Startup founders are now looking at very India-specific problems, says Mridul Arora, MD, SAIF Partners
In a conversation with YourStory, Mridul Arora, Managing Director, SAIF Partners, speaks about the fund’s investment thesis, philosophy, and the key investment trends.
For many years now, Mridul Arora, Managing Director, SAIF Partners, has been focussing on consumer internet business in the fintech and healthtech space. A chemical engineer from IIT Madras and an MBA from IIM Lucknow, Mridul’s key investments include the fintech platform ACKO, CapitalFloat, CoverFox, UrbanClap, Aye finance, and deeptech startup DeTect Technologies.
Speaking about his investment philosophy, Mridul says the Indian startup ecosystem today has seen a sea of change. From founders to the investment patterns, we are now part of a growing and maturing startup ecosystem.
Edited excerpts from the interview.
YourStory: What is the current investment landscape in India?
Mridul Arora: We are currently in our sixth fund in India, and have been deploying capital for almost 20 years now. What we see now is that the early-stage landscape has become more vibrant - both in terms of ideas, quality of teams, flow of activity, and deal flow. It has also been one of the most active years we’ve had in the recent past, and that’s probably reflective of the ecosystem.
Over time, we are also seeing a few trends in our portfolio and the overall market as well. I think startup founders are now looking at very India-specific problem statements. In recent times, what we see and what we get most excited about is India specific answers or solutions - like ShareChat or Meesho - both of which cater to Bharat.
Even Rivigo came up with a unique insight for India with its relay road transportation model. Swiggy also began with a logistics-first approach, and then expanded. So, what we are seeing now is an age of globally, first-of-its-kind business models based out of India, uniquely focussed on Indian problems.
YS: If you look at ShareChat or other content platforms, they face stiff competition from Chinese players, and everyone today is looking at India. How does this work?
MA: India tends to be a fairly execution heavy market. From the concept and product to on-ground ops, and efficiency, everything is about execution here.
At the end of the day, people who execute well will be the ones to survive. There will be periods of hyper competition where you could argue that the capital gets a little more inefficiently used. But you’ll have to live with those ebbs and flows.
YS: As an investor, how do you live with the ebbs and flows from a distance?
MA: As long as you believe in the team, nothing much changes. You just have to put a bet on the way they go about doing their business. And if you believe in the company you have invested in; the ebbs and flows will pass. But it is important to not compromise on the leadership, and one should also ensure they don’t compromise on the core principles of the business.
Swiggy, for example, has always been customer first. The metrics have been like - how much time do we take to deliver, and how do we handle customer experience.
Once we are convinced about the startup founder, then, over time, businesses tend to find validation. The next few quarters will be about truly establishing the business model.
YS: How do you think the startup ecosystem has evolved and changed?
MA: There has been two-to-three clear changes that can be seen over the last 18 to 24 months. For startups, the deal flow has been more vibrant. The last time we saw this kind of activity was in 2015. Apart from that, the quality of ideas and the field has consistently improved, and continues to do so year-on-year.
There’s also a clear trend that we've seen this year - a lot of people who've been founders earlier are starting their second or third ventures. This has been accelerated with Flipkart’s exit, because now people are seeing a massive liquidity and wealth being created. This gives people more courage and conviction to start.
YS: What about the supply of capital and dry powder?
MA: We are clearly seeing two trends on the supply of capital - one is on the late-stage side where there is more activity, and more funds are getting active, which is very evident.
On the early-stage, Seed, and Series A side, more funds are being set up, and most importantly, more homegrown funds are being set up, which is a very healthy sign for the ecosystem.
YS: How have startup founders evolved and changed?
MA: The Indian startup ecosystem is nearly a decade or two old. This is especially true with the blue tech startup ecosystem. In this time, a strong base of talent pool has been created within the industry. There are many people who have been exposed to great ideas. This, in turn, makes them a great talent resource.
Also, a lot of people who are starting up now have been exposed to the startup world in some shape or form. They’ve either studied abroad and worked in a startup there, or have worked in a startup in India, or actually started up over here.
So, as you experience, evolve, and mature within the ecosystem, the quality of insights - not just about the business, but how to build a team, how to build an organisation, the challenges, etc., increases.
Apart from this, founders today are looking for a niche and more India-specific solutions. It’s not like let’s create an X of Y that exists in the US. The quality of ideas and the depth of thinking has become more diverse.
Investors must be comfortable with lack of control over the money they invest: Alok Goyal of St...
YS: What are some of the parameters you look at before investing in startups?
MA: I don’t think we pick and choose. It is the founders who pick and choose. It’s a privilege for us to partner with whoever chooses to partner with us.
But then, there are a few things you look at when you want to partner with a potential founder or startup. One is the opportunity landscape and the macro-effect. We spend a fair amount of time thinking about the industry, sectors, sub sectors, and where the opportunities could be, and how can we think and hypothesise about the segment.
From a founder's perspective, it is the usual heuristics which will cut across sectors - What do you bring to the table? Do you bring in a certain level of aggression and hustle because startup building is tough? It’s a long journey. But again, it all boils down to what is that unique insight that you bring to the table.
Some of that comes because you have worked in the industry for a long time and seen the inefficiencies in that particular industry., and some of it actually happens because you’ve been an outsider, and you just happen to have chanced upon an opportunity.
In addition to this, one should have the attributes that have worked over time. For founders, it is in their ability to build a team, to be aggressive in their ability to be obsessive about customers, and it is also about having an insight.
YS: What would be your advice to founders?
MA: What I have realised over time is that the quality of cap table that you create matters a lot. It is also about the quality of relationship, and whom you’re going to work with.
My advice to founders is to do enough homework and reference checks to figure out which institution you want to partner with, what is their DNA and culture.
For example, at SAIF, we stand for deep conviction of the founders and investors who invest early, but also invest in late. It is important to understand which are the two sets of investors you want to partner with, and how deeply convinced are they. Because there will be good times as well as bad times, and none of the journeys are linear.
It is not just how do they treat capital, but how they treat that relation. We are very particular about not doing competing investments. You should do enough research to understand whether you are one of the many bets, or the bet itself.
While in the early stages it is reasonably sit-tight, it is also important to raise funding appropriately. If you raise too less, you are always running a treadmill to raise, and some people are very dilution centric. If they raise too much, the supply of capital creates its own demand.
You have to make sure you have enough to fight the competition, and you have to ensure it’s the right stage. A lot of this is opportunistic and it’s a tricky balance to find what is right.
(Edited by Megha Reddy)