The entrepreneur who became a VC | Inflexor Ventures

The startup world is filled with irony: founders tirelessly seek VC investors to back their ideas, while VCs are constantly on the hunt for remarkable startups to support. 

This dynamic creates a fascinating interplay between entrepreneurs and investors, with both parties seeking to unlock the potential of groundbreaking ventures.

The reason for this is simple - there is a lot of opaqueness in the decision-making process of Venture Capitalists, and most startup founders need help to understand what makes a business venture fundable.

This episode is an explainer on demystifying venture funding. One of the pioneers in the Indian VC ecosystem is Venkat Vallabhaneni.

Venkat Vallabhaneni is a serial entrepreneur who launched his first business in the US about two decades ago. He has since developed and sold many firms, and as a venture capitalist, he has financed more than a dozen Indian entrepreneurs seeking to build big companies.

He speaks about his fascinating journey- first as an entrepreneur and now as a VC!

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Additional readings:-

1.How Startups can Raise Funds from Inflexor Ventures

2.Overfunding is a dangerous trend regardless of market conditions, says Inflexor Ventures

3. LPs may wait for a few quarters before allocating capital to new GPs: Inflexor Ventures

Read the text version of the episode:-

Venkat: Hello, my name is Venkat. I'm the managing partner of Inflexor Technology fund.

When you're in New Jersey, there's only two ways you can go, either you go to Bell Labs, AT&T Bell Labs so then or we go to Wall Street. 

Akshay: So this was like in that era, like the Bell Labs era when, when Bell Labs was a dominant innovator in the world of computers. 

Venkat: Linux operating system. And pretty much everything at the time innovation was happening there. So and then other option we had was go to Wall Street. Which is New York City. So I chose the later, so I went to, I joined Wall Street I joined in initially a couple of startups which is a company called Seer Technologies, which was the joint venture of IBM and First Boston. And did that, a couple of years there and then joined a company called Summit Systems. 

Akshay: So these were developing software for banks, these companies? 

Venkat: Yes. First one was the case tool, and they were working with the banks primarily. And the second one was the, trading system submit software.

And they were first software to developed the swap trading system working with Lehman Brothers at the time, and and the came out. Lehman Brothers had started this small outfit. I joined them for sometime. Then I joined Merill Lynch. So Merill Lynch as a, programmer as a software developer on the trading desk. So that was starting my career on Wall Street in reality, cause that's when I saw the trading desk. First time when you go to trading desk in these firms, it's pretty overwhelming actually, so, and it was mind blowing when I went there first time because you see, I was on the fixed income trading desk pretty much, so much happens in, and so much noise and such a high pressure environment and, it taught me a lot over the next few years. And the surviving in that environment and working with the traders and, it was amazing. And the kind of complex software we built in those investment banks is also not for the, faint of the heart, in my view. But, and so, it kind of taught us a lot, so, and after that, I, Started my one company working with so I developed some contacts during that time, and started my one company working for the same banks, same in Western Banks working on the trading tasks and building software for them, so I've done that for a few years..

Akshay: So this was software to execute trades?

Venkat: Building custom software for let's say, you're talking about fixed income trading options, trading desk or building some models, that kind of software, so, and work with them. And and I started my own company working with the same folks I built the relationships with. Have done that for a few years and grew that company and my, our clients included Lehman Brothers, Merrelo at that time of CO and few other banks, so, and and then started Indian outfit as well to do the software development here. So have done that for a few years and sold that company to Can Bay now part of the Capgemini, 

so, sold that company in 2005. And after that, have worked with Can Bay for an year or so to transition my role and then came back to India. At that time made no, discuss with my wife and say, let's move to India. Cause I had two boys at the time. One was 10 years and another one was 5 years at the time, 2007.

So sold my house. I looked at the Indian potential in the Indian ecosystem. So, came back here. And once I came back here, I jumped.

Akshay: That acquisition by Can Bay so, you were the majority stakeholder in the business when it got acquired. it would've given you enough money in the bank to run experiments and not worry about your next job anymore.

Venkat: I was at the crossroads and say, let's see what we can do. And and India was a compelling story at that time, and the whole Goldman Sachs coming out with all these, reports and everything, so we thought, why not? And came back here once coming back here.

I didn't wait too long. Jumped into entrepreneurship again. That was into manufacturing in, manufacturing the batteries, industrial batteries in India, those industrial batteries were used in telecom towers and railways and other things. They use that in a railway compartments and also large telecom towers and stuff like that, so those were those were the use cases. One of my friends who grew up with me at the time he worked for a batteries industry and he met me as soon as he came back from the US and sold me the idea of potential in the batteries industry.

I like the idea, I like the person, so why not jump in? And then we put in our money and also raise money from the banks. At the time, debt debt, the time venture capital was not very active. Very, Very many actually, so, was there to start an extent, but venture capital was not there.

Equity financing was not existing. And so we raised debt from the banks. No, it's about probably 150 crores, kind of, project out there to start with. We did that project and it was tough, to be honest, right Now, when I look at, in the hindsight, I mean, had known it was gonna be that difficult, I wouldn't have gotten to that, so, but. That taught me so many things about India, how things work, how to get the permits, how to work with the banks, how to get things going. Because what it told me is why while the, labor and the workers are, probably the labor is cheap, but the total cost of transactions in India put together are either on par with the western world, are more expensive when you combine everything together.

