Better Capital: 2021 Annual Letter

As we wrap up our fourth year at Better Capital and our largest year across so many metrics, I can’t be more thankful for the journey as well as the relationships along the way.

Our annual letters are a way for us to capture our thoughts and ideas and learnings today to be able to reflect on them later — so these are really written for us internally at Better but published openly to keep us honest!

If you are new to Better, in a nutshell, Better Capital is a early-stage venture firm focused on investing in Indian teams building for India and for global markets. You can see more here: our website, our portfolio, why founders choose Better, our annual letters.

So with that said, let's jump right in :)

2021 in Numbers

2021 was the most competitive in India venture across all stages as every single fund did (most likely) their larger number of investments in a year and many funds did multi-stage investments and numerous funds did smaller and earlier checks than they had done ever before. That made 2021 a year of massive learning, introspection, re-thinking, and a lot more as we competed fiercely for leading/co-investing in companies we built early & deep conviction in. It was also my busiest year in terms of sheer man-hours per day and I felt “slammed” all through the year — I don’t think that is a good thing or is sustainable but we had to do what we had to do. We stretched the limits of our solo GP structure and our systems and used this spike to dramatically improve our processes. Of course, they can always get better — no pun intended :) So here’s what 2021 looked like in numbers broadly:

• We made 80 new investments and 76 follow-on investments for a total of 156 checks in 2021.
• Of the 80 new investments, 21 companies raised a follow-on round within 2021.
• Investments were spread across SaaS, Crypto/Web3, Agritech, Climatetech, Edtech, Fintech, Consumer Tech, D2C Brands, Ecommerce, Healthtech & Logistics. So we continued to be sector agnostic as before but the chart below will give you an indication of the sectors we pushed deeper on.
• We stayed laser-focused on our pre-seed/seed playbook with 46 Pre-seed deals, 32 Seed deals, and 2 Pre-Series A deals.
• 43 companies are building for India as their target market and 37 companies are building for a global target market.
• 45 B2C companies selling to consumers and 35 B2B companies selling to businesses — I was surprised that B2C came ahead but it was a reflection of the resurgence of fresh ideas in Fintech and Edtech that we continued to double down on.
• 8 out of the 80 companies had one/more women founders — this is something we track closely and while I am sure that we will continue to be in the top decile with 10% of the investments having women founders, I am somewhat disappointed and we would like to do better in 2022.
• Our portfolio is now 150 companies strong, a combined valuation of $5B+ and growing with a community of 400+ founders who are actively helping each other and I could see the network effect in action during the year on many occasions.
• Slice minted Better’s first unicorn in 2021 — more on this below.
• 5 companies are at the near-death stage and are unlikely to make it — all for different reasons, all from our 2018/2019 cohorts and I am taking away a lot of learnings from each of them to help our current and future founders.
• We signed off / recorded 6 exits in 2021 with return multiples ranging from 2X to 100X. The special thing about the 100X multiple exits was that it was recorded in 15 months and is supposedly the largest and fastest exit for the bulk of our close LPs who’ve been investing for years. Exit decisions are the hardest but we are starting to form a framework that we will explore further in 2022.
• We had 4 M&A transactions in our portfolio in 2021 and we were glad to see that 2 of these were acquisitions where a larger portfolio company our ours acquired a smaller one based on deep product and mindset fit creating a larger upside for both teams.
• We launched our maiden fund — India’s largest solo GP fund backed by truly blue-chip LPs from the US, UK, and India. More on this below.
• We continued to innovate on our capital structure and did our largest pre-seed check, our largest Seed check, and our largest Follow-on check in 2021 and we expect to continue to unlock capital to make sure our founders have deep support on the capital side across stages and mid-stages too.
• We built relationships with a wide range of global VCs and had a large number of our follow-on rounds led by global VCs. Our goal for 2022 is to expand this even more and cover all stages from Pre-seed to A/B/C/D/E rounds — making reaching a wide set of investors 10X easier for our founders.

I am very thankful to all our founders and co-investors who decided to partner or deepen the partnership with Better.

2021 in Charts

Charts put data in perspective so we always look at our year and our progression in charts — here’s a quick set of charts that capture all the action.

The ramp-up of investments made per year is most visible in this chart that tracks numbers from our start in 2018 — I can’t imagine that we can or should top this number. But who knows — it feels like we are exploring a new normal here and we’ve been very clear that we will play by the market and our independent thinking. For us, this year's pace was driven by the sheer number of talented teams that jumped into entrepreneurship having built and scaled products at larger startups.

Capital was flowing in venture like never before and we saw our fair share with a massive 76 follow-on rounds in 2021 and multiple companies who raised back-to-back rounds within the year — a big jump from 2020.

We deepened our pre-seed and seed focus this year and led the largest number of high conviction pre-product pre-seed rounds partnering with founders based on deep alignment on our views of the market and how to build for it.

SaaS and Fintech continued to be the top sectors for us in 2021 with Crypto/Web3 being the largest new sector for the year that we expect to be even larger in 2022.

