Better Capital: 2023 Annual Letter

Welcome to our 2023 annual letter. Our annual letters are a way for us to capture our thoughts, ideas, and learnings today to be able to reflect on them later — so these are written for us internally at Better but published openly to keep us honest!

2023 was a hard year as expected but I am glad that we were largely successful at those hard things and are ending the year with strong foundations across most of the portfolio — with a clear and realistic plan for 2024.

BFF (Better Founders Forum) Annual, our annual gathering of portfolio founders, was bigger & buzzier this year and these pictures capture some of the action :)

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

Overall Fund Summary

After our initial test years of 2018 and 2019, we scaled the Better Capital platform in 2020 and have effectively completed 4 years. Here’s what our overall fund summary looks like as of December 2023:

• Here’s how we are set up:
  - Solo GP Fund
  - Productized systems for all workflows
  - Fund Administrators: Carta, Angellist
  - Legal & Transactions: Assure Global, AngelList
  - Fractional CFO: Clarity
• Here’s where our AUM stands right now:
  - $100M approximately
  - Founding Stage Capital (Funds, Private SPVs) is most of AUM
  - Continuity Capital (Private SPVs) is a smaller portion of AUM
  - Majority of AUM is from a small group of long-term dedicated LPs
  - We expect to keep our LP base small & tight
• Here’s what our portfolio looks like right now:
  - Total investments: 225+
  - Percentage of cos who’ve raised marked-up follow-on: 75%+
  - Unicorns: 2
  - $500M+ companies: 5
  - $100M — $500M companies: 14
  - $50M — $100M companies: 23
  - 8 companies have been successfully acquired.
  - 11 companies have shut down & returned capital (0.2X to 0.9X)
  - 6 companies have shut down with full loss of capital.
• Here’s a snapshot of our DPI IRR right now:
  - IRR on DPI is the ultimate measure of performance and while we are too early to showcase DPI (usually takes 8+ years), here is a snapshot of early DPI that has been distributed. It's a small percentage of our AUM.
  - Full Exit — ConsumerTech Co: 151.7% Gross IRR
  - Full Exit — ConsumerTech Co: 11.32% Gross IRR
  - Partial Exit — Edtech: 41.26% Gross IRR
  - Partial Exit — Fintech: 227.38% Gross IRR
  - Partial Exit — Edtech: 5.28% Gross IRR
  - Partial Exit — India B2B & Infra: 62.48% Gross IRR
  - Partial Exit — SaaS: 424.62% Gross IRR
  - Partial Exit — SaaS: 3723.68% Gross IRR
  - Partial Exit — SaaS: 88.66% Gross IRR
  - Partial Exit — AgriTech: 18X+ Multiple (in process)

We continue to proactively note our holdings that went down fighting and its available front and center on our website here — it is to ensure we don’t forget to celebrate those whose efforts were equally genuine but things did not work out for one reason or another. Many of these founders are/will go back to building again and remain closest to us as we brainstorm new ideas with them.

** all numbers above and below are rounded/approximated for simplicity.

2023 in Numbers, Charts & Highlights

It was a fulfilling year with a lot of hard work and thankfully with outcomes of some of that hard work delivered within the same calendar year.

• 16 new investments
• 7 Pre-seed, 9 Seed — all founding stage rounds led by conviction.
• 37 stellar follow-on rounds that brought in high-conviction capital.
• Slice scored a banking license from RBI & we couldn’t be more excited for what lies ahead.
• Multiple companies reached profitability with many more on a clear path to it over the next 2–3 quarters.
• Our founders kicked off Indiglo — a program we believe will help our companies tackle US GTM much better to truly build US-native companies.
• We added expert services to our platform via our Nichebusters program — Fractional CFO to Transactions Support to Security Consulting and more.

Let us see how these stacked up year-on-year →

We made 16 new investments in 2023 — and 2 of them raised a follow-on round within the year.

These 16 were split into 7 Pre-seed investments that we let and 9 Seed investments that we participated in — all of them being founding stage rounds which is our laser focus.

Here’s the bifurcation by verticals — more on this below.

As you will read below, the vast majority of our time in 2023 was dedicated to working internally on our portfolio and one of the priorities was to ensure follow-on capital into our companies where it was a crucial need or where the progress was strong and capital was needed to double down. Against a really hard fundraising environment locally and globally, we are proud to share that 37 of our portfolio companies raised follow-on rounds: these include over-subscribed rounds led by stellar investors as well as bridge rounds. But all of them brought in highly valuable capital and most importantly, high-conviction investor partners to our cap tables.