Akshay: Can you explain that? 

Venkat: What I meant by that is, so when an employee workforce, some workforce that could be cheaper in India, but the total cost of any transaction, let's say setting up a unit or getting, say, project done when you combine. No, that's my experience. I could be wrong, it could have changed now, but the amount of time it takes, the amount of permits and other things, other bureaucratic things you need to get through and the effort it takes, if you put everything together, the total cost of transaction is on, or more expensive actually compared to the developed countries is what I understood. That's, that was my experience. 

Akshay: That's a ease of doing business problem. Like ease of doing business is very poor. Therefore you either need to spend a lot of time, or you need to spend money greasing to make things go faster, or you need to be connected. 

Venkat: And also supply chain, because ease of doing business is only part of it, and supply chain infrastructure, at that time, infrastructure was very poor. Now it's getting better, but connectivity, infrastructure, like logistics, electricity, logistics, connectivity, electricity, backup. You know, you gotta, you gotta combine everything, and on top of it, getting anything like PCB, like pollution, control board other approvals and the way things happen is, it was long.

It took time, so when you put all those things together, time is value. I mean, time is money, you got account as well, so that's what I meant. But nevertheless, we built a great company and it was probably doing around 200, 250 crores revenue at the time. And, but not very profitable, to be candid. But a great. Company, it takes time, because, I'm talking within four to five years. It takes anywhere in five to seven years in my view, especially if manufacturing company, if not more, to establish ourselves. So we were in that process and we are turning profitable and other things.

And at that time NSE, which is a global company and listed batteries company, they were trying to set up a unit in India and they came and acquired the company, which was good for us. And we, the returns were good. And and it worked out very well for us, so, and after that we also, we set up another company called, Telemedicine, healthcare even that was ever in 2000, eight timeframe, so even that is a little bit early for telemedicine because, infrastructure was not there. So it was a, again, healthcare is a tough market in India, in even if you ask me today, nevertheless, even that company got acquired by Singapore and US Consortium.

Akshay: This telemedicine company was for Indian audience. Like you was serving Indian patients in this? 

Venkat: Initially we were looking at commercial market directly talking to the customers and trying to recruit the customers into our platform. That didn't work, because People want touch and feel, they need to go to the doctors, and, and then flowers on there. And so then started working with the governments, state government to work with their primary health centers. Very specific use cases that worked out reasonably well, so eventually that company got acquired as well. So those were the two companies I, which I got exit, in India, one company in the US. That's my entrepreneurial journey, so during that time, I also had some friends in Bank of America in the US and they had presence in India, but they didn't have any technology presence. So they asked me whether I would like to take up the challenge of setting up the technology division for them.

Why not? Because it sound sounded in trusting, because it's like entrepreneurial venture as well. They gave enough free hand to set it up. So I joined Bank of America as a first employee in technology and set up their tech division also ransom operations as well as part of the journey. So by the time I quit Bank of America, the team was around, I would say 6,500 plus, don't know steam strength and very well oil.

Akshay: And they were like working as an offshore development center for US requirement .S

Venkat: And they also have Bank of America also have, they have presence in India as a business. So, that's a different unit altogether. But we were working with the global teams and once the team is set up, that's started working well. So I thought it, my job is done and and Good Bank of America and and started investing in companies startups at the time. 

Akshay: As an angel investor?

Venkat: As an angel investor, put my own money now. 

Akshay: And when was this, when did you start investing? 

Venkat: That was in 2014. So they faced a couple of challenges, so at that time, venture capital started becoming a bit of a mainstream awareness came in.

Akshay: Yeah, by the time Flipkart and some of these companies had raised their rounds India had had one or two unicorns by that time. 

Venkat: So 2000, no, 14 timeframe. But there, the challenge was as angels attracting good companies is always difficult in Bayou, because they look for institutional capital very quickly and a lot angels family officer are competing with that small window of opportunity at that time, because they're not, ecosystem was not mature. So, It's very hard to get, attract good companies. We thought, why not set up a fund, set up a team to source and set up a process to make sure that, we offer reasonable help, required help with the companies, one is sourcing.

Second is many of these companies in India required, operational help in my view, because, again, ecosystem was maturing, and the guidance they needed was coming from certain, founders that are experienced not many of them out there. So setting up a team with the right process we thought was important for these companies. So, but we had a couple of concerns there because we wanted to focus on technology and technology depth in India we were not quite sure though there is a lot of technology depth in know, serviceis industry, but not in the product and, and and entrepreneurial side of it. So, let's start small. And also we are the first time fund managers and all said and done. Fund is like another startup for us, so you're, when you start first time, you need to establish yourself, prove yourself, and stuff like that. So we start with the hundred crores, as a first fund.

So I put my own capital good amount of capital into the fund. And also at that time two institutions joined us. One was Sidbi and other was IDFC. IDFC Was trying to get into, venture capital at the time. And, the opportunity to inverst in our fund. And there are also very few known friends, they joined us as well. So that was a small fund. We did 12 companies reasonably great portfolio actually, to be honest. When you look at this now, that was in 2000, end of 2015, 2016 is a timeframe.

Akshay: So I wanna ask you two, three questions here. As most founders think that it is very hard to find angel investment. And, like I'm talking of people who are just stepping into entrepreneurship on the other side. As an angel investors, you felt that it's very hard to find good founders.

