What Venture Factory Looks For In a Startup
Operational knowledge is a must.
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Do you know what makes an investor fund a startup? Venture Capitalists know very well about the challenges faced by startups in the initial phases. How should you prepare before meeting a VC? What exactly blows them away?
Venture Factory by i2india works as an incubator, mentor and venture capital firm for startups. It constructs a "production-line" like predictability, quality and speed to the entire process of venture building. Venture Factory was launched by i2india in 2013, after nearly 4 years of experimenting with various venture-building models for India. Over the last 3-4 years, Venture Factory has raised nearly $10 million in funds.
Startups which Venture Factory has supported in the past (but is no longer involved in their day-to-day operations today) are: Green Power Systems (GPS) and Transtainment Ventures (merged with Tsepak). Venture Factory is currently working with: Shippr, ZenParent, HealthSetu and two more un-announced initiatives in the healthcare and logistics sectors. The company currently has two broad areas of interests – logistics/infrastructure and healthcare.
Based on conversations with executives of the firm, the following are some of the key checks and observations made by the company about the startup environment.
What does it look in startup/entrepreneurs?
Operational background is a must: Before picking a startup, the management makes sure the entrepreneurs have some amount of operational background in the chosen domain. They shouldn't be new to that particular domain. Unlike some investors, pedigree is not the most important criteria for Venture Factory. For example, if a team comes with an idea in the hyperlocal space, at least one member of the team should have some experience in that particular domain.
Unit economics – This metric holds a significant value in the current scenario. The company doesn't believe in the strategy of raising multiple rounds of money to merely gain customers without any proven track of traction. "I look at profit and loss as an important factor for any decision. I am not the one where I would go about spending money acquiring customers and you hope to build a business sometime in future," Sajal Gupta, Venture Principal. Sajal works with HealthSetu, a healthcare handbook collated for researchers, patients and doctors in an easy to understand language.
Team – The operational background and execution capability of the team acts as an important filter. The firm doesn't emphasis on whether the entrepreneur comes from an IIT or an IIM background or any A-league institution.
The main product should posses a differentiating factor and must be well- received the product by a larger audience. Arpit Mittal, a VC Associate, who does a lot of the filtering of the applications that come to Venture Factory, says that there has been a drop in the number of applications from the hyperlocal, cab sharing and food-tech space over the last few months.
Check where Indians spend ? Market size should be good enough for the firm to earn profitable returns as an investor. "We believe that we need to go into markets that are not only big but are also complex; markets that not everybody understands," Venture Factory CEO Deepam Mishra said. The company does not venture into sectors where there are multiple "me-too" versions.
Deepam also added that businesses that tend to do well in India are those that have a clear revenue and profit model. Indians do not like to pay more for a slightly better service, he added. The company is looking at sectors widely used by the middle- class Indians such as health, logistics/infrastructure and parenting/childcare.
Capital efficient – The company refrains from investing in capital heavy startups and believes that the speed of customer acquisition should be non-linear.
Observations and understanding about the startups
Entrepreneurs often tend to underestimate the competition. Ideas are rarely unique, but it is the execution ability of the team that makes the difference. Entrepreneurs also tend that while they are seated inside their offices, their first hypothesis will definitely work. It is very important today to go out there in the market, understand customer feedback. Ability to persevere during challenging times is very important. "You should be strong enough to persevere when the entire world is telling you that this is a wrong thing that you are doing," Anup Vishwananthan, Venture Principal said. Anup handles Shippr, which works like the Uber for commercial vehicles.
Deepam said that he has witnessed a drastic change in the kind of people joining the startup bandwagon. Earlier people who failed to secure a master's degree at an international university or a high-paying job would switch to entrepreneurship. Today entrepreneurship and startups are considered to be "cool" by the society. Parents and educational institutions are also backing entrepreneurs. "Our value systems are changing and our acceptance of startups as a genuine path of a career has started to settle in," Deepam said.