Our unicorn chart has remained static, as expected :)

We also had the first case of misreporting of numbers and the company is now being shut down with the remaining capital being will be returned to the investors. This was deeply disappointing to us and has led us to think about ways to protect ourselves from being in such situations.

2023 Core Theme: Don’t Die → Default Alive

As a founder, I lived through the DotCom Bust of 2001, the GFC of 2008, and the entire 2000s decade which was probably the hardest decade for entrepreneurship in the recent past.

So when the 2022 bear market hit, we did not panic — we felt that if we can consistently convey to our portfolio “what this might end up being if it gets bad” then that consistent reminder will create a foundation to make sure we make the right decisions as we navigate. We said this in our 2022 Annual Letter and 2023 was simply an extension to implement what we called the “Don’t Die → Default Alive” strategy across the portfolio.

The “Don’t Die” is probably the least understood concept because it is not just about running out of money — you could have 4 years of runway and “still be dead”.

The definition of “Don’t Die” that we focused on was to ensure we have a “real business” at the core that we could re-underwrite as a team, irrespective of the scale, to eventually build a large profitable business. This is all that we focused on. It was not easy by any means to align everyone to re-think everything and re-underwrite a potentially different trajectory. It meant founders had to ask themselves if they truly loved what they were doing, if they were truly in it for the long term, and if they had it in them to stay the course in an unpredictable next 24 months.

We were glad to see that the vast majority of our portfolio founders aligned to this throughout 2024 — some did it faster than others, some had much harder decisions to execute than others, and some went through a lot of back and forth to re-consolidate their conviction and more. I am glad to have the relationship that I have with our founders because this process is supremely hard and it involved a lot of hard discussions, begging, pleading, screaming, and more :)

The outcome was overwhelmingly positive — “Burn reduced”, “Profitable last month”, “Default alive status reached” and such were the subject lines over the past few months. I am glad to share that we are either at that destination or close to it across most of our portfolio and 2024 will squarely be about seeking the status of “Profitable & High Leverage”.

At the center of all of this work was rigorous financial reporting, tracking, and modeling and our push to get a Fractional CFO for the last 18+ months was a huge factor in founders realizing the immense value of making their comprehensive financials the only truth about their business and how a Fractional CFO of high caliber is the only solution to get it right. You can’t argue with numbers :) and it became the easiest common ground for everyone to align and commit to the “Don’t Die → Default Alive” plan.

Indiglo

The majority of our portfolio is made of companies that sell to global markets with the United States being the primary market. The biggest challenge across these portfolio companies has been about scaling their sales in the US once they establish the core product PMF and get to paying customers in India, Asia, and early ones in the US.

I’ve personally sold to enterprises in multiple global markets and feel confident of doing it over and over again because I have developed the core DNA over the past two and half decades. But, we saw our founders struggling to make a significant dent despite a lot of hard and high-intent efforts. This has been bothering us for well over 3 years — we tried a lot of things we could think of but nothing worked.

Finally, I figured the solution is likely not the effort but the environment. I had built my sales DNA because I was a local in the market I served and I understood all the nuances of my buyers. Being a local in the US was the “environment” solution in my mind and it would allow us to build truly US-native companies because we had the rest largely figured out and sales was the last unsolved problem.

The environment solution turned out to be this: our founders pool in to rent a house/office in the Silicon Valley epicenters of Palo Alto and San Francisco and create an environment where they can switch between being in the US and India without much thought allowing them to spend significant time in their target markets and allow them to “become locals” and let serendipity happen to them — which doesn’t happen when they make “trips the US” and squeeze everything within a short time and expect it will produce an outcome — it doesn’t.

We now have 2 Indiglo pads: 1 in San Franciso in SOMA and 1 in Palo Alto off of University Avenue. We will have more in Silicon Valley and NYC over the next 12–24 months as the early feedback from founders has been incredibly powerful.

Indiglo has been an important solution to one of the most critical problems I’ve focused on solving and am excited with the early results.

This post I wrote about Indiglo covers more.

Zero

6 years ago we picked up founding stage pre-seed as our “main thing” and scaled it one step at a time in our unique way.

With nuanced data of experiences across 200+ companies, it feels like we are ready to expand our main thing with an adjacency we call “Zero” which will be designed to redefine the pre-founding stage work to maximize success — easier said than done but it is the most exciting next project at Better.

If all goes right, we will have more to share over 2024 on what we tried, what worked, and if “Zero” can truly become an important program at Better for the next decade.

