

Let’s take a peek at the emerging:

1. Taking advantage of the most scarce currency in the world = time, Indian VC WaterBridge Ventures introduced a productized offering christened Fast Forward, a structured model which guarantees feedback in five days, a decision in 10 days and release of capital in 20 days.

2. The sectoral specialists’ (> generalists) edge. Venture capitalists have emerged with a laser sharp focus on a specific sector, such as healthcare focused venture capital fund HealthQuad or the cleantech business catalyst Infuse Ventures which is housed at IIM Ahmedabad’s Centre for Innovation Incubation and Entrepreneurship (CIIE).

3. Blume Ventures, one of India’s most celebrated homegrown venture capital firms offers a ‘suite’ of auxiliary services as a key component of their core value proposition, these consist of financial and legal assistance, recruitment, business development support, founder learning and development etc.

4. And then there is Antler (which has just recently opened shop in India), a truly early stage VC that emphasizes on people > idea / product. Or, as they put it, Antler aims to select the world’s most brilliant and determined people, help them find the right co-founder. AKA, a co-founder matchmaking service.

5.1. The Hive, a VC Fund and ‘co-creation studio’ anchored by the Patni Family (of Patni Computer Systems fame) is (as they term it) a high touch model which among other things compliments and catalyses the startup’s technology innovation / progress. Delivering inherent expertise + a proprietary stack known as Euclid, enhances and expedites the development (and execution) of production grade machine learning models.

5.2. Similarly, another interesting model is that of Spring Marketing Capital – an entity that has positioned itself as a ‘skin in the game marketing consulting company’. Riding on a now established structure of Fund + Services. Essentially, influencing the creation of effective brands through a unique mix of capital and capabilities.

6. Market access as the Fund’s USP, a mutually beneficial partnership that amplifies scale. Anthill Ventures has conceptualized a number of such cross-industry platforms / (accelerator) programs. For instance, Anthill Studio for media and entertainment startups or ‘Urban’ to scale brands for urban India. The proposition is more or less consistent – market access partners, infrastructure support and mentorship.

7. Funding that enables and accelerates through synergies – a perfect example of this model is Microsoft’s M12 which allows startups access to Microsoft technology, thought leaders and engineering teams to explore product integrations. Cisco Investments would be another instance of a pseudo VC propagating this model. With the ‘feature’ of using the power of their ~ 17,000 strong sales force, network of channel partners and established customer base to speed up your go-to market.

Interestingly certain threads tie together what at first glance may seem disparate.

– The surge in standardization and productization. Consistent investment structures (ex., dilution percentages). Evolving as a science > an art. At the fringes (especially, globally) beginning to witness a greater role for data analytics and AI inside the firm.

– Incrementally looking for opportunities to get involved early on (the early bird gets the worm?). To the extent of partnering with exceptional teams (EVEN) in the pre-idea stage.

– Mere capital is inadequate, the rising expectation that a VC’s value / role in the startup’s success must extend beyond funding. For instance: Expertise, services, ecosystem etc.

Venture Capital 2.0.

REALTY CHECK. Each time a new VC firm launches, it, in a bow to Darwinism claims to be of a new breed. Rightfully so, with 2020 commencing with more than ~ $7 billion in dry powder (capital to be invested) – there exists a need to completely reimagine investor-investee matchmaking process.

There is enough seed money available in India waiting for quality start-ups.

Kris Nair, Founder, Opdrage Ventures.

For, it can be argued that an industry that claims to foster and champion innovation may need to introspect and reverse creeping stagnation.