Why the dichotomy? What is the I mean, can you talk to me about that? 

Venkat: You know, this Akshay, Money changes good founders and good companies, I mean, there are many founders that are probably ambitious, but they're not completely there yet, and that, that requires a lot of mentoring to make them reach that stage. So investible companies, per se, would take time, they would learn, it takes time, but investible companies are very few and money were chasing them. And, it was hard to find them, and it was hard to..

Akshay: How do you define an investible company? 

Venkat: There are a few things we look at, it's a, founder is the most important thing, founder maturity and how they look at how they understand the ecosystem and how do they see the company growing. That understanding itself was lacking in many founders at that time. Right now, ecosystem has, is evolving much faster pace. I'm quite happy about that. But when you talk about 2015 timeframe. It was probably a cusp of evolution. And very few founders understood now how the ecosystem, what is what, how do the equity financing work and, dilution growth, those con concepts were not there.

We are understood. I mean, money was changing them, and we, it was hard to get them into attract them, so there we need to, we had to have some process. And then the reason for setting up the fund is now have the team. 

Akshay: Do you also look for traction? When you say that it's an investible company, does it mean they should have revenues, growth, all of that? 

Venkat: Yes. 2, 3 things, one is a foremost thing is founder. Second is the business model. Whether the model itself the potential that's scalable, whether if it's India for India, India for global, what kind of model they're talking about. Is it scalable? If you're talking about India alone, those things are the second, thing we look for. The third one is obviously the, the team and the sales and marketing go to market plan, these kind of things we look at, so operations aspect, so between all these things, very few companies at the time were able to push through 

one thing I forgot to tell you, we wanted to see revenues. They don't need to make money, at least revenues, there are customers and model is proven. I'll give an example, attenberg, I dunno whether they know the company or not. Attenberg fans, they make there's a, they make energy efficient fans, when they came to us from, ID, Mumbai, Bombay. So they were making around 15 lakhs a month kind of revenue. Now they're like 60 to 70 crores a month revenue, so kind of scale that happened from there to now is tremendous, so we were looking for probably that kind of small revenues even, before we could put the money in, so with these requirements, there are very few companies. So by setting up the team, what happened was, even people lack operational experience, we kind of able to, compliment them, 

able offer help, but, without experience, so it's a reason for setting up the fund and having a team and setting a process of, monthly review meetings and looking at what, what needs to be done, how do we connect the people, stuff like that in the safe way. So that whole thing, even for us as a fund, was a startup and it took a while for us to establish those processes and mature them as well.

So, that's what it took, if you look at our portfolio, great companies, we had many good companies. Attenberg was one, one of the example I told you, Electric Aerospace is another company which is into space. They're, you know, Entropic, and, Neural, fund one. Yeah. These are our fund one, there are many companies that are, that we can discuss, based on, time and time availability. But I think at this point we are quite happy with what we built in Fund one and the returns and and and so far the multiples we got is, quite good.

Akshay: Can you also give like a venture fund 101, what is so when you say that you raised a hundred crores, does that mean you had a hundred crores in the bank? What is the way in which the fund itself earns? How do you pay salaries? You set up a team. How does all of that happen?

How are the returns distributed? Like, what is the economics of a venture fund? 

Venkat: So, again, as I told you, venture Fund is not different from any other startup in my view, so when we set up the fund, we need to have, minimum viable, infrastructure or team, so, one is the partners they're managing partners or general partners. Apart from that, we gotta have principles, analysts, and associates, that can do sourcing, once the company comes to us, how do we close the deal, put the documentation, and then that's a pre-deal. There's a lot of work in, it takes around four months on an average to close a deal, and to send the money to the bank of any company once the deal is closed. 

Akshay: Cause you spend time in due diligence and then there is some negotiation and back and forth. 

Venkat: What happens is once they come to us initial meeting happens, and then we are happy with the model and stuff like that, then we do business diligence just to check, the potential bottom up and top down approach and all the numbers. And once we are happy with that, then we do the investment committee meeting, which is which where the entrepreneur comes in and presents the case and, investment committee looks at different things and they have to approve the deal. Once the deal is approved, then we kick off the due diligence and, that could be legal, that could be financial, that could be more information, business plans and other things because once the deal is approved, we issue the term sheet, term sheet negotiation itself will take time because many other entrepreneurs will have some issues on here and there. We need to negotiate that then. Doing the due diligence will take some time post the documentation, those things will take time and identifying conditions, precedent, conditions, subsequent what needs to be done, all those things will take time.

So it's a no matter what, it takes time, so that four months it, we need to have team, once the deal is done post deal, we need to have the condition subsequent closing that condition, and then making sure that operationally there are certain processes put in place and we need to identify where the company needs help from the investors, 

we cannot be breathing down their neck on every, everything, so we identified as a gap, either it's in finance or sales or tech technology. We try to help in those areas by bringing in the our contacts and, and enter partners and stuff like that, one that happens. We have every month review meetings and and figure out what happens, 

what's the target versus actuals? What did we miss? If there is a variance, where do you need help? Those kind of things happen, very, Very religiously. And as part of this, there is a, any fund has got fund management fee. And then carry is, that's what is for the funds, and fund management fee typically from anywhere from 1.5 to two person. So, but to have this, now it's getting lower, actually towards more to one, 1.5. And what happens is you need to have the team in place. Without the team, you cannot, function. So initially you need to put your own capital, because I, we did, because apart from investing in the fund, we need to have some money to set up the infrastructure before the fund management fee. Other things kick in and there has to be minimum size of the fund to be viable. 100 crores is not, is probably, you're barely touching it. In my view. it is like a start.