2023 Summary, Reflection & Learning

2023 was 80 hours weeks and heads-down internally focused, in a nutshell. We do not have deployment pressure or other such things so we were able to realign our time and efforts to focus on the most important problem that mattered to us as a fund and to our portfolio — make the best possible decisions, get to default-alive status and re-define the plan for the new normal.

• We doubled down on our early lead in AI and made a lot of progress across multiple companies in our portfolio which is further sharpening our thinking on where the opportunities may lie and how we will continue to invest in AI in 2024 and beyond. Merlin went from 0 to 1,000,000+ downloads in AI months making it one of the top AI apps in the world. Contlo’s SuperAGI went from 0 to 2000+ stars on GitHub within days and got attention from global builders & investors. Both companies raised strong rounds from US funds. Several others in our AI portfolio have made great progress in 2023.
• “Brutal Realism” was the central theme for me as we did our work in 2023 and a lot of it revolved around strongly establishing what doesn’t work, clearly seeing conclusions that are evident across sectors after millions/billions spent over the past 5–10 years and ensuring we don’t commit the same mistakes “because we are smarter than them”. I wrote a piece for each sector that you can skim at the links below:
  - Incredible India Opportunity… wait a second! LinkedIn | Twitter
  - The Great India SaaS Opportunity Mirage. LinkedIn | Twitter
  - India ConsumerTech Pain. LinkedIn | Twitter
  - Puzzling India and Cross-border B2B. LinkedIn | Twitter
  - India ClimateTech is a 10,000-piece jigsaw puzzle. LinkedIn | Twitter
  - AgriTech is a full-stack problem. LinkedIn | Twitter
  - India Fintech is dead. Long live India Fintech. LinkedIn | Twitter
  - For Edtech, the offline conundrum is real. LinkedIn | Twitter
  - Healthtech in India is likely a 15-year journey. LinkedIn | Twitter
• We stuck to a stricter entry pricing band in 2023 and were able to ensure this across all of our investments. In many cases, we were able to collaborate with founders to figure out the valuation that was right rather than simply high or low.
• An important learning that came out of all the work in 2023 was that when you underwrite a founding team for their grit, intelligence, and commitment, you implicitly underwrite them for “wisdom” too — and that is a problem. Wisdom, even to the smartest, comes from experience and we saw this issue as we navigated tons of hard conversations in 2023. Recognizing this was a big thing for me — finding a solution is the next step. Once founders understand that they need to “seek wisdom” our biggest hurdle is cleared. After that, it is breaking down the problem and figuring out the sources of wisdom for specific sets of problems. A Fractional CFO to a proactively designed Board of Advisors are some examples of solutions we explored and this will be a big part of our work in 2024.
• Another equally critical learning was how the quality, size & playbook of a follow-on investor changes the trajectory of a company that we are at from the founding stage. Over the last few years, we saw this in action in various forms across our companies and we also witnessed how different investors reacted to the ups and downs. Investors will always be required to optimize for their fund and rightfully so — but this is something founders rarely take into consideration when they raise follow-on rounds: fund size of an investor will define how they’d like to navigate the company, position & level of a specific partner at their firm can affect you vastly differently, what outcome an investor underwrites when they come in might be more important than anything else and so much more — this is a vast topic and we have incredible data on this. The conclusion for us is simple: we take this super seriously now & will equip our founders with all facts and observations from 500+ follow-on rounds we’ve seen closely so they can make the best decision for themselves.
• We never believed in platform services but recognized the need for a shared services offering to make sure our portfolio founders are not reinventing the wheel. We did some early experiments and then created a program called Nichebusters — creating/aggregating boutique services companies by partnering with passionate craftsmen. We either incubated or advised or simply supported and the first set of Nichebusters were live and kicking in 2023: WittyPen is a content services firm, Clarity is a Fractional CFO firm, Buzz is a security consulting firm, AssureGlobal is a startup transactions-focused firm with deep expertise for local and global transactions, Otherwise is a modern AI-enabled software services firm, AVA is an accounting firm. Through Nichebusters, our founders get access to experts & believe this will be a crucial value-added for them going forward.
• We definitively concluded that pure content plays in India are not our cup of tea, we continued to stay away from the D2C brands space, we did not see enough to build conviction in the pure play B2B commerce space, and we stepped away from Crypto after things stayed negative and slow through the year, and overall we have designed our India-focused bets to be such that we are either part of the transaction or super close to the transaction. Additionally, we have concluded that our healthtech bets will have to build slowly over a longer period than we had earlier anticipated.
• We continue to remain excited about our focus on infrastructure bets in India across verticals and have learnings that are helping us sharpen our thinking and pick new bets with stronger conviction than before.
• We saw great progress made by our Agritech and Climate companies in 2023 — the problems are real, the solutions are clear and the hype & noise going away helped these companies to hire better talent, focus inwards, and create a robust roadmap to potentially build IPO-able companies in the years to come.
• We were vocal about our concern about costs and maintained our position that similar outcomes can be delivered by companies at far lower costs basis — we had to maintain this for a while and eventually were able to make the majority of our teams see it clearly and make changes to fix their cost basis. We expect this to continue into 20204 but the clarity has set in.
• Fundraising was extremely hard in 2023, and again we had to ensure we were able to speak with a larger cohort of investors globally to find those with conviction in our view of the world in many companies. We tapped every resource we had access to and raised strong follow-on rounds including over-subscribed rounds in multiple companies — quality is everything and ensuring your access to a wider & global pool of investors remains key.
• All our systems at Better Capital continued to scale well in 2023 from Credits to Better+ and more. We saw a dip in our capital pools, as expected, but were still able to navigate and raise most of the rounds we intended to raise to add more capital to our companies.

