Arali’s Seed investing 2.0
Sharpening our approach as we turn two
Reading Rajiv’s piece led me on a slightly tangential journey. While we have been very particular about offering our perspectives on why we are unable to invest; I was suddenly curious about what those perspectives were and if they have evolved over the last two years. So, I dived right in, looked at responses we have written, internal notes and tried to piece the jigsaw together. Talk about opening a Pandora’s box.
To be honest, we wouldn’t have done anything different on 90% of them; we would have evaluated a handful of them differently maybe but, i dare say, come to the same conclusion, and two or three might end up on our Anti-portfolio list in some time.
Here is a compilation of how our investing philosophies, biases have moved over the last two years
Dont understand, dont invest: We are very clear now that we won't invest in sectors we don't understand or are able to wrap our head around. We have always clear about our overall focus, there have been times when we have flirted with solutions solving problems in industries, areas we dont know well. Thankfully, we have been able to ward off letting others’ conviction rub off on us. I keep having this discussion with a good friend and fellow VC about co-investing and working together; but the reality is they invest in consumer plays & tech for indian problems, while we look at enterprise -tech. More importantly, both of us are very clear we wont invest in sectors we dont understand. Hence, there has been little chance of coinvesting so far. As a consequence though, we are sharpening our thesis-based investing significantly. Look forward to more on that here.
First mover advantage is overrated: We are a lot less deferential about “ First mover advantage” now. First mover advantage is important when the market is perfectly poised for your offering, but we have realised that with emerging tech solutions, the need is nascent, it has to be teased out and the market rarely explodes when the first solution hits. In a market with existing players, we look more closely at underserved latent needs, the teams ability to address it, and effectively distribute their solution
Disruptive solutions seldom start with a $1B market: We have learnt not to pay a lot of credence to having a large, $1B market to operate in. I am actually very skeptical of tech analysts firms and their numbers, the whole seems to be many times bigger than the sum of the parts. We,now, look more closely to look at bottoms up numbers, evaluate what size of business can be built and then factor in adjacencies. If you can convince us that you can build a $30M to $50M business in only a $200M/300M market, albeit a rapidly growing market, trust me, we will be in
Build and they will come (will they ever?): The last two years have given us a much better framework to evaluate deeper tech solutions. We now firmly believe deeper the tech, more the necessity to invest in market development from the very beginning. Not having enough mind-share and investment dollars into market development, even at product build stage is a definite no for us
Great founders seldom fit a standard mold: Where we have probably been shown the mirror the most and have become acutely aware of our biases have been while evaluating founders. Tends to be even more tricky, given the stage at which we invest in. We have realised, much to our chargin, that is no pattern, no standard recipe of what a successful founder looks like. More the necessary attributes, more the exceptions. Where we stand today is as follows
- The primacy of execution: We have been able to rein in our tendency to become a convert by smart, articulate founders who seemingly know their tech and market very well; We now have a bias towards founders with enterprise experience or 2nd-time founders ( talk of expanding horizons and refining biases), we firmly believe that knowledge of how enterprises work; patience and resilience are virtues while building these solutions.
we now look for evidence on their execution capability, their ability to build, motivate teams and organisations.
- Head in the clouds maybe, but feet firmly on the ground: We have been lot more conscious of founder maturity in the recent past. Founder maturity, loosely translates into “not being overrawed, enamoured by funding announcements, valuations in the startup news sections; ambitious enough to create a big impact in their market while being pragmatic enough to realise that large disruption involves a series of small, painstaking steps of finding and solving customer pain points effectively; and a recognition that the building a startup is a painstaking journey, often involving back-breaking work, self-denial over long periods of time. “
VC investing is not bargain hunting: What matters most is the potential for higher valuation multiples than getting in really low. For instance, we would rather invest at a higher entry valuation in a company that has the potential to deliver significant multiples than invest in a company with middling potential, but at a much lower valuation. Logical though it may seem, it has taken a lot of soul searching to get here.
I am sure these perspectives, biases will evolve over the next few years in our journey; will check back in a year's time on how things are changed. Will also be great to hear on how your investing has evolved, let us know your thoughts
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.
