Seeding Kerala 2020 - Fireside Chat - Discovering Unicorns by Sanjay Mehta
The Government of Kerala recently organised an investors’ meet in Kerala named Seeding Kerala 2020, wherein it invited many investors to discover investment opportunities in the state. As a part of the event, it also invited many successful investors to share their investing strategies and experience with other potential investors present during the event, so that they could explore potential opportunities in the state.
100X.VC was one of the investment companies invited to guide the potential angel investor. The session began with discussing investing in startups and by sharing a few details about 100X.VC:
For the uninitiated, 100X.VC is a firm that invests in early-stage companies, with funding ranging from 25 lacs to 1 crore.
The instrument used for investing is known as SAFE, which stands for Simple Agreement for Future Equity. 100X.VC plans to invest in 100 companies and has invested in 20 so far. Finline, a company from Kerala, is one of them.
To help investors make better investment decisions, we shared our personal experience on how to identify potential startups that are unicorns today through a live video conference.
We started the session by describing how investing has been an enriching journey so far and how picking winners is tough. If it was easy for us to pick winners, then we would have only picked winners till now and invested all our money on them.
The essence of investing, which we have learned after investing in more than 140 companies over the last ten years, is to get in early and believe in the founder's vision before the rest of the world does. Our portfolio has an IRR of 86% and Cash IRR of 110%, based on our last few investments, with just 1 out of 3 investments having turned dead over the last nine years.
Compared to sectors like listed equities, real estate, and commodities, where one can only watch and not be sure of the outcome, it is better to work with startups as one can work closely with them and influence the outcome.
Trusting a founder's vision and how they see the business shaping in the coming 5 to 10 years, as compared to relying on previous data sets is a significant factor that potential investors should look out for. This is also the kind of vision that 100X.VC fundamentally believes in.
Bold ideas that they can seed and transform into successful businesses is what 100X.VC looks for. It is something that other investors too should watch out for if they want to pick a winner.
Fundamental Innovation Leading to Market Disruption - Wherein the concept or main idea behind the start-up was path-breaking and promised to change the way business models were being run currently. The example for this model are RoadMetrics Litifer-Hoggy & PickRight
Market Gaps Leading to Product Innovation - Some founders observed a sustainable and long term opportunity, due to certain businesses not meeting all the requirements of customers, leading to a gap that could be exploited through product innovation. Businesses that benefited from this concept are Pocketly, FnV Farms, The Renal Project, Bueno Finance Karnival Invoice & Dhiyo AI
Technology Trends Leading to Product Creation - Given the fast pace with which new technology is emerging across the world, there are ample opportunities for startups that can match this pace and capitalize on the latest trends, with products based on them. Start-ups that use this space successfully are Knorish, Snug App, Cymour, Doc32 DataSutram & Reko.SOCIAL
Industry Gaps Leading to Product Creation - While industries and businesses grow sporadically, they fail to address the requirements of small businesses, leading to a gap that can be used for addressing customer concerns and needs. Agrigator, FinLine, Raseedbook, FoodMonk, & Decadenz are some of the companies which capitalized on the different industry gaps.
The evaluation scorecard used to make an investment decision by 100X.VC is
0 – 30% for the management team,
0 – 25% for size of opportunity,
0 – 15% product and technology,
0 – 10% marketing/sales channel,
0 – 10% competitive environment,
0-10% for other factors.
Among all these factors, having the right management team is the key to success. 100X.VC focuses on simple concepts that exploited an industry gap. These were technology-based and created something big when linked together.
An investor should always focus on the following questions: whether there is money to be made; is this the team that can make them money; how much money they can make. Apart from this, founders should have a hunger to grow and raise investments.
Having an investment mindset is necessary for VCs, apart from the fact that they should not focus on the frequency of correctness but about the magnitude of accuracy. Product pricing and valuation are also crucial while investing, and one should not just rely on numbers.
100X.VC's investment model is based on at least 5% of the deals being a success so that their risk could be spread across all investments.
Further in the conference, a few reasons for the failure of a startup that I shared were:
Building something that no one needs. This basically translates into there not being a sufficient market for the sales and growth of the product or service, one is offering.
Lack of focus on the features and benefits of the product or service offering and the marketing strategy. This leads to unnecessary spends, and not targeting the right consumers for your product/service leading to the startup; eventually, running out of funds and no supporting customer base.
Lack of a good team, which has the experience to build up and scale projects into profitable businesses. Continuity in the management team is also a vital issue as those who join the startup later may not have the same vision as the founders.
Too much pride in seeking advice when needed and in admitting one's mistakes has led to the downfall of many startups, as they failed to take the right corrective measures in time.
Not being coach-able, and not accepting new technology or changes in the market scenario; which led to many startups being out of place and redundant in the long term.
Taking advice only from their trusted people, who may have their selfish interests.
No respect for finance and not maintaining a low cash outflow; which led to startups running out of cash.
Raising too much money too soon - which is also a problem area, with founders not knowing how to utilize the funds.
The inability to inspire and be ahead of time.
Premature scaling up of operations.
Potential investors should consider all these factors so that they can make a well informed and researched decision when it comes to making investments and increases their probability of success.