SUMMARY
An AIF Category II Fund, Rockstud Capital Is Mainly Looking To Invest Upto $1 Mn In 10 Startups Each
“After spending close to five years in the startup space, I had realised that this space is going to be very big in coming years and create wealth for investors,” said Abhishek Agarwal, an angel investor-turned-fund manager.
Abhishek said this to Inc42 at the launch of his $10 Mn early-stage VC fund — Rockstud Capital Investment Fund. An AIF Category II fund, the entire corpus for Rockstud Capital has been raised through domestic investors, mainly HNI, corporate professionals, and family offices.
Profile Overview: Abhishek Agarwal
- Angel investor-turned-VC fund manager
- Invested in 24 startups in four years
- Served on board as independent director for three startups: Insense, 6Degree, Truckola
- So far, 50% of his portfolio companies have gone to next round of funding
- Most notable startups: Loginext Solutions, giving in 10x on initial investment
- Other startups bullish on: Wishberry, Wellness Forever, Growfitter
With this fund, Agarwal will be investing in both listed equity and early-stage startups, mainly in Pre-Series A and other Bridge funding rounds. It is a sector-agnostic fund and is mainly looking to invest upto $1 Mn in 10 startups each by the end of this fiscal.
“Indians dominate the IT sector and as the growth capital pool is accessible these days, such techpreneurs were growing very fast in India. With investments in over 24 startups and after screening more than 200 startups, I think I had the learning and wanted to play a bigger role in the ecosystem. That’s when I decided to launch my own fund,” added Agarwal.
Not Interested In Blind Bets: Rockstud Capital
The gap in funding between the angel round and Series A is quite high for a startup, and this is where Rockstud Capital is aiming to fit in. It looks to provide startups the required growth capital to scale and have a respectable number of validations before they go on to raise large rounds.
Agarwal revealed that Rockstud Capital is inclined to invest in startups with at least two years of operations that have raised one angel round in the past. “We are open to ideas as its very difficult to seize the real market opportunity across sectors. So, we will rely on how well the founder can explain to us what he/she intends to do in his/her relative industry,” he added.
Talking about the team managing the fund, he said it was a good mix of research analysts and investment bankers. The current team is working with Agarwal for last three years.
Further, the Rockstud Capital team does due diligence by analysing a startup’s success in terms of what it wanted to achieve from previous rounds of funding and what is its objective with the current round.
Agarwal explained that the firm appoints a third party to do the required due diligence, subject to financials, and also has its own internal committee to validate the opportunity.
Little Room For Error When It Comes To Investments
As Agarwal said, “I read somewhere that a new fund is typically set up by fund managers who have worked earlier in VC/PE firms. Such instances comprise 99% of the industry and our fund features in odd 1%. The idea is very clear — we must perform and have a clear perspective regarding our investment thesis. The risks and stakes are high here and there’s very little room for error.”
Rockstud Capital will have to navigate the investment waters carefully in India. The Indian startup ecosystem might have scored the third position on the global startup chart, but still, the biggest challenges are the idea failing to take off, lack of scale, or inability to raise funds, apart from the competition, government regulations etc. An investor has to keep in mind all these things while assessing a startup.
Also, with the unending wave of entrepreneurship in India pushing an increasing number of young professionals and even college graduates to shun lucrative corporate jobs and start up, it’s certainly very difficult for early-stage investors to filter the wheat from the chaff.
“Experience, a good network, and a deep understanding of the subject are a few things that help mitigate the risks,” said Agarwal. “We believe in complete transparency. Every business is unique, and we can’t have same model fit for all,” he added.
New Trends In The Investor Ecosystem
The market size is huge and the Indian startup ecosystem is only growing. The recent successes of domestic homegrown startups is giving rise to a new breed of entrepreneurs who have have their eyes set on success, either through a bootstrapped model or early-stage funding; they prefer to take debt funding in later stages.
However, at such times, milestones and metrics are important, and setting the expectations right from the beginning is also very important.
Further, in the past three years, there has been a shift in the investor mindset as well. According to Inc42 Data Labs H1 2017 report, VC investments in India comprised 50% of the total investments in H1 2014. In the last two years, this percentage has dropped to 30% and there has been a concurrent rise in angel investment in India.
According to Agarwal, this is simply because investors are now considering startup investments from their asset allocation. Earlier, the mindset was to invest in real estate, fixed bank deposits, gold, and equity. The period between H1 2014-H1 2017 also saw the rise of listed equity markets. Also, there have been huge inflows into domestic mutual funds through SIPs, which are now touching their highest ever in the history of India.
“I feel investors are willing to take that extra risk in expectation of outsized returns. Just look at the SME exchange — in the last three years, there are more than 400 companies that have got listed on both the NSE and BSE platforms for SME,’ he said.
High Expectations Against High Stakes
While startups and technology such as AI, IoT, blockchain, AR, etc are the buzzword in India and VC money is flowing, the market can’t operate with just one group of investors. There is a requirement of an ecosystem where the stakeholders can gradually reap in the initial success of the startups and put a solid foundation for the new entrants.
The recent $16 Bn worth exit of Flipkart, which sold its 77% stake to Walmart, is certainly an example of huge wealth creation by a company within 10 years of existence. And how can we forget E2E Networks, which recently listed its IPO on NSE’s Emerge platform, and was subscribed 70 times!
Family offices, angels, and VCs are also important sources of much-needed capital for the startup industry particularly the early-stage. The new trend shows that Corporate INCs are now open to working with startups as well. This provides great scope for acquisitions and joint ventures. Also, SME listing is another tool to raise funds and provide liquidity to early investors.
But as much as investments are needed, we can’t forget the 2016 funding winter, which made both startups and investors learn some bitter lessons. Stakeholders and entrepreneurs today are much more cautious and are not looking to place their bets on “me-too” startups in a growing sector. They want to invest in companies that have a vision and the team engagement they are bringing within their startup.
With Rockstud Capital, its seems like Agarwal is thinking on similar lines. Will his magical touch that brought great returns on angel investments extend to his VC fund investments in the early-stage startups as well? We will know in the year ahead.
