Angel investors urge Indian startups to identify growth opportunities amidst the COVID-19 crisis
Angel investors Aprameya Radhakrishna, Rohit M A, and Venk Krishnan have invested in close to 80 companies. Their key focus: startups going after the right market and entrepreneurs who are not led by narratives. The trio strongly believes that being inspired by icons is one thing and building a great business is another.
Starting up is no easy task and these investors know it, having built successful businesses themselves.
Rohit started maternity healthcare chain, which has scaled to 12 centres. Venk built NuWare, an IT Services firm, and was also the first investor in MuSigma, a unicorn, before he started angel investment platform NuVentures in 2015. One of his funded startups, , was acquired by recently.
Aprameya built TaxiForSure.com and went on to sell the business to in 2015, with a large exit of $200 million in a cash-and-stock deal. He is currently the Founder of Vokal. The trio have jointly invested in five startups together. Some of the well-known names in their portfolio include , Third Wave Roasters, and .
The three investors strongly believe that Indian millionaires and billionaires should not shy away from startups, and want the Indian ecosystem to have its own route rather than adopting an American or Chinese playbook. Speaking about why change is slow in India, the three unanimously say that the COVID-19 pandemic is the best time for a new wave of Indian startups to grow and go global.
YourStory caught up with all three investors and businessmen to find out more. Watch the video to know more:
YourStory: Tell us about the kind of startups that interest you.
Aprameya Radhakrishna: Broadly, there are different kinds. Companies that have had a good tail wind are attractive. Over the last four months, edtech has gained a lot of attention. There are also headwinds in sectors like transportation and mobility. These verticals will take some time to recover, but need to be patient. This is what I would segment in the short term.
Rohit MA: I have witnessed across sectors that sustainability is the key factor in Series A. We have started seeing this shift, and COVID-19 has only accelerated this process. Startups that are able to raise additional rounds of capital (where an angel can make an exit) and make themselves sustainable will be sought after.
Rohit MA, the Co-founder of CloudNine
Venk Krishnan: IT and Financial Services depend on the US and Europe, and will continue to do well. Technology is going to be an important factor going forward while sectors like travel have taken a massive hit. It’s clear that raising capital and valuations will be a challenge in the current environment. Only experienced and resilient founders will survive.
We have jointly invested in a brand called Geist, and Founder Narayan Manepallyhas kept his business resilient by not spending much. Startups have to ensure that they do not spend heavily on marketing and keep the current customer base intact.
YS: What does it take for a startup to be nimble and thrive before being taken seriously by an Indian corporate?
Aprameya: We had many serendipitous moments while building TaxiForSure. Coming up to its acquisition, we had done several good things. We had run a tight ship in our journey. There were two competitors in 2015, and that made the industry interesting for many investors. But, we cannot design success in a startup and cannot prepare for any unforeseen scenario.
We sold our company when the sector was hot to invest in. However, if it was during the COVID-19 situation, our position as a startup would be very different. If you have done all the right things as an entrepreneur and you know you have competition that you can acquire, merge, or consolidate, you should make the most of it.
As an entrepreneur, a lot of factors come into the picture. Your ability to make the most of the situation is key to your success. You can build a great company during turmoil, but read the market scenario well and keep your eyes open for good deals. You must figure out a way to monetise. Only edtech startups, as content creators, seem to have been doing well during the crisis.
The problem is corporates don’t come and speak about their problems that can be solved by startups. Their approach is: let us do everything ourselves. This is not good for startups.
Rohit: Policies need to give clarity to startups. In our country, regulation will always follow innovation and that is the truth. Innovation has pushed for new paradigms. However, it can only happen when policies come at the right time and have clarity.
Let us take healthcare. Till March 23, telemedicine had several regulations and was a grey area. A doctor could not prescribe through telemedicine; s/he or the institute needed to get the prescription made by a local doctor. This was a grey area till COVID-19 brought a change in the regulation. We can now consult faster with our customers. Imagine if the policy had a clear guideline in the past; innovation could move faster.
At CloudNine, we used telemedicine and brought out a product in less than a week. The COVID-19 situation will make startups move faster.
We have worked with several startups over a period of time to understand innovation. This collaboration involves sand box moments; startups are able to learn fast from us and we innovate for our customers.
