[YS Learn] What Ankur Bansal of BlackSoil Capital expects out of a funding pitch
With over Rs 1,600 crore across over 90 transactions and over 40 exits, BlackSoil is a new-age venture debt platform, which is focussed on structured and real estate debt.
Founded in 2016 by MP Bansal and Ankur Bansal, the venture debt firm has already provided over Rs 820 crore across 65 growth and VC-backed companies, with several of them being potential future market leaders in their respective space.
Some of them include Oyo Rooms, Koye Pharma, Zetwerks, Purplle, EarlySalary, BTI Payments, Chumbak, HomeLane, LetsTransport, Vogo, Industrybuying, Rentomojo, Securens Systems, Airworks, Brinton Pharma, etc.
In a conversation with YourStory, Ankur explains what he looks for in startups and founders, and the key things he looks for in a pitch.
Prior to co-founding BlackSoil, Ankur was with JP Morgan, where he led and successfully managed deals such as JSW Energy IPO, Persistent Systems IPO, and Axis Bank, among others. He has also been associated with the CitiGroup, where he had completed over two dozen capital market transactions.
Edited excerpts from the interview:
YourStory (YS): What are you looking for in startups and their teams?
Ankur Bansal (AB): Startups face constant disruptions and evolution in their lifetime. Hence, it is important for them to adjust to changes and survive in a short and intense cycle. Due to this, they need to be aware of their business environment and be nimble enough to make these changes quickly and efficiently. Efficient communication is extremely important as well.
The pandemic was a great test of leadership for the startup ecosystem. Businesses that were negatively affected had to re-evaluate and re-engineer their business models. It showed how vital it is for a startup team to be able to take tough short term decisions for the long term survival of their business.
Founders have also realised the importance of cash as an oxygen for their business. Going forward, they would be more careful while managing collections, burn, runway and the importance of being capital efficient. To summarise, pre-COVID and now, the major traits remain the same – the ability of the teams to quickly adapt to the changing business environment and effective communication.
YS: What sectors does BlackSoil invest in?
AB: BlackSoil is a sector agnostic fund. Till date we have invested in sectors like D2C, B2B, logistics, healthcare, edtech, SaaS, ecommerce, pharma, etc. We always prefer investing in companies with good fundamentals, low burn, promising future, and preferably in sectors that are ripe for disruption.
The COVID-19 pandemic has given a lot impetus to sectors like the healthcare, logistics, and agritech, amongst others, and we closed deals in these spaces recently, and continue to track the same. The hospitality sector saw a major blow during the lockdown, and even now restaurants are finding it difficult to sustain costs as revenues are still low.
Healthtech is expected to show some growth from now on as people become more conscious about their well-being. The problems faced by logistic companies during the lockdown have shown the importance of startups that are trying to make the whole process efficient by deploying advanced technologies.
YS: What qualities do you look for in founders?
AB: Founders need to be positive as well as pragmatic about their ideas. They need to be self-aware, and know about realities and weaknesses surrounding their particular business segment or business model. Over optimism can lead to one ignoring faults in their business rather than work on to improve them and would ultimately lead to failure. Similar is the case when one undermines their own competition.
Founders need to have great people management skills, in terms of hiring the right mix of employees and efficiently handling investors, creditors, and other stakeholders. They should be frugal and efficient while managing capital, especially during these tough times, and focus on runway and profitability without sacrificing growth.
Communication and leadership skills are critical traits for any successful entrepreneur. The COVID situation has tested all entrepreneurs and how they reacted or have taken advantage of this phase is important to monitor for investors these days.
YS: What are the key things you look at in a pitch?
AB: The first thing any investor will look for in a pitch is the problem the startup is trying to solve, and how they are going about it backed by data / metrics / KPIs, etc. The pitch should clearly highlight the pedigree of the founders and the management team, as well as existing investors. This helps in building trust with regard to the possibility of achieving the next level growth.
Future business plans and how the funding raised will be deployed is a key thing we look for in the pitch. Due to COVID, it is essential that the pitch tries to explain the plan B in case things go south due to any reason. Finally, all investors want to understand about exit possibility.
YS: What dos and don’ts should founders keep in mind?
AB: Founders need to find a problem and develop a unique solution to it. Any successful startup tries to do at least one of the following - develop a patentable technology / innovative solution, find a large addressable market segment, develop a new user experience or be able to successfully brand their concept.
During these times, where investors are very careful while deploying capital, founders should be able to define a clear use case for their idea with relevant traction and metrics to support the whole hypothesis. They should be able to convince the investors that there is a clear path to profitability and that the team has the agility to pivot the model in case something goes wrong.
Before raising funding, founders should seek professional advice to better understand their funding needs and requirements. Anyone who has ever raised capital or invested will tell you that an introduction from a portfolio CEO or a friend will always be infinitely more effective than a cold email.
Sending a cold email to an investor is ineffective when you could have found a mutual contact and got a warm introduction. Another important thing is that the founder should be ready for most if not all answers to the questions an investor might ask on the first, and if they don’t know, it’s better to tell the truth rather than mincing words.
YS: What should founders keep in mind while raising funding in times of a crisis like now?
AB: It is always better to raise capital when you don’t need it. When business gets disrupted during a crisis, valuations temporarily drop. If your fundamentals are strong, look at other sources of funding like debt rather than raising equity and giving up too much of your company.
Raising money at the right time is crucial as well. Raising funding too early means the investor defines the terms, and not you. Waiting a little and gaining some traction first gives you more leverage, which often leads to better terms. It is important to concentrate on collections and margins rather than just revenue growth. The quality of revenue matters more, especially in such times.
YS: What advice would you give founders while they are pitching to you?
AB: The pitch should be concise and to the point. Founders should be able explain their business models in a way that is crisp and easy to understand. The pitch should be structured as a story so that the investor does not lose track or interest. Research the investor you are talking to thoroughly and speak about strategic synergies that can be explored.
Focus on facts and data as much as you can, as no investor will just write a big cheque for a concept. Be clear on what your needs are and why you are raising funds at this stage along with plans of expansion. Anticipate in advance questions that any investor will ask and prepare for it. Also, keep improving the pitch in real-time basis as one presents to more investors.