Akshay: The 2% of hundred crores won't cover all the salaries.

Venkat: No, it doesn't, no. But hundred crores you can. No, I think that's a minimum ticket size in, if you ask me to be, to start a fund, anything lower than that wouldn't, no, you would be cutting corners a little bit in, in my view. So that's a more break breakeven kind of scenario there. 

Akshay: If you say like you, your fund was a hundred crores, that means at time of inception you had a hundred euros in the bank. Or what does that mean?

Venkat: That won't work that way. So you get the commitments and then you invest that fund or four years, or four to five years, and then you call the capital as required, and then as you find, because you cannot keep the money in the bank because it is the ideal capital, and, and you need to call the capital and then as you find the companies and deploy the capital, 

that's one. And second is, as venture capital works on and power loss, power logic is basically you focus on the top companies, you know the companies that written you fund, if you ask me, probably 15 to 20% is maximum. You can ask for these stars to be there, and just, if you our expectation is 15 to 20% would be the stars. That's a lot of that's a high update, and know 40% would be, mediocre, four to five x and as everything was would be, below power, it could be. Returning the money or some would go away, so, but that's expectation for many of the funds in a way, so what do you focus on? You focus on these winners. You don't, the other companies that are losing wouldn't matter much for the companies, so, but you allocate capital, you continue to maintain your prota shares in, in, in these vendors.

And that's where we allocate a lot of drip holder as well for this company. So if you have, let's say our current fund is a 620 crores and we allocate 45 to 50% for the follow on capital, 

Akshay: So you can keep supporting your portfolio companies. I guess another thing to look for in an investible companies also, then you need companies which actually give you outsized returns because, only two out of 10 companies will give returns. So a business which is expecting to grow at 20, 25% per year is not attractive enough. You would want a business which can double or triple each year, like that exponential growth is something which would be a key requirement. 

Venkat: Yes, absolutely. So when I said, two out of 10, that would be, those would be the stars, there's a outsize return size, at least said, 10 x plus at least, and again, those alone may not be sufficient. They would return. Good return, but you gotta combine that with other 4x and 5x as well. And then you have non-performers, which you continue to work with them, but you know, not necessarily the focused effort. So, and these outside returns are the key for anybody's success, in my view.

Akshay: Are there Problems that you like. For example, if a company has this problem, then you would say, yes, I would like to invest in it because I know that we can fix this problem.

Venkat: Yes and no. My, my view is as a second fund manager at this point, I learned my mistakes, in, in fund one, know, because they're, few companies, couple of companies looked at as, and say they have great technology, but founders may be a bit weak, we can fix it, but never happens, because founders are the key in my view. They, you need to leave them alone and you gotta help them where, where they're required, and then they would excel, by giving them the, freedom to run the company, but help them, but if you feel that funders are, there's a, they're either in the cap table or something else. There's a weakness because classical mistake is capital is messed up as well. So many times what happens is by the time companies come to raise the funds, they're already below 50 person wanna shift between founders.

And that doesn't work because that's something we also look at, by the way, because founders should have enough skin in the game. By the time they go to Cities BC, if they're below 50 when they raise A, that's a big nono for us. And that's another thing we gotta look at. So all these things are the, are quite important.

So we need to make sure don't take operational burden onto you as a VC because you can probably, compliment some of the skills and help them by providing help in terms of venture partners or some advice. But operationally the companies should be self-sufficient.. 

So what is the difference between a managing partner, a general partner, and a limited partner? 

Managing partner and general partners probably are one in, are interchangeable, because general partners are probably has got some skin in the game, that means they, they might get some part of the carry and, some part of the, some compensation and stuff like that.

But the managing partner is a general partner who is running, you know, day to day operations of the fund as well. Who manages the fund.

Akshay: Like a CEO, basically? 

Venkat: No. It has the day-to-day operations, of the fund Limited partners are the investors in the fund. There's always a fund management company and there is a actual fund, 

limited partners are part of the fund, they put in required capital. So generally the gps and managing partners are also, they also invest into the fund, Their own money as well. So different kinds of shares in the fund and stuff like that.

Akshay: When you launched fund one, the problem you wanted to solve was access to good opportunities. So how did you scale that up? Like, how did you scale up access to good quality opportunities or, finding good companies to invest in? 

Venkat: I mean, that's still a problem today, but it has gotten a lot better. And one thing that was very heartwarming is the kind of capabilities that exist in, that developed in Indian ecosystem. So in 2015 versus now, the quality of companies is, is probably very, very different and, and got a lot better. And the understanding of what needs to be done by entrepreneur to access global market fees has also changed. And there are enough case studies, enough mentors, In the system today that can help these entrepreneurs and the quality of innovation that's happening today has also improved quite substantially.

On the same note, the money coming into the country for equity participation, either venture cap, smaller or big, no local domestic funds and international funds coming in and corporate venture capital and funds also getting into early stage. I mean, so amount of capital changing companies also has gone substantially high right now.

