How do Investors Invest in Startups - From a Venture Capitalist's Point of View
Offer solutions to societal problems, innovatively through technology, and get mentored
Venture Capitalists today are undoubtedly looking at ventures with a difference. This is substantiated when we consider the fact that leading players are even actively mentoring the startups they invest in. This potentially results in ventures coming with differentiators that could create a potential impact on society in the form of solving plaguing issues.
In this regard, to decode what goes on in the minds of leading venture capitalists, Entrepreneur India interacted with Bhaskar Majumdar who is Managing Partner at Mumbai-based Unicorn India Ventures. At this point in time, Unicorn India has dedicated equity funds worth INR 100 crores under deployment, while another INR 600 crores worth debt fund has been launched.
Investing in growth, and sectors
With sectors showing growth and simplistic business models being the focal point, there is always potential for development of solutions to a lot of real-world issues by ventures.
"Over the last one year, Fintech in India is showing some serious growth. It started with a simplistic business model of peer to peer lending but Fintech curve has moved quickly and we are now seeing some innovative and India specific businesses being launched in the space," states Bhaskar Majumdar to Entrepreneur India.
Very recently, the Unicorn India Ventures team led by Bhaskar Majumdar and Anil Joshi (an entrepreneur-turned investor) invested undisclosed venture capital in a pre Series A round, into Open (a Banking startup offering solutions to small businesses). The key aspects that got Unicorn to pump-in capital was the sector itself (Fintech) coupled with a location (Kerala) that is considered as ideal for the sector.
"As a Fund, our strategy is to scout for such innovative and high potential startups that are solving a real life problems using technology," explains Majumdar.
"We believe because of the right kind of policy and push from the Government, Kerala is an emerging hub for startups. We have already invested in 4 startups in Kerala," adds Majumdar.
He also states that with aspects such as credit scoring, data collection, and even lending to MSMEs having now received the digital touch, Fintech is exciting considering the fact that startups in the sector could effectively collaborate with banks to bring more people into the formal banking system.
This would potentially open up a host of technology-driven and affordable facilities for marginalised sectors of society.
Analysing investment strategies
The sixty four-thousand dollar question, of strategies employed by venture capitalists, is best answered by VCs themselves.
For Majumdar it is the startup's ability to offer solutions to real-world issues that attracts.
"We look for high potential startups in hi-tech sectors like IoT, 3D, analytics, robotics, niche tech platforms, B2B and even B2C," he states.
This strategy naturally goes hand-in-hand with the amount of traction that a startup shows along with the customer acceptance gained.
In addition to funding, Majumdar also looks at actively mentoring high-potential ventures through handholding. Therefore, the predicament of startups receiving active mentoring from leading investors in 2018 is not an exaggeration.
As far as Unicorn India Ventures is concerned, mentorship takes place through a board of advisors ranging from academia to industry; here, the members have accomplished track record in sectors that the firm evaluates for investments.
"They guide the founders towards business scalability."
However, it is the startup founder who is always the numero-uno while working with Unicorn.
"We prefer to have the founder in the driving seat. We don't interfere at an operational level in any of our investee companies," iterates Majumdar.
Guide to funding for startups
With today's VCs being more open to offering mentorship to startups, the newbies would generally have queries about the requisites that investors seek. In a bid to answer these, Majumdar lays out the below conditions for new startups to obtain funding and mentorship from Unicorn India Ventures:
Clarity in vision should be clearly showcased
Problem being solved needs clear describing
A clear path to profitability should be displayed
Scalable and commercially viable products should be offered
"If you showcase the above, we will show you the money," signs-off Majumdar.