Arali turns two…!
How the last two years have shaped our seed-stage investing approach
Its been 2 years since the launch of Arali Ventures. Its been an action-packed period for team Arali with tons of learnings, lots of new relationships, and some very hard work. We are now a 5 person team and have made six investments so far with two more in the anvil.
I won’t even attempt to start thanking all the people who are responsible for getting us here as it would fill a few pages. That kind of got me thinking about our journey over the last two years and how almost for everything that has happened along the way, we seem to have someone to thank!
That in turn led me to think about our learnings as a first-time fund manager & how they have shaped our investing philosophy & strategy. At the end of Year 2 at Arali, if I have to summarize what our philosophy is in one line it would read as — Nurturing Relationships and Refining Biases & Perspectives.
In a two-part blog, we will talk about how this philosophy has helped shape our evolution as fund managers. In Part I, I will focus on how ‘Nurturing Relationships’ has helped not so much raise the fund but more in terms of how it has helped us in building out & shaping our portfolio. In Part II, Arun (my partner through this journey) will write about ‘Refining biases and perspectives’. We think these two aspects will be core to our DNA as we move along
Nurturing relationships
In a business where thesis, knowledge of the market, a guesstimate of how the world will look like 10 years from now and the ability to evaluate teams are seemingly seen as all-important, we believe Nurturing Relationships is absolutely key and I dare say fundamental. Let me explain!
Here is a list of key aspects that VC funds typically build their differentiation around. I will take a shot at explaining how we have learnt ‘relationships’ are at the core of each of these differentiators:
Access to quality deals: We have met /spoken to about 1200–1400 companies in the last two years. This means that we have seen a total of about three times the number in terms of companies. We have deep-dived into 80–100 of these companies and went very deep into about 25 of these companies. After all this, we have 8 investments either concluded or in progress. 7 out of these 8 investments are either founders we knew of directly over the last few years or have come as referrals from other founders/entrepreneurs we have worked with, from our investors, or from other eco-system partners with whom we have built relationships along the way.
These numbers tell a story; we would not have been in business if we didn’t value the founders we met along this journey. It pains us to say no to a founder pitching his idea not only because we are fundamentally nice people but also because we understand the sweat & pain a founder has already put in (emotional, financial & physical) before we get to meet them. We recognise this and we try our best to be forthright, honest, and if possible try & help in some way.
We track two basic metrics on the companies we didn’t move forward with: A) Percentage of companies we responded to and clearly outlined our position & rationale and B)Percentage of companies we were able to help in some way (intros, client referrals etc). On A, we currently track at about 70% and on B we track at about 20%. We think we can do a lot better and that’s our endeavor but we think that these two metrics have and will continue to drive our deal quality.
I must also mention the various ecosystem partners — accelerators, angel syndicates, educational institutions startup programs, corporates with innovation/accelerator programs, startup founders, etc. We have tried to build relationships with a wide variety of them without judging outcomes at any point. They also play a key role in our ability to access breadth & learn from it
Customer, Industry & Market Insights: Our LP network is diverse and is spread globally across 16 cities (11 outside India), they are mostly in the enterprise world in different industry verticals & functional horizontals. This network of LP relationships helps to discover key end-customer insights that are invaluable during investment evaluation & downstream in GTM support for portfolio companies
Technology soothsaying: Needless to say, we fall back heavily on our relationships with a carefully cultivated network of individuals to keep abreast of technology & to evaluate specific investment opportunities. Most of these individuals are entrepreneurs, CTO’s , they have been there & done that! Given the breadth of areas of expertise, we think this a better approach rather than having a single CTO as part of the investment team.
‘Deal making’ nuances: Our experience of building & running a boutique advisory firm prior to setting up a fund has held us in good stead as we were on the other side of the table sitting with the founders! We have carried those learnings with us and are focused on being founder-friendly & relationship-centric. We try & make deal constructs easier, do term sheet walkthroughs, been open to convertible & SAFE notes from our very first deal & make it a point to earn founder trust even during the negotiation process.
Value add to portfolio: Our relevance for our portfolio stems from our ability to help in GTM, build industry relationships across geos, help shape product positioning, be a sounding board on strategy, operations & talent engagement and help in future rounds of fund raising. We consciously strike a balance between being intrusive vs being hands-off. We in fact have engaged a third party to run a formal feedback process from our founders & get structured inputs on how we can further enhance our operating model.
Fund eco-system relationships: We value our relationships with other seed funds in the ecosystem. We have had an opportunity to be part of investments led by other funds and some others where we have led. Both experiences have been enriching for us and we certainly hope they feel the same way! We also are lucky to have some trusted relationships with some of the later stage funds whose counsel & steer helps us navigate many a tricky curve.
Operational stability & scale: Possibly the least spoken about part of the VC ecosystem is the enabling environment that comprises service providers (accounting firms, lawyers, tax advisors etc), forums, SIGs (Special interest groups like a CFO group of VC/PE funds in India). We have often been surprised how much value these entities add and can make a big difference not just in operational process & stability but also in terms of structuring & creating innovative options to create value for Arali & our portfolio companies.
So I guess it’s pretty obvious why I say Nurturing Relationships is at the heart of our investment philosophy. I even sometimes feel like just a bystander orchestrating relationships & value exchange across all of these participants, nothing more than that! So to all of you out there, you know who you are!; Thanks for being part of the journey!
And finally, my mind goes back to a conversation in February of this year with my good friend Murali of Inflexor Ventures. Sipping a coffee on MG road we were talking about how the popular notion of VC is that its an insights business but in our experience, it is actually more of a relationship business than an insights business.
In the second part to this blog, Arun will talk about how maybe insights are equally if not more important (!!)and how they are driven by refining biases & perspectives!
Arali Ventures is a pre-seed, seed-stage VC from India, investing in entrepreneurs building enterprise-tech solutions for the world. We help shape their journeys through product-market-fit and beyond and scale the offerings to greater heights.
Keep circling back to read our perspectives on enterprise-tech, our portfolio, seed stage investing in India.
