This Institution Backed Unicorns At Early Stage, And It's Not a Traditional VC. Find Out
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Despite being a sister organization of the globally-known World Bank Group, the International Finance Corp (IFC) is not a much talked-about name in the Indian venture capital circuit.
People in India often don’t realize that the institution is one of the most active venture capital investors in the country, according to Ruchira Shukla, head of venture capital for IFC in South Asia.
“The reason people don't realize it is that when they look at VCs, they look at the traditional funds out there and they compare what they do amongst each other,” Shukla said in an interview with Entrepreneur India.
Some of IFC’s major investments in the country include online grocery company Big Basket, edtech platform Byju’s and eyewear retailer Lenskart. Shukla said Byju’s valuation has risen 11 times from when IFC first invested in the company.
When investing in start-ups, Shukla looks at four essential things.
Solving A Problem
One of the first things she looks at is whether the entrepreneur fully understands and is passionate about trying to solve a well-defined large problem.
“It has to be a well-defined problem and it has to be a large problem,” Shukla said.
If the problem isn’t large and doesn’t consequently have a large addressable market, the business would never be able to become big and sustainable, she added.
For the institution to back a start-up, the founding team has to be solid, according to Shukla.
IFC closely watches the background of the team to see if it works well as a unit and would be able to wade through the tough periods that invariably crop up.
“The worst thing you want to see is a fallout of the founding team...that can be highly unsettling for the business,” she said.
Path to Profitability
One of the other important things that IFC looks at before investing is whether there is a marked path to eventually turning a profit.
“Most start-up businesses are not profitable at the time they are seeking funds, which is the reason why they are seeking funds,” she said.
Profitability of nascent well-funded companies has become a global talking point in recent times as several start-ups have failed to put a stop on cash burn and business models that require constant fund raising to stay afloat.
“We think that (path to profitability) is essential because the only way a business can survive in the long term is by making profit,” said Shukla.
It is also important that a start-up is making some kind of impact, solving some kind of problem in the society.
“That sort of ties back to my point about solving a problem." Shukla explained. If a start-up is solving a problem,it does make an impact to a particular section of the society, she said.
IFC looks for key impact metrics and tracks those metrics for its portfolio companies, she added.