ARTHAt February 2019
Managing Partner’s Note
Hello,
We didn’t get the chance to present any deals to the IC this month. I believe that they (and us) needed a break from hearing new pitches, and instead, needed to witness the closure of the deals we already have in hand. However, we did get some amazing deals that were too irresistible to give up. From a company building a low-cost launch vehicle to put satellites in orbit, to a company that is creating conversational AI that could reduce the workload on sales teams or even an instant-coffee brand that will eliminate the need for espresso machines in your office or hotel room, we’ve had an interesting month.
During my preparation for a panel that I was speaking on, at the family office conference in London, I looked up other similar sized VC funds across the globe and was pleasantly surprised with the amount of content available on “Micro VC” funds i.e. VC funds that are raising less than $100 million, which in my opinion should be $40 million in India due to a much smaller ecosystem and the fact that $1 can buy a lot more in India than it will in the US. Basically, you cannot have dollar-based thinking in a rupee economy.
Some of the best material I have read is given below:
The Paradox of VC Seed Investing explains why writing $250,000 cheque from a $625 million fund does not make sense for the fund and the founder. The post is written by Brian Singerman of Founder’s Fund that had (at the time) just finished raising a $625 million fund.
How to Win at Micro VC delves into how the average ownership in a Micro VC fund portfolio ultimately decides the success of the fund. The post is written from the perspective of a fund-of-funds that is deploying capital into multiple different strategies. It is a must read for you to understand how our fund operates.
Is there an ideal portfolio construction for seed funds? This one talks about the necessity of higher ownership in portfolios where the fund manager has a hands-on approach to investing. The higher ownership pays off in outsized returns that the successful investment will make.
These learnings endorsed our belief to ask for double-digit ownership in the company early on and build up that stake to 25% over the investment cycle (up to Series A). This will ensure that post-dilution, 1,000 crores ($150 million) plus exit will return the entire fund corpus, an OYO type exit would return ~6x of the fund. The remaining 39 portfolio companies would only be the icing on the cake — these are excellent odds to invest with.
This month, we could not spend as much time as I would have liked with the portfolio companies — this will change as we get more resources in place.
Our fundraising efforts are continuing to gain steam and we are adding new commitments every month, but I want us to increase that pace from next quarter onwards.
Deal Sourcing Activity
In the month of February, we received 65 deals in total. The breakup of deals is given below:
Out of 427 deals in our pipeline, 30 made it to the advanced stage. Here’s a glance at some of the deals we are excited about:
1. A snack vending machine company which is an online-to-offline retail distribution channel for snackable products i.e. products that consumers want immediately and frequently and are impulse purchases. They provide products conveniently and immediately to consumers via cashless IoT vending machines.
2. A tech-enabled healthy food delivery platform delivering farm to fork, nutritionally balanced meals, subscription meal plans & superfoods.
3. A wealth management platform that adopts a savings-first and outcome-oriented approach for unbiased investment recommendations, powered by proprietary qualitative and quantitative analysis framework.
4. A health-tech startup that is aggregating standalone neighborhood pharmacies under a single trusted brand name (imagine OYO for pharmacies). They have both retailer and a client facing apps that aim to make online and offline channels complimentary. They are also automating supply chain management for retailers.
5. An aerospace hardware startup that designs, fabricates, tests and launches orbital class launch vehicles that take up to 100 kgs to Low Earth Orbits (space).
6. FMCG brand that is selling small batch crystallized instant coffee with a proprietary formulation that includes 5 natural vitamins. They are currently unique single shot, coffee vials direct to the customer.
7. A technology company that has created a human-like sales bot that will define the future of voice engagement. It can cater to multiple sectors to automate the cold-calling step in the sales procedure to improve the quality of leads that require human assistance. They are currently focused on intent AI looking to expand into flow and intelligence AI.
Deals lost
Out of our pipeline, 27 deals were rejected. Three that can be highlighted are-
1. A wealth management platform that acts as a one-stop shop for all financial needs by aggregating customers finances and providing them with deep financial insights. They use a powerful financial voice/chatbot that simplifies decisions.
Reason for Rejection: The founder wanted 12 crores, which is outside the mandate of our fund.
2. A SAAS platform to optimize the use of unused parking spaces. They sell a handheld PoS / Mobile-Thermal Printer for on-street parking payment collection. Their goal is to connect drivers in search of parking with anyone who has a space going spare, whether in a car park, private driveway, parking garage.