If you look at last year, 43 billion went into venture capital. I mean, unbelievable, so that's the, and this year has gone down by 40, 50%. But it's fine, that's the way things are happening. But because of that, still finding good companies, money is chasing, chasing good companies.

I'll tell you, recently we are looking at a couple of companies. The valuations have come down probably 30% or so compared to a few months ago. 

Akshay: How do you know the valuation has come down? The same company comes to you again ready to accept a lower valuation, 

Venkat: low valuation. Yes. Because way they were, when we initially saw this, now I know, I think. Correction of 25 mean anywhere between 20 to 30%. And there's no hard and fast number out there, but they're seeing that, but still these good companies are being chase by a lot of funds. So, while the violations have come down little bit, no, but the money is still chasing them.

 So that's a way the system is today. So while the number of entrepreneurs and number of companies have gone up, number of funds and number of, the amount of capital has also gone up. So having, having your brand and having your team get, experienced in sourcing is very important. So, and having it, the fund for the last few years, it gives us that experience at least compared to the new funds. 

Akshay: In a way, this is like the classical go-to market challenge for a startup. Like for you, the go-to market challenge is getting good quality companies.

Venkat: Absolutely. And the reason this is probably the best. Profession. I've, so far I've done, I've worked, I've been entrepreneur, worked in manufacturing, work in software work for large companies. The reason I enjoy this day in and day out is one is the continuous learning you go through because they meet these entrepreneurs, anger, they must, they may be very young, but they have different opinion and you, you get to learn a lot from them and the new verticals, new industries. That's amazing. That keeps you going up every day that's something which I enjoy every day. Second thing is the kind of difference you can make, even, a hundred million dollar fund if you want to make 10 x and with 10 person, you can make the kind of leverage impact you can have on economy is unparalleled, I mean, so with the kind of money you have, the kind of economic activity can create in the growth of the country are the entrepreneurship is phenomenal. 

Akshay: In fact there's like a multi-generational impact of creating these startups, which really experience that rocket ship kind of a growth because a lot of the early employees will then become founders. The next generation of founders is kind of born in those startups, certainly, like Flipkart has given birth to Flipkart, Myntra that they've given birth to so many other startups now.

Venkat: Yeah, I mean, many of these founders, they become angel investors in other companies. I mean, that's phenomenal. When you see these success founders are creating other companies, that's the way things work. 

Akshay: So I want to kind of, go back to the go-to market challenge. Can you gimme like tactical examples of how you solved it? Like, did you, for example, invest in content marketing or like, how did you really build that muscle that go-to market muscle? 

Venkat: In terms of sourcing, you're talking about?

Akshay: Yes. Sourcing. 

Venkat: So, there are multiple ways, one is when you go to the market, when you go, when you meet entrepreneurs, it works both ways. It works both ways, when the entrepreneur meets you, they also start assessing you as an investor, while we're assessing them, so you have to create that goodwill with the, you meet lots of people. And, you work with them, you create that goodwill, you be open and you try to help them as much as you can, whether you fund them or not. And, and that use create so much brand word of mouth out there. That's something which would help, many of the investors.

And second is, spending time with incubators, Mumbai, BombayIT, and,Madras IT and, every institute has, an entrepreneurial sell. You go work with them, establish relationship with them day in and day out. I mean, it takes time and effort, and there are so many accelerators out there. So you gotta go, meet them and establish the partnership out there. And success rate is very low. Keep in mind. You gotta be patient out there. And the third one is there are there are bankers, the small boutique capital matching companies, and no, we need to find some of those bankers and make them understand what you look for and, work with them very closely. That's a third dimension. And fourth one is a funder networking. No, which works very well. Co-investing, because you need to find like-minded funds and work with them very closely and share the deals among ourselves and also Angel networks out there. So, it's a combination of all these things we need to establish and develop over the period of time. 

Akshay: So in a way, your top of the funnel you grow that by incubators, accelerators bankers and the co-investing partners. Those all give you a higher top of the plan. And for conversion, you try to make sure that each interaction is adding value to the founder, irrespective of whether you invest or not. So, what is the business model for an accelerator or an incubator? Like, are these like social initiatives or do they also have a way of earning.

Venkat: No. I mean, they, for example, many of these educational in institutes, they have the entrepreneurial cell. Typically what happens is they provide space in the very early stages, and they provide some mentorship as required, but mostly space and in front and other things.

And the connects. And for that they take some equity partnership. very nominal in my view. And as they grow once, once they start growing at some point, then they come out of this this incubator and, and get funded and, and you know, within, you know, one or two rounds, they exit that, that their equity as well. That's their model. And I think social side of it, there is social funds as well, but not much in my view. Most of it is, for profit. They take equity partnership and stuff like that. 

Akshay: I see a lot of funds doing a lot of online activity and building in like a way for receiving applications in bulk, whereas other funds you need to know someone to get a meeting. You know, what's your view on that? Like say some funds will say, okay, fill out this detailed form and we will come back to you within two weeks and, you know, it seems to be like more of an automated workflow. Obviously there'll be human beings on the backend who will evaluate, whereas other funds you will need to get a meeting through an introduction from a portfolio company or someone who knows them. And so, can you talk about that? Like what is the approach that you prefer and why? 