Considering we are a pre-seed/seed focused fund, I wasn’t really looking at tracking unicorns or guess how long it’d take for our companies to scale to $1B but we were pleasantly surprised as Slice went past the $1B mark in 2021 — so a new chart gets added to our annual letter. We are excited about several others that will go past $1B very soon, too.

Performance

Putting all of this in a global perspective and seeing how we compare to all funds globally is the only and best way to see where you stand. We used the AngelList fund performance calculator that tracks all funds globally to see how we stack up. While calculators such as this one are far from perfect they are directionally very accurate and is a great way for fund managers to find their place :)

We have maintained our 2020 performance & are again in the 99th percentile and hope that we can continue to keep this up in 2022.

Having said that, the biggest credit for this actually goes to our stellar group of founders who are doing the real work!

India’s Largest Solo GP Fund

Since we started in 2018, we took a (at the time) non-consensus approach that capital structure should be such that it doesn’t affect the process of investing and doesn’t lay constraints that are not correlated to where the market is. Standard fund structures felt really disconnected from the current reality in venture — so I was really happy to see Roelof Botha of Sequoia Capital pen the note on The Sequoia Fund and highlight similar thoughts.

We benefitted tremendously from re-imagining capital structure for Better and were able to move fast, double down on categories within a short window, do follow-ons through B/C rounds and so much more. Not only does our capital structure scale for our style of investing, it also presents the highest quality vehicle for our LPs who have access and visibility like never before.

One outcome of this was several close and high-quality LPs requesting a blind pool — each for different reasons. So in the summer of 2021, we put together a $15.28M fund with a very small group of handpicked LPs across the US, UK, Middle East, India, and Singapore bringing stellar founders, strong operators, visionary family officers, and top-notch growth investors from the likes of Meta, Google, LinkedIn, Tiger Global, TPG, World Bank and other legendary organizations. Together, they are an unparalleled brain trust for our founders.

Sriram of MoneyControl covered our fund announcement really well in this piece and I am glad that we are making the Solo GP model stronger and stronger for others to follow — many of whom I am mentoring and advising myself.

Solo VC Vaibhav Domkundwar Raises Debut Fund Of $15.2 Million

We will continue to innovate on the capital front for the benefit of our founders as well as LPs and have several initiatives lined up for 2022.

Minting our First Unicorn 🦄

At the end of November this year, Slice announced a massive $220M round led by Tiger Global, Insight Partners, and Advent going past the coveted $1B mark and minting Better Capital’s very first unicorn.

The first one is always special but Slice is even more special. I wrote about it here.

We invested in Slice when it was pivoting to the credit card — a model I had deep conviction and belief that Slice’s past work will actually be an advantage for it to build India’s largest credit card company. But my view was clearly a non-consensus one as none of the mainstream investors backed Slice. I brainstormed on nuanced product and brand aspects with Rajan along the way and my conviction never wavered. Rajan and team continued to execute strongly and kept finding believers all the way to Tiger and Insight leading this massively oversubscribed round.

So Slice minting our very first unicorn is even more special — a clear one in the most sought-after “Non-consensus & Right” box.

I am thankful for Rajan reaching out and letting us be a small part of the Slice journey. Amit Gupta of Yulu has connected us — demonstrating yet again why our founder community is the most precious part of Better.

2021 Portfolio, Reflections & Learnings

A massive year brings massive learnings and 2021 was one of those years as it felt like all rules were being broken and the question was what was frothy and what was the new normal. Everyone reacting to it in their own way made it even more interesting and challenging at the same time. Here’s a quickfire summary:

