Ohen it comes to investing, Yagnesh Sanghrajka seeks rigidity. “It must have a unique value proposition,” said the co-founder and chief financial officer of 100X.VC, a start-up investment fund. The venture capitalist describes the distinctive trading style of 100X.VC, which was co-founded by Sanjay Mehta, Ninad Karpe, Shashank Randev, Vatsal Kanakiya and Sanghrajka in 2019. “Everyone has to find the sticky product,” he says . , giving the example of BuildNext.
Launched by Gopikrishnan V and Finaz Naha in 2015, the Kochi-based tech-enabled homebuilder offers a battery of solutions ranging from visualization, estimating, product selection, sourcing, budget control and tracking consumer projects. BuildNext, Sanghrajka points out, leads to a higher level of transparency and reduces cost and time overruns in the construction of buildings. But for a fund that cuts a standard ₹1.25 crore check for future 15% stake in startups and also happens to be an early institutional investor, what was so tacky and compelling about BuildNext, which already had donors? “It’s Pidilite,” he smiles.
It was a sharp brief at 100X.VC. Pidilite, the makers of the adhesive brand Fevicol, wanted to inject venture capital funds into startups with an innovative business model. Interestingly, BuildNext’s offering and segment it operated in had a strong overlap with Pidilite. “We knew Pidilite’s products would make sense for these kinds of businesses,” says Sanghrajka, who did the first round of screening, evaluation, preliminary discussions with the startup’s founders to gauge their interest, and then brought interested parties together. What followed next was a $3.5 million pre-Series A investment by Pidilite in July of this year.
100X.VC had more in store for corporate venture capital from Pidilite. Kaarwan, a learning and development platform for architects and designers, has been spotted as another investment opportunity. Another company that caught the eye of the venture capital fund was Finemake, an online platform for choosing, customizing and booking modular kitchen, cabinet and TV designs. The collaboration between a large company and a venture capital fund, Sanghrajka points out, is a unique experience in a country where traditional brick-and-mortar players have increased their exposure to exploit the innovative products and services of startups. In fact, Pidilite itself has had a bunch of such investments, which includes funding in HomeLane and Livspace.
The early-stage venture capital fund is stepping up its game by adding entrepreneurial levers to its strategy. The idea is simple. India Inc is feverishly looking for disruptive startups that can help traditional businesses tap into unexplored opportunities in the past few years. Pushing the acquisition button obviously makes sense for large companies that can quickly add value by acquiring nimble startups. “We are a unique bridge between a company and a seed fund,” says Sanghrajka, adding that 100X.VC is well positioned to hold companies.
The seasoned venture capitalist points to the twin benefits his fund offers. First, being an early-stage investment company, 100X.VC has more skin in the game. This means broad and deep exposure to the talent pool. It also means an opportunity to make an early entry into the journey of a startup that has yet to climb the valuation ladder. “We are not advisers. We don’t make money on transaction fees,” he says, referring to corporate partnerships. “Our only revenue model is output,” Sanghrajka points out. Once it’s a business, it hints, takes a significant minority and builds it slowly, a roll-up at some point isn’t out of the question. Secondly, 100X.VC not only acts as a matchmaker but also performs portfolio review, monitoring and management even after a company has made an investment. “It’s an ongoing commitment, and we know the long-term value,” he adds.
Meanwhile, in the short term – over the past few years to be precise – the seed investing ecosystem has exploded in India. It went from $5.1 billion in 2019 to $8.7 billion in 2021. While during the Covid year the numbers declined ($3.6 billion in 2020), they rebounded strongly the following year, and maintained the pace in the first three quarters of this year, posting $7 billion. Sanghrajka sees no reason for the strong influx of funding to diminish over the next few years. “Winter funding hasn’t impacted start-up investments,” he says.
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It is not difficult to understand why the early stage ecosystem survived the winter cold. A pre-seed, seed, Pre-Series-A startup is at stage 0 to 1 of its journey. This is a phase where the founder will continue to experiment, explore, pivot to find product-market fit, growth and revenue. Silver at this point acts like oxygen rather than rocket fuel. So there is no jostling between VCs to get into a startup. Even at an advanced stage, funding is not an issue. “Money is always available for the smartest guys,” Sanghrajka claims. Most good companies, he adds, were born out of the recession. If the founder is disciplined in the use of capital, hasn’t let unit metrics stray, and has played until the valuation he has achieved, then raising funds is not a problem. “There’s no fear of missing something (FOMO),” he says.
Interestingly, FOMO is also widely visible in the early stage. This helps maintain a healthy, sober and rational assessment. Funding winter, Sanghrajka explains, is for growth-stage startups that secured funding at a gimmicky, meteoric valuation last year, and can no longer get money at the same insane multiples. “Forget the cold. It’s hot and the sun is shining brightly for early-stage startups,” he says.
But can too much sun also cause problems? Well, the seed funding ecosystem has not only been hyper-crowded over the past few years, but it has also seen a wave of angels giving institutional VCs a run for their money. “Angels have definitely gotten bolder and are writing big checks,” Sanghrajka acknowledges, adding that founders have easy access to capital and don’t have to rely on VCs as their sole source of money. However, he is quick to add that he is not in competition with the angels. “We’re competing with bigger boys writing smaller checks,” he adds.
What could be the flip side? With angels, early-stage VCs, and a bunch of big boys — early-stage backers are also getting into early-stage investing — looking for early-stage founders or sometimes serial founders, what does this mean for funds like 100X.VC? Sanghrajka highlights the biggest challenge. “A lot of guys at the start of their career will face credibility issues,” he points out, explaining his point.
There are two types of businesses: venture-backed businesses and lifestyle businesses. The latter may look attractive in terms of unit economics but lacks scale. “So those aren’t the companies where VCs would put money,” he says. The problem arises when an investor cannot tell the difference between these two types of businesses and becomes too enamored with lifestyle ones. And when that happens, output becomes a problem. The second problem comes from the side of the founders. With “all the angels descending to earth” – as one of the VCs dug at the alarming rate at which everyone turns into angels and writes checks – the founders will realize that the devil lies in the details.
Handing over too many angels will not be an easy task. “Also, the early stage is no longer a matter of capital,” says Sanghrajka. “That’s why funds like 100X.VC come into the picture,” he adds, noting that regardless of funding dynamics, the nature of business will never change. His unique advice to all budding founders is this: Understand the numbers. “I’ve seen a lot of brilliant guys when it comes to product and technology,” he says, alluding to his interaction with thousands of founders at VC presentations.
Although most are promising, they lack a crucial aspect, namely understanding finances, cash flow and consumption. “Housewives know their math,” he concludes.
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(This story appears in the November 18, 2022 issue of Forbes India. To visit our archive, click here.)
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