Venkat: No, obviously, the reason second method is preferred is it comes to the referral. That means qualified lead. If somebody's referring you a company, it's qualified. And and it reduces your work, in the pipeline. And that's definitely a preferred way. Obviously that's not the only way. Even if you fill up online form, which we have, every company that comes to us is looked at what happens is, we, every Monday we meet as a team. Let's say 50 opportunities came in the last week, we just go through them, and then everybody votes, and stuff like that. So, but thing is we try to get back as many as possible. Sometimes we may miss one or two. Doesn't mean that your opportunity hasn't been looked at, because for us, we just need to make sure, as I said, it's a goodwill building. Also encouraging the entrepreneur as well, not returning.

Would not Be the right thing for entrepreneur when they receive something, either feedback negative or positive. We try to give them transplant feedback as much as possible. They need will, they need to improve and stuff like that. But we may miss few, doesn't mean that we haven't looked at time for sure. But if you send an email asking feedback, we definitely will report. 

Akshay: Got it. So VC as an industry has been around for decades. I think maybe Sequoia must be like 50 years old or something like that. So what has been the technology disruption in the way the VC firm works? How like, say banks are getting disrupted with newer from new age banks or neo banks which, or FinTech, so, is something similar happening in the VC space, like technology disruption on how a traditional VC way of working used to be and what is it today?

Venkat: If you look at venture capital, it's not a high volume business, and it's more to do with, analyzing and making sure that you're picking the right company. And, automating would be the, workflow and regulation regulatory set of it is something you can automate, so the kind of documentation you need to maintain for invest relationships for regulators, other things that can be automated, the workflow, but the majority of the work that requires to be done for evaluating the company still requires manual attention. And evaluation of gathering the data.

I mean, some of the data gathering and other things can be done efficiently, but majority of the work still needs to be human and intervention is required.

Akshay: As the founder of a fund are you also constantly raising money? Like, say lot of startup founders say that fundraiser is a constant activity for them 24/7. Does that happen for you also, like when you raised the second fund, which is like six times more than your first fund how difficult was it, or was the track record already established so it was not so difficult or, you, can you tell me about the challenges of you yourself raising those funds, which you invest further?

Venkat: So, Startup is never easy, it requires, lot of effort and ability to, stand your ground many times. And raising money is one of it because you are asking somebody to trust your abilities to give them returns on their money, which is not easy.

And that only comes by you showing the required. Performance and the ability to identify and grow the companies, give them the returns as well. One good thing that's been happening in Indian ecosystem is the actual maturity of H and I and, and family offices looking at the alternative investments such as venture capital. So if you look 10 years ago, the appetite was not there. Today, many of the H hmis and family offices are looking at early stage investment as one of the alternative investments, their portfolio diversification or alpha seeking, whatever that is, so, which is a great thing and the ability to understand the technology focus has also gone up significantly.

Akshay: I guess this would also serve as a potential acquisition funnel for them. Like let's say they would participate in investments and eventually some of those might become acquisition targets for them, or like in terms of giving them more market knowledge and understanding the evolution of technology in the space and so on.

Venkat: So many of the, I know large family offices will look at it as a co-investment. They would look at, if the company's doing well, they want, they wanna participate in the investment and stuff like that. There are also the large companies, corporate venture capital, their goal would be aligning their.

Venture capital investments into potential acquisition in the future. So especially corporate VCs, not necessarily the family offices. Family offices would look at probably some alignment in the strategy, but mostly the, mostly from the investment perspective, they would evaluate the funds and companies, but the corporates are different.

Akshay: Yeah. Got it. So, most of your fundraisers from India? 

Venkat: All of it. Yeah. So we wanted to go do the fundraise overseas, but we didn't need to because we closed the fund within India. 

Akshay: Amazing. So, normally fundraise news announcement says that the lead investor is, what does that mean? A lead investor? How is a lead investor different from the other people who invested? 

Venkat: Generally what happens is you need to have the sponsor for the fund, I mean, basically the, that, that could be the initial major investor, sponsor entity for the fund. So, it could be large family office, it could be institution, preferably. And and other for us it was, SBI was one of the law institutes that put in the money as the anchor investor, we call it, no, I would say anchor, not the sponsor, anchor investor. So you need to have that. So, and Sibi has been very supportive know in, in both funds, for us.

Akshay: And for a startup. And a startup says that, like, say, Sequoia was the lead investor, so that means Sequoia is giving the biggest share of funds and probably they're also supporting in finding co investors.

Venkat: That works a little differently because lead investor in a company would be they would take obviously the higher share of the investment. Also, they would give you the term sheet in terms of what terms they would be offering. So once the company agrees for the term sheet, generally co-investor, co-investors will follow the lead investor in terms of terms and other things.

And due diligence will be taken up by the lead investor as well in many cases. And then co-investor, co-investors will take that that due diligence report, and feedback from them.

Akshay: So, let's talk about some of your portfolio companies. What are some of the companies that you invested in? How did you discover them? What was the reason that you invested in them? 