Reason for Rejection: During the pitch call with the partners we found some primary flaws in the revenue model that the founder was explaining, the numbers just weren’t adding up. As a response, we asked the founder to send over his financial model after which he just stopped responding to any form of communication from us!
3. A technology platform to buy digital billboard inventory and place advertisements instantly through the cloud.
Reason for Rejection: We reached out to an expert within our network, who is a senior executive at a company that is an incumbent player in this market. His feedback was:
a. The market of existing standalone digital billboards in India is too small
b. There is no proprietary technology that cannot be replicated easily enough
Deals on hold
1. A tech-enabled distribution platform that is helping brands to increase their reach and automate supply chain systems & processes by connecting wholesalers, distributors, and retailers on one platform. They are currently focusing on FMCG brands. With an impressive team and the first movers’ advantage, we see a major potential to scale this venture.
2. A social media platform that allows you to listen, record and share audio almost like twitter for voice
3. A deep-tech life sciences platform that is developing 3D bioprinting technology and products for R&D, industrial and clinical applications. Their principal product is artificial skin tissue, whose application is far and wide across industries
Portfolio Update
LenDenClub (LDC)
No. of Loans: 1900+
Employee Count: 50–55
This month, we devoted our time with LenDenClub to close the investment documentation so that we can infuse the company with the much-needed capital to push their quest for growth. Despite this challenge, the company has continued to operate at net plus or breakeven for the past 4 months –rare for a fintech startup.
Haazri
No. of Locations: 9
Employee Count: 30–35
Haazri crossed an important milestone but faced some challenges in standardizing their menus across all locations with the base food item that we had discussed last month. There is resistance from the delivery partners and from within the team to let go of certain food items due to the immediate decrease in revenues. However, we believe that things that aren’t contributing towards the long-term benefits of the company should be stopped as soon as possible because delaying such a decision only exacerbates the problem.
One of the locations that we had reported would shut down due to lack of adequate revenues has asked Haazri to continue operations and promised to give them the entire cafeteria. The details are awaited but it will immediately increase Haazri’s revenues without any additional CapEx — this has been the month’s silver lining for them.
PR activity in February
Still an embryo published on 12th February in DNA. As a previous investor in BabyChakra, Anirudh was asked about his views on the future of this space.
Borrowers and lenders galore on LenDenClub as it crosses the 1, 00, 000 members mark: a press release from AVF’s investee on crossing an important milestone
Events we attended in February
1. On 5–6th February, Vinod attended the TiEcon Mumbai 2019 as a panelist
2. On 15th February, Anirudh attended Startup Manthan in Delhi as a panelist
3. On 26th-27th February, Anirudh attended Campden’s Family Alternative Investment Conference in London as a speaker
Events we’re attending in March
1. Partnership with Government of Maharashtra | Artificial Intelligence Innovation Challenge
2. On 15th March, Vinod will be attending the NASSCOM Product Conclave as a panelist
Help Required
Help required in Hiring
Artha
- Legal & Compliance Manager with at least 7 years of litigation and non-litigation work experience. Proficient in drafting and vetting of documents.
- Digital Marketing Head with successful experience of planning social media strategies and handling PR of different startups.
LenDen Club
Python developers with 1–4 years of experience
Haazri
- A Marketing and Social Media manager with 2+ years of experience in Marketing, Sales, Branding, Social Media and PR.
- Sales Head (B2B & Events) willing to work on a salary + commission model.
- Chef/Food Consultant to help develop multiple variations of a single base product. For e.g. Variations of Equity Sandwiches
Help required in Partnerships
Artha
- Connects with established CA/CS firms that can introduce us to their clients
- Introduction to LIC, GIC or similar financial institutions for investing the fund
LenDen Club
Connect with fintech/NBFCs for partnerships
Haazri
Listed below are companies where a partnership can open up additional sources of revenue:
- OYO Room
- PVR Cinemas
- Swiggy Access
- Shared kitchens for a central kitchen in Mumbai and/or other cities
- Broker connects for new cities
- Connect with any Railways/Metro lines for selling of tea/snacks on the train or the station
Other Help
Artha
Introduction to a part-time CFO who can oversee our group’s operations
LenDen Club
Introductions to advisors that can raise a business loan
Haazri
A 500 –700 sq. foot space for our warehouse, central kitchen and office in the range of 60,000/pm in Mumbai
Connects with someone who can assist in creating a franchise model
