Why Gemba Capital is focusing on founder-market fit as it taps the India opportunity
Adith Podhar likes to call himself “an entrepreneur by heart” and “an investor by profession”. His varied experiences – as private equity investor, an investment banker, and a food entrepreneur - continue to play a critical role as he bets on startups and founders through his micro venture capital firm,.
Founded in 2017, the micro VC firm has sought to differentiate itself in the growing Indian startup ecosystem by “closely aligning with founders and helping them grow to the next level”.
Adith says he was always interested in the world of finance, which led him to gain work experience at institutions such as ICICI and Motilal Oswal Private Equity, and a boutique investment bank. Along the way, he also ran his own QSR chain, Crepeteria, in Mumbai, Hyderabad, and Pune for four years.
“I started Gemba Capital because I was not playing a key role in private equity industry and believed that that more value could be contributed into startup investments,” he says.
He believes in the opportunities that will arise in India “when the next 500 million internet users come on board”, and feels his experiences have helped him gain an understanding of businesses and people.
Adith initially ran Gemba Capital as a family office, making investments in various startups. It was a learning period – immense refinement was needed in the investment thesis, there had to be clarity on the sectoral bets they could take, and - most importantly – it was essential to learn how to identify high quality founders.
During this time, Gemba Capital also built strong networks within the ecosystem. By 2020, Adith decided to move from Mumbai to Bengaluru as he “did not want to miss the bus of what was happening in the ecosystem”.
Gemba Capital started making its initial investments into startups through their own syndicate on Angelist. This led them to focus on four areas: consumer internet, SaaS, fintech, and deeptech.
Unlearning and relearning
This was also “a period of unlearning for Adith” as he was transitioning from the mindset of private equity to venture capital.
Adith says, in the VC world, the four typical elements in an ascending order while making an investment into a startup are: founders, markets, moat, traction, and valuation. Meanwhile, it is the complete opposite in the private equity industry.
“At Gemba Capital, we are always focussed on the founder-market fit,” he says.
This meant the micro VC firm always wants to ensure they are backing the right kind of founders.
Gemba Capital has made 33 startup investments across the four sectors till now with a typical funding value of around $200k per company. It typically gets involved in the pre-seed and seed stages.
Adith say for pre-seed investments, the firm typically looks at startups in the pre-product stage, but post minimum viable product and with a proof of concept.
In case of seed investments, startups that typically have some paying customers with a go-to-market strategy and need some capital for their next round of funding are chosen.
However, in all investments, Gemba Capital’s key focus is the quality of founders. “There are multiple factors that we look at before we make the decision to invest in the founders,” Adith says.
He states that typically, Gemba Capital would not invest in a startup that does not have a technologist as a co-founder. Or that they would look at the work experience of the founder rather than going by only the educational qualifications.
Adith says Gemba Capital is always on the lookout for startups or entrepreneurs who fit their investment framework. “We are always outbound-focused and take a bottoms-up approach to investment.”
This also means that Gemba Capitals not only secures the funding for the startups but also send these deals to other larger VCs. This micro VC fund has partnered with VC firms like Sequoia or Matrix while making investments.
Bringing value to the table
Adith believes the startup ecosystem in India is maturing fast and there is room for all kinds of investors. According to him, a startup founder would typically look at three kind of investors on the cap table: a lead VC who will help in the next round of funding, a micro VC fund to act as a sounding board, and an angel investor to bring in the connections.
“Gemba Capital, as a micro VC fund, runs like an institutional set-up and founders are aware that we are adding value,” he says.
The fund’s portfolio of startups includes names such as Plum, Verak, Grip, Unnati, Zuper, Hoi Foods etc.
Adith believes that investing across four sectors enhances cross-learning. “We are focused on a few sectors and understand them very well. This enables us to move fast when required.”
Gemba Capital makes around eight to 10 investments a year and remains with the startup for a period of three to four years. It seeks an exit when the company manages to raise the Series B round of funding.
The founder adds that the fund’s relationship with larger VC firms helps portfolio startups with the next round of funding.
Gemba Capital has now launched a $10 million fund, and received commitments of around $4.5 million from domestic limited partners (LPs). It is planning to around 24 startup investments with this.
Adith says the focus for the next two to three years at Gemba Capital would be on deploying the new fund into high quality startups and then look at setting up a second fund.
“The USP of Gemba Capital is that it brings to the table the qualities of a VC firm and an angel investor,” Adith says.