When it comes to investing, Yagnesh Sanghrajka hunts for stickiness. “It has to have a unique value proposition,” said the co-founder and chief financial officer of 100X.VC, an early-stage investment fund. The venture capitalist outlines the typical style of deal-making done by 100X.VC, which was founded together by Sanjay Mehta, Ninad Karpe, Shashank Randev, Vatsal Kanakiya and Sanghrajka in 2019. “Everyone should find a close product,” he said. , dishing out examples of BuildNext.
Started by Gopikrishnan V and Finaz Naha in 2015, the Kochi-based technology-enabled home builder offers a battery of solutions ranging from visualization, estimating, product selection, procurement, budget control and project tracking to customers. BuildNext, Sanghrajka emphasized, leads to a higher level of transparency, and reduces cost and time overshoots in building construction. But for a fund that cut a standard check of ₹1.25 crore for 15 per cent future equity in a startup and also became the first institutional investor, what is close to interesting about BuildNext, which already has a search engine? “This is Pidilite,” he smiled.
This short points to 100X.VC. Pidilite, which makes the Fevicol brand of adhesive, is eager to pump corporate venture funds into startups with innovative business models. The offering and the BuildNext segment in which it operates interestingly have a strong overlap with Pidilite. “We knew that the Pidilite product would make sense for this kind of business,” said Sanghrajka, who conducted initial screening, evaluation, initial talks with startup founders to gauge their interest and then connect interested parties. What followed next was a Pre-Series A investment of $3.5 million by Pidilite in July this year.
100X.VC has more for Pidilite company venture capital. Kaarwan, a learning and upskilling platform for architects and designers, is seen as another investment opportunity. Another venture to attract the attention of VC funding is Finemake, an online platform for choosing, customizing and designing books for modular kitchens, wardrobes and TV units. The collaboration between large companies and venture funds, Sanghrajka stressed, is a unique experiment in a country where traditional brick and mortar players have increased exposure to tap into innovative products and services for startups. In fact, Pidilite itself has many such investments, including funding in HomeLane and Livspace.
Early-stage VC funds are upping their game by adding corporate levers to their strategies. The idea is simple. India Inc is feverishly scouting for disruptive startups that can help traditional companies tap into unexplored opportunities for the past few years. Hitting the acquisition button obviously makes sense for large companies that can quickly add value by acquiring nimble startups. “We are a unique bridge between companies and startup funds,” Sanghrajka said, adding that 100X.VC is well placed for handhold corporations.
Experienced venture capitalists point out the twin benefits that their funds offer. First, as an early-stage investment firm, 100X.VC has more skin in the game. What this means is broad and deep exposure to the talent pool. What it also means is the opportunity to make an initial entry into the journey of a startup that has yet to climb the valuation ladder. “We are not advisers. We do not earn money from transaction fees,” he said, indicating a partnership with the corporation. “Our only revenue model is exit,” Sanghrajka stressed. build it up, roll-up in several stages is not ruled out. Second, 100X.VC not only play matchmaker, but also portfolio review, monitoring and management even after a company has made an investment. “It is a non-stop engagement, and we know the long-term value,” he added.
Meanwhile, in the short term – in the last few years to be precise – the early stage investment ecosystem has exploded in India. It jumped from $5.1 billion in 2019 to $8.7 billion in 2021. While in the year of Covid the amount shrank ($3.6 billion in 2020), they bounced back in the following year, and kept the tempo in the first three quarters of this year by posting $7 billion. Sanghrajka sees reason for strong fund inflows to dip in the next few years. “Winter funding does not affect early-stage investments,” he said.
It is not difficult to understand why early-stage ecosystems survive the winter. A startup in pre-seed, seed, Pre-Series-A is in the 0 to 1 stage of its journey. This is the phase when the founder will keep experimenting, exploring, pivoting to find product-market fit, growth and revenue. Money at this stage acts as oxygen rather than rocket fuel. So there is no scramble among VCs to get into the startup. Even when it comes to the final stage, the cost is not a problem. “Money is always available to smarter people,” Sanghrajka said. Most good companies, he added, were born out of recession. If the founder is disciplined in the use of capital, does not leave metric units, and has played on the valuation that has, then raising funds is not a problem. “There’s no fear of missing out (FOMO),” he says.
Interestingly, FOMO is generally seen in the early stages as well. What this is is to keep the valuation sane, sober and rational. Winter financing, Sanghrajka explained, is for growth-stage startups that picked up funding at a luxurious and sky-rocketing valuation last year, and now can’t get money at the same crazy multiples. “Forget the silence. It was warm and the sun was shining bright to start the early stages,” he said.
But can too much sunlight also cause problems? Well, the early-stage funding ecosystem has not only been disrupted in the past few years, but has also seen a wave of angels giving institutional VCs a tough time. “The angels are definitely getting bolder and cutting big checks,” Sanghrajka said, adding that founders have easy access to capital and don’t have to rely on VCs as their only source of money. He, though, is quick to add that he’s not competing with angels. “We’re competing with the bigger kids who cut smaller checks,” he added.
What could be the flip side? With angels, early-stage VCs and a bunch of big boys—late-stage funders also becoming early-stage investors—chasing rookie founders or sometimes serial founders, what does a fund like 100X.VC mean? Sanghrajka pointed out the biggest challenge. “Many early-stage kids will face credibility issues,” he stressed, explaining his point.
There are two types of businesses: VC-funded businesses and lifestyle businesses. The latter may look attractive in terms of unit economics but lack scale. “So this is not a business where VCs are going to put money,” he says. The problem arises when investors cannot distinguish between these two types of businesses and are too interested in lifestyle. And when this happens, getting out becomes a problem. The second problem is from the founder’s side. With ‘all the angels falling to earth’—as one VC digs into the alarming rate at which people are turning angels and cutting checks—founders will realize that the devil lies in the details.
Surrendering too many angels will not be an easy task. “Furthermore, early stage is not so much about capital,” Sanghrajka said. “That’s why funds like 100X.VC are in the picture,” he added, stressing that regardless of the dynamics of the fund, the nature of the business will never change. His one-point advice to all budding founders is: Understand numbers. “I’ve seen a hell of a lot of brilliant products and tech guys,” he says, alluding to his interactions with thousands of founders during VC pitches.
Although most of them are promising, they lack in one important aspect, which is to understand finances, cash flow and burn. “Homemakers know their math,” he points out.
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(This story appeared in the November 18, 2022 issue of Forbes India. To visit our Archives, Click here.)