Overall, we remain super excited & long on India and long on Indian founders building globally relevant companies over this decade & next.

Navigating 2024

We are going into 2024 with a simple and clear plan, and with a strong foundation in place in most companies — and with founding teams who have re-underwritten their conviction in their vision. I couldn’t be happier because this ensures the distractionless execution.

• First & foremost, most companies want to get to clear and consistent profitability so they are on an infinite runway and can define how they want to grow based on a realistic plan to get to their ultimate destination. This won’t be easy and there will be tradeoffs of growth vs profitability to be considered, but most founders are more clear about this than ever before. Portfolio work will continue to remain the highest priority in 2024.
• Strict financial discipline has shown to be the biggest needle mover at companies that improved on all fronts the fastest and we hope to help all our companies ensure this in 2024, proactively.
• We intend to focus a lot on solving for US GTM and US revenue growth across a big chunk of our companies. With Indiglo in place, we will shift our focus to figuring customer introductions at scale, hiring the right leadership talent that has executed the stage playbook multiple times, and overall figuring out how US sales don’t remain a handicap.
• Leaving aside the hype and noise, we believe AI will change the game across many segments. We are actively learning from our portfolio companies who are doing cutting-edge work and intend to double down with nuanced insights on existing as well as new investments.
• In India, our portfolio now includes leaders across all verticals including Fintech (Slice, M2P), AgriTech (Jai Kisan, Eeki and Vegrow), Climate (Yulu, Solar Square), Edtech (Toddle, Filo, Teachmint), Healthtech (Even, Inito), ConsumerTech (Kutumb, Eloelo), Gaming (Stan, Supergaming) and B2B (ShopKirana, Mekr, Ximkart) — we expect many of these leaders to reach critical milestones in 2024 and these will help us guide the next cohort with the correct insights. We are looking to host vertical-specific dinners in 2024 to ensure faster cross-pollination of insights.
• As a result, we aren’t seeing dramatically large new white spaces that are left in the “building for India” bucket right now (for now) and we want to wait and learn from all our portcos who are actively building to understand where to focus next. We suspect it will be a slow 2024 for new India market-focused bets. We will mainly look at existing GDP pools within different segments in India and explore if there are unfair advantages that new companies can leverage.
• Our Vertical SaaS portfolio made good progress in the past year and we believe 2024 will be an important year of execution for many of them to double down on their early success and become high-quality businesses.
• We continue to have strong global investor inbound interest in our portfolio as Seed to Series B/C funds are looking for high-quality companies to pick and they are keenly tracking and meeting our companies. We expect to further strengthen our follow-on fundraising process, relationships, and model in 2024 so we can bring predictability and optionality to our portfolio founders when they go out to raise next.

Thank you!

Gratitude continues to be the only word that comes to my mind when I look back at the six years since we started Better Capital and I am thankful to all our founders for the incredible opportunity they’ve given us to be part of their mission-driven journey. There is nothing more fun than working with India’s Top 0.1% talent to build a new generation of companies. And, I continue to be thankful to our entire community — from our LPs to partners to service providers to the ecosystem and more — we are building lifetime relationships!

Thank you & Happy Holidays from all of us at Better, and from this awesome group of builders!