Learnings from the VC world: From an outsider’s lens
Highlighting the metamorphosis of some of my previously held beliefs about the VC ecosystem
In all fairness, having worked in a venture capital firm for over 3 years now, I no longer consider myself an outsider. Before I started my VC journey, I had spent about 13 years in the data science & analytics world. I had extensive experience with large firms such as Genpact, Maersk & IRI and also had my share of stints in boutique start-ups such as TEG Analytics. For someone who had worked largely with enterprise customers, the VC world turned out to be quite a revelation.
That said, I was tempted to write this in my first year with Arali, but I wasn’t quite sure if I was still an insider then. Also, as an individual, my financial undertakings were as risk averse as could be, so it took me a while to get adjusted and immerse myself in this world.
I finally feel like I am ready to write about my key learnings/perspectives about the VC ecosystem so far and some beliefs that were later debunked.
So, here goes:
Lesson 1 — What’s a VC ‘Fundable’ Business?
Thank goodness…this is not jargon. In my early VC days, I was excited about companies that solved an existing problem. It seemed the company had a substantial market to address, and the founders were very inspiring. Yet, I realized that no VC, including us, was even thinking of funding them.
I took a fair bit of time to recognise that not all worthwhile ventures will be suitable for VCs to fund. As VCs, we expect fast growth from month 1!
Venture capital is truly considered a catalyst to kickstart explosive growth. This could be in terms of customers, users, and at times, revenue. But, the expectation is that there must be fast-paced growth potential and the team must have the ability to hustle & deliver on these growth expectations.
The last 3.5 years have also given me the opportunity to see this kind of explosive growth in some of our portfolio companies. One of our businesses witnessed skyrocketing ARR from $0.5 mn to $200 mn in just 2 years. Another of our SaaS businesses in India has grown from zero to $300K ARR, which, as you folks know, is no small feat. A US-based healthcare startup has also seen phenomenal growth from zero to $1.6 mn ARR in nearly 12 months!
So today, I can confidently tell smart founders with viable businesses (that I feel a VC might not yet be ready to invest in) to go chase their business first. Of course, try your luck with a few VCs, but if the results are unfavourable, don’t waste your time with us. Get your business running, and we will come looking for you!
Lesson 2 — Oh the numbers!
I was expecting this to be my biggest learning before I joined Arali. The calculations, reading the numbers, and so on! And then I found out it was more art than science. Even more so when you look at early-stage start-ups. We as VCs imagine the world — the possibilities, the abilities of the founding team…and paint the big picture. Only when we bring all the pieces together do we bring in the numbers to come to a conclusion.
Things get even more interesting when multiple investors are involved. Every VC will evaluate the startup in different ways, but it’s the lead investor whose decision ultimately matters.
My stint at Arali also taught me that fund size doesn’t necessarily matter when making investments. Even as a small investor, you can lead investment rounds as long as your decisions are conviction-driven and focused on a niche area, such as enterprise & B2B tech for us.
Lesson 3 — Invest only in ground-breaking innovation?
Before tiptoeing into the VC world, I was of the opinion that it was only about cutting-edge innovation and ground-breaking stuff. One of my biggest learnings since then has been that returns can be generated even through use cases that generate deep value for customers, especially in the B2B world, and not just through pathbreaking innovations. The underlying innovation could be reasonably simple, but what truly matters is the underlying value the offering brings to customers. This actually leads me to one of the cornerstones of Arali’s philosophy — “focused on deep value and not necessarily just deep tech or deep science.”
Lesson 4 — It’s a man’s world or is it?
This is something I have been hearing from day 1. Truth be told, I experienced it first hand. Most events I walked into, there were so few women and even the start-ups had very few women founders. My experience has drastically changed over the last year or so, thanks to the seeds of change sown way before that. There are numerous groups, events, accelerators, and mentors all catering to empowering women in both the VC and startup ecosystems. In fact, I believe that most women in women-focused forums and groups are way more forthcoming in sharing information and helping each other out than what we see in mixed groups. It gives me immense joy to say that Arali Fund I — was run by a 4-person team, of which two of us are women!
Lesson 5 — But, what about the exits?
As of now, this is still a work-in-progress for me. I remember my initial conversations with my partners. In these conversations, I tried to understand the whole game of exits with millions of dollars being invested in late stages and valuations running in billions! I was told that IPOs were a suitable option for late-stage exits, so I always wondered, “but what about profits?” Well, some recent Internet IPOs did provide some useful insight. But I’m not sure if I got the answers I wanted. So, I guess it will be another couple of years of learning for me to get clarity on this aspect! But, what I now clearly understand is how early stage investors like us can make a successful exit, given that we have already had 2 exits and a clear view on our exit strategy.
It’s a wrap for now, but I will be back with another piece on my musings about the VC world as (dare I say) an insider!?
Time sure flies by fast and in mid 2023, I will have completed 4 exciting years with Arali!
What were your thoughts before you entered the world of VC and where do you stand now?
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.
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