In the Indian context, a lot of the established players have to unlock value with startups. We need a lot more Jios to come and acquire startups. The other thing to think about is how many startups have gone for an IPO this decade…our laws don’t allow it. Angel investors will see an exit when large companies come in and invest in a startup.
Venk: Take a look at Pocket Aces, they worked with corporate and have an original OTT content model. Aprameya and I invested in a startup called TapChief, which worked with FMCG corporate. But most of these startups are now trying to create a model where they are not dependent on one or two corporates alone.
Startups will have to innovate and sustain. Innovation in terms of sustainable revenues is the key to the success to any startup.
Venk Krishnan, the Founder of NuVentures
YS: Are we a digital colony? It seems like India is losing all its IP to global markets because our startups finally go there?
Aprameya: Out of 10 pitches that I do, nine are for foreign companies. I then ask myself whether Indian money is absent. But this is not true. There is a lot of money here but it’s not coming through. There are very few Indian funds. Our HNIs and billionaires do not do enough for startups.
Startup data reveals that they raise money from funds that take the IP built in India to other countries. Look at founders who made money; many of them do not want to invest in startups.Also, the listing norm for startups is only gaining ground now.
Venk: As many as 57 percent of Indian companies are owned by outsiders or funds. In a country like Australia or the US, the number of companies locals own can go up to 65 percent, which clearly tells you why Indian investors have to focus on investing in Indian startups. It is not that we don’t have the money. But, the concept of the unicorn has led to billions of dollars being raised without any focus on profits. Maybe this has deterred many millionaires from investing.
We have people like Nandan Nilekani, Kris Gopalakrishnan, and others who want to create an entire startup ecosystem. But, we need more to invest more.
IT Services did not need lot of capital; it was a business that generated a lot of cash. They created an ecosystem and that’s why they succeeded. That’s the sort of ecosystem that the startup world needs. Look at how Amazon made money for retail investors. It never made profits when it listed and yet it created some of the best returns for retail investors on the markets. Our laws have to change if startups have to succeed.
Rohit: Look at the amount of retail money going into public markets in India. It has grown over time, but it is still low. I believe it is only eight or nine percent. In the US, the percentage of domestic money participating in the markets is very high, probably in the high thirties.
With existing laws, startup IPOs will neither happen and nor will the public want to invest in startups. Also, the Indian investor does not have an incentive to participate in stocks like an OLA, hypothetically speaking.
There is no avenue to encourage Indian startups to get access to public money. That’s why Indian startups go abroad. They go to Singapore and the US where, in terms of starting up, access to market and listing is far easier than India. The last decade has seen so many startups go abroad.
YS: Are we victim to the California-type mindset to investing, hyper scale, and win at all costs? How can only one or two winners help grow the Indian ecosystem?
Aprameya: As students we have been told to study because we get a rank. The same thing has seeped down to the startup world. The measure of success is to go raise money. This isn’t good for the ecosystem. If people don’t build a great product, the whole empire will be built on bad fundamentals.
If we don’t put our mind and heart into solving problems, we are not going to win.
The playbook we need is to fall in love with the product. I was inspired by Makemytrip, Flipkart, and Naukri. When I started up, we never thought about fundraising. We were solving a problem and money followed. This is what young entrepreneurs should do rather than worrying about raising money and valuations.
Venk: We need to look at India-centric problems. We have to look at Indian problems in agriculture, finance, and other industries. Even in mobility, we are solving things from a western perspective. I believe this will change post-COVID.
If you look at the way we have solved problems so far, it is about who wins rather than creating lasting businesses. I am bullish on Indian ideas that solve for local problems. Starting up is not easy and founders should realise that an idea alone does not make a company. You need to go through the experience of building a great company; it is a learning curve.
Rohit: A lot of people miss the opportunity of being in the right place at the right time. When we started CloudNine, it was not VC-investable business. We created an aspirational value and showed the ample opportunity and the fact that growth could be multiplied.
In 2011, when Matrix invested in us, it was after so many interviews and after many investors saying no. It took me two years and I feel I wasted a lot of time by not having mentors. I realised that when you are starting up you need mentors who can help you to do the right thing.
In 2009, it was all me, running around, and I wasted two years to understand who the right investors were. However, I learnt what investors wanted and kept the learning to build a company. I became an investor because I wanted to ensure companies did not waste time in making the mistakes that I made.
(Edited by Teja Lele Desai)