Venkat: So, I mean, the way we look at there are, and if you talk about Fund one, there are obviously we invested in 12 companies and we exited couple of companies, and that was one thing called SQ feature tech that was in the construction technology. We exited that company very early in the game. And then, Attenberg is one company I mentioned in the past that was our second investment, which, which is into energy efficient appliances. They're into initial focus was into fans and they're probably or one of the no Star Port companies out there. And and we continue to support the company. They're part of our fund one and we also invested from fund two as well into that company. So when we looked at the company, again our evaluation would be, if you look at India, for India, like Indian companies focusing on India, There, you need to have the right scale. So Attenberg, they focus on appliances, starting with the fans fan is very scalable appliance, actually, and they, them cutting down the energy consumption by one, no, by two thirds, it takes one third of what other fans' energy consumption is. And that's a no-brainer, from the EG perspective as well as scale perspective and the returns perspective. And the founders are amazing, so by looking at all these things, there was a no-brainer for us to invest. And all sudden, none, they've gone through very, challenging scale growth as well, which they achieved and, with the right quality, so something which is very good. And then there's a company called Place Shifu, which is the augmented reality based kits for it's called toys for kits.

Akshay: Like My Juice has acquired Osmo. 

Venkat: Osmo, these guys have similar kind of products. There's a globe, there is a few other platforms, and they're completely focused on, global markets, so they're 90% of the revenues come from global markets and 10% is from India, they're, they've done probably hundred, hundred, 40, 150 growths last year. So, that's, that is something which is also, great company which we looked at, which we invested in fund one, and we also followed on in fund, fund two. And there's one more company called Tropic, which is basically artificial intelligence based emotion recognition technology, so what they do is, many companies have got this focus groups to identify whether this product works or not. The feedback and stuff like that. They automated the whole thing with the headsets. Take, taking the brain waves and also facial expressions to identify the emotions and use the AI for converting that to, data sets, so, which is doing very well as well, other companies, Beri Aerospace, they do the satellite propulsion. These are real rocket scientists out there, very gifted team. They, they have these propulsion systems, which are the heart of any satellite. So they have two valley propositions.

One is green, another is actual weight of the propulsion system, so they're also extremely talented team. We are very bullish on that as well, on the space technology, so like this, there are many other companies. There are a couple of companies in in cybersecurity cloud Second Data Resolve and there's one company in chip Manufac testing. Those are all the, these are the fund. Some companies we invested in Fund one, coming to fund two, we have done car Logistics, which is a cargo platform for airports and seaports. They are also doing very well and very mature company. And we invested in a company called Graham Cover, insurance platform in Ensure tech company, and secure Things is another company we invested in in fund two, which is again, as there is a, EV electric vehicles are coming into the play and any car today you pick, there are tons of devices in there and chips in there, so providing the cybersecurity security for them is key as well. So Secure Things does cybersecurity for them. There's another company called With Routed AI, which is artificial intelligence based video translation platform. No, you can give any video or any image, and you click out the button, it translates all the audio and the content as well into different languages. So just artificial intelligence very intelligently out there. So, we are bullish on that as well. So these are some of the companies we have. 

Akshay: So you would mostly be looking for founders who are technologists because your focus is on finding tech first businesses where tech is the disruption. So, tell me about the founders of some of these companies. Like what, what made you feel that this is a great founder to back?

Venkat: So, Tech first is key. Obviously we are a technology fund, but the founder should have, business inclination. I mean, their capability to understand business and grow the business is key as well. And without that, just the technology focus will not work, so, generally we look for, more than one founder. If at least two to three would be ideal, because they should be. Tech, technology, focus, CT O could be one person, who speaks technology, who walks technology, who leaves technology. But there is a CEO should be the person, understands technology well, but also should be able to come up with a gt, go to market execution, providing the motivation, recruiting the team, keeping the team together, so I think that's a, that's something we look for. Now, without that, we won't be able to invest in any company. Second thing is it takes, as a set, four, four months for us to invest in any company approximately give and take from the initial contact. What happens is during the time, it works both ways, as I said, they start evaluating us, we evaluate them as well. They, we watch them, we meet them many, many times. And their body language, their ability to work together, ability to lead the teams, answer the tricky questions and, tricky situations. All these things will be evaluated and we are looking at a lot of time looking at these founders.

If the founder is, founders are, we feel that are not gonna cut. It will be, that would be off. So, and just technology won't be enough. I would say, It would be secondary in my view, if you ask me. 

Akshay: Interesting. Okay. So, I wanna understand why single founders companies are not preferred. I mean, there are a lot of famous examples of single founder companies, like say Facebook being one. Obviously that's a, I mean, that's like an outlier, but, or even Amazon. So I mean, one could say that a single founder has that singularity of vision and less chance of founder conflict and so on. 

Venkat: I'm sure even the large companies such as Amazons and Facebooks when they started probably single, the founder has the vision, but he or she recruited the team very early on, the, it could be lower percentage of the ownership, we are not talking about how much percentage every each one owns, the team should be having different roles, so it's hard to expect one person to do everything. What requests for a startup, they do wear multiple hats, but one person to do everything is probably next to impossible, he or she need to have the team. So we, I'm talking about the team. 

Akshay: And you want the team to have skin in the game.. 

Venkat: Yeah, it's our skin in the game. It's like employment, I mean, that won't work. 

Akshay: Interesting. So what kind of people do you need to have in your team to really be able to do this kind of thorough due diligence? Like you said, you meet them multiple times over a four month period and you're constantly picking up signals and Yeah, I mean, it seems like a very specialized kind of a skill set. How do you build your own team? 

