Serial investor Sanjay Mehta launched a new venture capital fund called 100X.VC yesterday, which is a significant milestone for the angel investor who has been investing for over eight years in India and holds stakes in over 100 startups in the country.
Putting in between INR 25 Lakh to INR 1 Cr in startups, the 100X.VC fund intends to make about 100 investments every year and according to Mehta, what makes it unique is the core focus of putting founders first.
To drive home the point that the above mission statement — often repeated by many investors — is not just rhetoric, Mehta spoke at great length about iSAFE (India Simple Agreement for Future Equity) notes through which the 100X fund will make all its investments.
“There is a list of advantage for founders with the SAFE notes. There are no voting rights, no vesting of shares or seat on the board for investors. The closure of the whole transaction does not take more than 3-4 days and the agreement document is around five pages” Mehta told Inc42.
An iSAFE note is not a debt instrument but is intended to be an alternative to a convertible note which does not accrue interest. Via the iSAFE note, an investor makes cash investments in return for a convertible instrument that allows an investor to buy shares in a future priced round.
Essentially, the investor defers valuation discussions to the next round of funding, hastening the process of investments and getting rid of a criterion that was time consuming.
100X.VC aims to be a launchpad for founders will introduce an intensive first 30-90 days of engagement, where the “mortality” issues of startups will be addressed so that all bases are covered. This also helps the startups prep for the VC pitch session that Mehta and team will help organise.
“We would be running the fund in a cohort kind of way with a batch of classes. The first one would be 20, and every quarter we will induct a new class of 20-25 startups…think of us as a finishing school for founders who have no idea how to raise money. Our aim for this class is to get everyone 100% placement among VCs,” said Mehta.
Here our excerpts from Inc42’s conversation with Sanjay Mehta, angel investor and now founder of 100X.VC –
Inc42: You have been a successful angel investor for so many years, why the transition to venture fund now?
Sanjay Mehta: If I were to answer it from a purely from investment side of things, one of the reasons was that our investment portfolio companies should not have any problem with Angel tax while raising money.
Another reason why we started 100X.VC is that the number of funding in early-stage startup companies has come down and an increasing number of investors want to participate in larger funding rounds. And hence we felt the need to address this gap.
Some of the big funds are already catering to the early stage play with the likes of Sequoia (with Surge) and Kalaari Capital (with Kstart)
Inc42: Has this been a requirement in the industry for a very long time? What exactly where the bottlenecks?
Sanjay Mehta: I have been investing for eight years and have 100 odd investments in India. Earlier, we used to use an instrument called shareholder agreement irrespective of the funding stage. Over here we used to negotiate across a valuation and arrive at the pricing of per share and invest into the company. The agreement would be 40-50 pages long and could go up to 100 with a lot of details and the time for closing was 12-15 weeks at a minimum.
These agreements where one-sided and primarily protected the rights of the investors with founders having little say but to sign them.
When I started investing in the US market two years ago (have done 30 odd investments over there), I used an instrument called SAFE note, which is a simple agreement for future equity.
Typically we do not know if the startup will survive and so discussions about stake are in a way futile because anyways you will have to write them off in case things don’t pan out.
The real value is only when the next round is happening and when there is growth happening at a Series A stage which is where the discovery of valuation will happen.
The agreements earlier were given by investors to founders but under iSAFE, the agreement is given by startups to investors.
We have also put up the iSafe form on our website where anyone can download and use it.
The power now builds towards the founder- Mehta
Inc42: How does this instrument differ from venture debt funding?
Sanjay Mehta: Under venture debt, the money has to be returned. iSafe is not a debt instrument but is intended to be an alternative to a convertible note that is beneficial for startups and investors and carries a negligible dividend rate to comply with Indian law.
Inc42: You have indicated that you want to be proactive with these startups going beyond money, how do you plan to do it on such a large scale?
Sanjay Mehta: We would be running 100X.VC in a cohort kind of way with a batch of classes. The first one would be 20, and every quarter we will induct a new class of 20-25 startups.
The first thing we want to do is to get the mortality out of the way and we will do this by getting the business model sorted under a short period of 30 days -90 days. Under the same timetable, we will also work on helping the startups with hiring, building a network and investor relationships, all of which will be delivered in template modules.
The end goal is to get these startups ready to be able to raise money from VCs and for this purpose, we will have a VC pitch day for each class.
We will soon be announcing our first class this quarter by August-end or early September.
Inc42: Why the figure 100?
Sanjay Mehta: It’s a ballpark figure, the target is to do a volume-based investment and to become a feeder system for angel networks and VCs.
Think of us as a finishing school for founders who have no idea how to raise money. Our aim for this class is to get everyone 100% placement among VCs- Mehta
Inc42: What are some of the sectors you are interested in?
Sanjay Mehta: India has got a huge opportunity to work on the fintech and 30% of 100X.VC’s portfolio is expected to be fintech companies. Some of the other sectors we are interested in are B2B SaaS, consumer goods and services and healthcare.