• Our high conviction bet to invest in distribution-first product-first thinking teams proved to be the right choice as multiple portfolio companies broke away from their competitors in multiple segments purely based on the choices we made from Day 0 to laser focus on product-driven growth, stay away for hard selling, keep the faith in free first & monetization later and many smaller & larger strategies. Most importantly, we now have insights and data on this from 10s of companies which is feeding into our newer investments.
• We consolidated our pre-seed playbook and created a robust roadmap from betting at the idea stage and helping our team to launch, get to early PMF with rapid iteration, and then raise capital for scaling & building on that early PMF. The playbook and plan got better and better with each company and we are taking the Do’s and Dont’s to everyone so each team can move faster than their competitors.
• Better Edtech played out just how we imagined. I explained our Edtech 2.0 thought in the 2020 letter and why we believed the largest edtech opportunity was untouched and the early players had only scratched the surface. The Better Edtech portfolio is 28 companies strong (the bulk of it invested in the last 18 months) and 14 of them have raised follow-on funding with many of them growing at an insane clip purely driven by deep user pull. With our bets in Infra (Teachmint, Toddle, etc), K12 (Filo, Kutuki, Udayy), Cohort-based Courses powered true learning for professionals (Stoa, GrowthX, Jovian, Skill Lync) as well as employment-driven skilling (Airblack, Palash) we are really excited about what we learn as we build these companies brick by brick with strong growth and unit economics — all powered by deep product-market fit and user pull. None of our edtech companies have needed armies of feet-on-street sales teams.
• Better Fintech and our thought on consumerization of fintech delivered. After taking early bets in neobanks, we paused on fintech as we couldn’t build conviction on pure-play lending models. As we re-assessed our view, we came up with a conclusion that I exaggerated as — “there will be more fintech brands than D2C brands” — our idea was that founders with a deep understanding of a specific user base or region or vertical will create focussed fintech brands to serve those segments. Slice for millennials, Tortoise for savings-focused users, Three Dots for social investing, Rupifi for marketplace vendors, and many others successfully built strong early user cases and others grew even faster. Our bet on fintech infra continued to play out with M2P growing faster than it planned and we doubled down with new fintech infra bets in Hyperface, Inai and others.
• We picked up our lost momentum in Crypto/Web3 by making 9 new investments and doubling down on all our existing investments as they scaled and raised follow-on rounds. We have been early believers in the move towards decentralization and Better Crypto was the largest growth category for us in 2021 — we put it on the top on our homepage and are actively partnering with ecosystem players to be helpful in the early days. This will be a big focus in 2022 as we learn and deepen our view & framework.
• Helping our companies raise follow-on rounds efficiently with like-minded investors was a big part of our work in 2021. We are far from perfect on this but I am extremely happy that we have brought in a wide range of global investors into our companies and were able to find high conviction investors in unique visions we were pursuing across multiple companies. Finding vision-aligned investors continues to be the hardest in a very shallow VC ecosystem we have in India and we are taking away a lot of learnings on optimizing fundraising into 2022.
• It felt like everyone became a pre-seed fund in 2021 and while it may be good to have more money at the pre-seed stage, I believe it is really hard for a non-pre-seed investor to do pre-seed investing because pre-seed investing required a dramatically different mindset — just a smaller earlier check is not pre-seed investing. Pre-seed investing is a massive commitment to building, to imagining how to make things happen vs thinking risk-first and so much more. To add to this, founders quickly started wondering if the earlier smaller check from everyone is the same as the pre-seed check from a pre-seed focused fund like Better. Some of this confusion is likely to continue into 2022 but I think the pre-seed-only funds will continue to win this stage.
• We invested more follow-on capital than ever before across our 76 follow-on deals in 2021 but we also did larger checks than ever before — this was somewhat part of the plan but we were not prepared on the timing. Overall I am glad about the follow-on checks we did in 2021 and it has given us a lot of insights and a framework to work on and improve as we create the Better Capital Growth Fund strategy. We want to own more and more of our high-conviction pre-seed bets for as long as we can.

The Better Net+work

In addition to deep product and business-building brainstorming that I do one on one with our founders, the other biggest value adds we are constantly building at Better is our network of knowledge and networks that we can bring to our companies to help them on everything from product to growth to legal to fundraising and recruiting. The Better Net+work scaled strongly in 2021 — I crossed the 1000 (targeted & contextual) introductions milestone. I use Bridge to do these (as many of you know) and have been an early/first power user of Bridge in India ever since I invested in its early round.

In 2022, we have plans to make Net+work 10X more valuable as relevant knowledge and timely advice from Better’s deeply connected contacts continues to compound the most. We have a lot of interesting ideas and a lot of work to do here.

Thinking about 2022

I am not so great at predicting the future but here’s what we think we will do in 2022 based on the learnings from the last 4 yrs and investments in 150+ companies:

• We will double down on our pre-seed expertise and leadership and continue on our goal to be the #1 pre-seed fund focused on India. We have an even stronger pre-seed playbook now to bring to our founders and make things easier for them.
• We will double down on Crypto/Web3 with a global lens and focus on what Web2->Web3 transition may mean and entail.
• We will make Climate investing an important category in 2022 and focus on learning from our early portfolio, building a global network of like-minded climate investors, and creating a community of believers.
• We will continue to invest in Fintech with our “consumerization of fintech” point of view & double down on our fintech infra bets.
• We will stick to our SaaS investing focused on truly new and innovative products versus the nth version of workflow products. API SaaS and No Code SaaS will continue to be big areas for us. We will explore our early ideas around UIless or Headless SaaS further with pre-seed bets.
• We will invest in making the Global GTM playbook more accessible and repeatable for our founders — we only have a broad idea but we hope to build on it and make it a reality in 2022.
• We will unlock capital for larger and larger checks in our follow-on rounds and in doing so aspire to be the top choice for LPs globally who are looking to invest in India venture.

I am expanding this part of our annual letter to have a way to look back at what we thought and what we actually did.

Thank you

Early-stage investing continues to be a great founder-market fit for me and I can’t be more thankful for everyone who is a part of Better — our founders, our LPs, our co-investors, our LinkedIn and Twitter communities, our partners and so many more who have been great cheerleaders for Better and the Better portfolio. Better maybe a Solo GP fund, but it is run on the fabric of a much larger community and I hope to do a lot more in making our community an even larger part of Better in 2022. Stay tuned!