No spray and pray: Focused bets underline Good Capital’s startup investment philosophy
Early-stage venture capital firm Good Capital focuses on backing few entrepreneurs as it gives it a higher probability of making a success of these investments
New Delhi-based micro venture capital (VC) firm Good Capital believes fewer investments with high conviction in an entrepreneur’s idea is a better strategy rather than sprinkling capital all over the place.
Established in 2019, the company makes about seven investments in a year with cheque sizes between $100,000 and $1.2 million.
“This forces us to build high conviction and remove most of the other distracting optionality from investments,” says Good Capital General Partner Arjun Malhotra.
Good Capital General Partner Arjun Malhotra
According to Malhotra, the seed stage of funding has a high mortality rate. However, a focused approach on a select group of entrepreneurs helps Good Capital better understand their business, facilitating more meaningful engagement.
“We are always focused on entrepreneurs who have a certain unique insight on consumer behaviour in the market and this helps in building higher market share,” says Malhotra.
This approach has paid rich dividends for Good Capital as a few of its portfolio companies have been acquired by large global players. For example: YouTube acquired ecommerce company Simsim; Ford acquired vehicle connectivity platform Autonomic and Groq bought generative AI startup Definitive Intelligence.
Good Capital declined to comment on its return on investments.
Startup bets
Before starting Good Capital, Malhotra launched an accelerator platform Investopad with his brother, Rohan Malhotra, in 2013.
Among Good Capital’s most notable investments is social commerce startup Meesho, which is now a unicorn.
Other startups in Good Capital’s portfolio that have secured investor interest include at-home diagnostic services provider Orange Health which raised Series B funding from Bertelsmann India, General Catalyst and Accel. Solar solutions platform SolarSquare, which raised $13 million in Series A capital led by Lowercarbon and Elevation Capital.
Apart from these, Good Capital has backed startups such as bus ticket booking provider Apnibus, e-learning platform Entri, and renewable energy startup Neufin.
Given its varied interests, the micro VC firm has largely been sector agnostic. Malhotra believes segments like edtech, ecommerce, and services show strong potential.
Good Capital has two fund vehicles. In the first fund, it raised $25 million in 2019 and its second fund, with a size of $50 million, is expected to close this month. The VC firm will dedicate around 50% of the corpus from the second fund towards artificial intelligence (AI) startups.
In the second fund, Good Capital aims to invest around $1-$1.5 million in each startup. The VC firm aims to be the lead investor in the startups that it funds.
The way ahead
Malhotra is a strong believer in AI being a game changer. He says many services can have positive outcomes for the customers if AI is deployed meaningfully.
To illustrate his point, he says people are not quite comfortable dealing only with automated services for any customer query and seek a human element in their interaction. It is here that there should be an ideal mix of AI technology and human input.
Good Capital is in discussion with such AI led startups in India.
This focused approach of investing also gives them a stronger platform of being the lead investor in a startup. Malhotra says Good Capital will always be in the space of a very early stage of investment. This would also mean that any planned third fund in two years will be of similar size.
The General Partner of Good Capital also sees some of the startups from its portfolio heading towards the route of initial public offering (IPO) in the next two to three years.
Malhotra has been in the investment business since 2014 and has seen the many seasons of the Indian startup ecosystem. He believes the current environment is tough for entrepreneurs as raising capital is not as easy as it was in the past, especially during 2020-21.
At the same time, the funding crunch has also brought about certain positive changes as it has led to the emergence of high-quality startup founders with reasonable startup valuation.
“Today there are much better companies available for investments at much more reasonable entry price,” says Malhotra.
Edited by Affirunisa Kankudti