Venkat: Just like any other company, we have different roles. So we have managing partners, principles associates, analyst, and probably interns, that's how that is. And they grow into different roles as in the hierarchy. And what happens because we became partners over two of having the experience as an entrepreneur, we learned the whole thing in the last few years as well, we keep telling. Our founders, you need to find the A players, otherwise you'll end up with the ALG players, that players, but similar to that, we need to find A players, we need to do what we preach and we need to hire, recruit the right people, give them the opportunity to grow and also have the right succession for us in the future, this as a fund is like a company, you'll continue to grow.

As you rightly said, SECO is probably grew off every other fund, and hasn't been built in, in few years, they existed for so long and like many other funds comparable to Scalia. We have so many examples we can follow and we can learn from them and create the one of the best funds in the, in technology fund in India for us. 

Akshay: What would you advise aspiring founders who are looking to build a venture backed startup? 

Venkat: I think first and foremost I've said that many times. Having the right mindset is a key. That means, let's say you, you identified an opportunity, do your homework and make sure that you are convinced and have complete conviction on that opportunity.

Once you have that, you should set yourself a goal, multi-year goal and think that is done and once you have that mindset, you know where you're gonna get to. And there would be uncertainty on the way. You should have ability to pave the way as you go along in, especially in uncertain conditions.

But you have to have that mindset of winning mindset and ability to have the rolling plan and pave the way as you go along. And that's a key. And second thing is don't give up too early. What happens is people tend to, first year when you start the, any company would be honeymoon period. And either you raise the fund through your friends and family, you put in all effort and you focus too much on the product and whatever. And then, first year would be honeymoon. Secondary is where the things started, becoming tough. And from that point onwards, having the right go to market, finding the customers, those things become paramount importance. And then you need to focus on that. Don't lose hopes. Stand the ground. And if you have the winning mindset and enough effort, things will happen. I'm telling you on my one experience now, I've gone through many of these situations as well myself and not, standing your ground and be confident about what you can achieve is important as well.

And third one is do your homework when you go to venture capital, many things, understand the ecosystem, as I told you, what is that? There's enough examples, enough mentors out there. Take help from bankers if you want, but make sure that you understand where you want to get to and how we want to evolve your company and how much equity you want to give up. Don't give up too much equity right up front to, to angels and other things as well. So understand this, come up with the right plans. And then many times also understanding the market size is key as well, don't be too optimistic and, put the opinions and billions of dollars. And other one is, this is the mistake I've seen most of the founders do.

They undermine the competition and know that means, when they do their homework, they think their product is the best and that's what it here. But the reality is there are many others thinking the same way. And there's always a competition out there doing better than what you do. And you need to find a way to have the differentiation and entry barrier. There will be competition for sure. But having the, early more advantage and entry barrier is the key. Don't undermine the competition and go to market quickly. Don't focus on perfection. 

Akshay: Let me like, kind of, try and build a case study. So I often talk to listeners of the show. One of the listeners of the show told me about his idea that all founders need a good EA, a lot of corporates have people at position who need good EA. So there is an opportunity to build a company which is providing an EA as a service, which is remotely done. And you can scale that up, make it global also, and all that. So, what would you tell this person and he's currently employed in a job, so, what would be your advice to him? 

Venkat: I'm assuming that the person is looking at focusing on startups and offering them the EA Is that what, what I heard or?

Akshay: Yeah. Yeah. Like EA as a service and to a startup, yeah. Like could be to corporate also I don't know if corporates would agree to outsource it versus just hire somebody on their payroll. But I'm assuming startups would be early adopters. 

Venkat: Yes. For the large companies, enterprises, that is well travel path. And there are many recruiting companies do that anyway. So when you talk about the startups, I think there's no one job that can say, this is what I need, this is what I need the EA to do. And I'm telling you that's what they call it as a, people call it chief of staff, people call it chief administrative Officer, wears many hats. And startups cannot define, this is what I need for an EA. I think that's gonna be tough, to define the boundaries for this kind of job. And often, and the kind of, kind of skill you need is very different for startups.

Akshay: Interesting. Okay. One word I wanna put across an idea from a listener. So, he is building a SaaS product for interior designers. Basically, In India, interior designers have a lot of back and forth with clients who want some interior design work done. And so he's built a complete SaaS product where every interaction can be documented, they can share design plans, and clients can say, I like this color, or whatever. And so, what would be your suggestion for him? Like, how can he scale this up? Do you see this as an investible business? 

Venkat: No, I mean, th this is also a well travelled path actually, right there, there are a few companies, I don't wanna name them right now, but, which have done this and has an initial success they have had, but didn't have too much success scaling up. Because.. 

Akshay: You're talking about like a lift space, which takes the whole turnkey..

Venkat: I mean, if you're talking about working with architects and making sure that they can render the whole thing and, and stuff like that, it is definitely a good model. It the few companies tried that model and it depends on your, a person's ability to develop the market, do the sales and do the value proposition. But, companies have tried to do that, but had scaling issues in India in mind and all that. 

Akshay: So he's doing a Shopify approach where he's saying that I will provide them with the tools instead of trying to acquire the customers. It's not a B2C play that he's looking at, whereas say like a lift space and all are like B2C where they're directly acquiring the customers. 

Venkat: Possible. I mean there is definitely a need, most of these self-serve tools are also tough, you need to make sure that, initial onboarding and people are using it the right way. So things become stable. Is something, the entrepreneur needs to focus on, but the market space is there, but you know, it is, many companies have tried that as well. 

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