Kushal Bhagia On All In Capital’s Founder-Market Fit Framework For Pre-Seed Investing

“We only take contra-bets. There’s no such thing as a safe bet at this stage because there are so many unknowns. But of course, we have our parameters and ways to de-risk many of these bets.” — Kushal Bhagia, founder, All In Capital

The venture capital game is risky at the best of times and even investments in mature startups at growth and late stages have no guarantee of returns. Of course, there is a way for VCs to de-risk these investments by studying fundamentals and the potential growth ceiling for the startup. But what about investments in early-stage startups, particularly those at a pre-revenue or pre-product stage?

For All In Capital founder Kushal Bhagia, the answer lies in something that early-stage investors often point out: founder-market fit. However, this is a poorly understood concept. In fact, over the years, in conversations with angels and early investors, we have heard snatches of this term, but not what goes into evaluating it.

Given that All In Capital invests at the pre-seed stage, for Bhagia and the fund, a clear framework to figure out the founder-market fit is critical. And perhaps this is why it’s a somewhat well-defined part of the All In thesis.

Founded in June 2022 by Kushal Bhagia and Aditya Singh, All In Capital launched with a corpus of $10 Mn and intends to invest in 75 startups by the end of 2024. It has already invested in 25 startups since its launch, with its portfolio including the likes of Magma, Volt Money, MeetRecord, SuprSend, CommandK, and Produze, among other ventures.

All In Capital is not Bhagia’s first brush with pre-seed investments, who earlier led First Cheque as its CEO, under the India Quotient umbrella. “That’s where I found validation for my transition from a startup founder to a VC. And that was a primary trigger for All In Capital.”

Bhagia’s philosophy for investments may sound risky. As he puts in, the name All In signifies the conviction in the investment, but it’s also about backing the India story. “The name is about going all in and a play on ‘All India’, as we truly believe this is the time for the Indian tech industry.”

With an average ticket size of $150K, the sector-agnostic fund comes in at a stage where there is usually not much business to be spoken of. In this regard, there is a clear differentiation between All In Capital and other early-stage funds that typically invest in seed rounds, once there is some momentum to the business after the initial months.

So, what exactly is Bhagia and All In Capital’s framework to find the founder-market fit? And, more importantly, what makes the fund so enthusiastic about the India opportunity — particularly, at a time when, it can be argued that many startups have scaled up on the back of misplaced confidence in the market?

Inc42’s Moneyball series is making a return in 2023, and we are looking at how the most active VCs and investors in the ecosystem see the Indian startup opportunity at this critical juncture. As part of the series, we will dive deep into the thesis, evaluation criteria, investment outlook and decision-making among investors backing Indian startups, starting with All In Capital.

Edited excerpts from our conversation

Inc42: You launched in June last year when clear signs of the global macroeconomic downturn were starting to appear. What exactly was the trigger for this launch after First Cheque? 

Kushal Bhagia: To be honest, I loved my role at First Cheque. When I became a VC, I honestly took it up thinking it’s something I could do for a couple of years and then go back to starting a company.  By the third year, I realised I was really enjoying it, as I was quite good at it.

That’s when I took the call to start All In and realised it was no longer a temporary gig for me. I told myself that it was what I wanted to do for a long time – i.e. at least 10-20 years of my career. So, why not start my own fund?

Having my own fund meant more flexibility. I could set my own thesis, take more contra-bets. But the primary factor was I wanted to go all-in into the VC world. Which is why the name of the fund and it’s also a play on all-India capital.

I really felt that we are at a point of no return, with so much innovation happening in so many industries in India. It just felt very organic, and I had a unique viewpoint where I had built a brand. I had access to capital and some of the best founders in India. So, it would have been a mistake not to tap this opportunity.

Inc42: Interesting, you said you realised you were good at it. What were some of the indicators for you that could possibly apply to others who are looking to enter the VC world? 

Kushal Bhagia: So, honestly, in the VC world, you can only say you are good after, maybe, seven to 10 years. But there are some early indicators. The most common indicator is to see who’s leading follow-on rounds in the companies that you invested in at the pre-seed stage. But of course, this is true for almost all stages.

I think out of the 100 companies we invested in, more than 70% raised follow-on rounds from marquee investors and blue-chip names like Sequoia, Accel, Lightspeed, Y Combinator, etc. So, I was clearly doing something right and my darts were landing in the right quadrant.

When we invest, the company will be pre-revenue, and half the time pre-product even. It will take them six to 12 months to get to the seed round, and then another two years for a Series A. And that’s when you really look at the business model and find that you made the right call when it comes to the idea or the founders.

The other big factor for me was that founders really liked working and interacting with me. The day I announced All In Capital on Twitter, 50-70 founders replied to the tweet and validated my experience. Things like these fill you with a lot of conviction. Now, we work closely with the founders of ShareChat, Koo, Meesho, Fashinza, Mindtickle, Fynd, Licious and other startups to identify opportunities and evaluate ideas.

Inc42: Before we delve into how All In Capital looks at founders and their capabilities, let’s talk about how you evaluate business ideas. What is your framework for assessing the potential of an idea? 

Kushal Bhagia:  Firstly, we ask ourselves, what has changed in the world which enables this product or tech to be made now. Every good idea has been tried before, but successful execution often depends on the marketing time.

For example, look at BigBasket. They tried the same thing in 1999 with Fabmart, but it didn’t work. They pivoted to the offline model and then got acquired by Aditya Birla Group in 2006. Five years later, they launched BigBasket, and it changed the online grocery game.

A similar example is Webvan in Silicon Valley, which came in the dot-com bubble and got investments from Sequoia, but it filed for bankruptcy in 2001, after three years of operation. The founder Louis Borders entered the grocery delivery space again in 2013, banking on robotics and automation and has raised over $45 Mn since then to take on the likes of Instacart and others.

There has to be an underlying change in the world, which makes your idea possible now. That is the most important thing and within that usually it would be a technological change.

In the Indian context, we can look at examples such as ShareChat, which emerged around the time of Jio’s launch or MailModo that banks on Google AMP to change how email marketing works.

But it’s not always about tech, consumer behaviour can also determine success like in the case of Giva, which banked on the fact that more and more women want silver jewellery for their office wear.

Of course, after this we look for the founder-market fit and their motivations. Each business requires certain critical skills, which not all founders possess.

Inc42: So, we have heard ‘founder-market fit’ from you a couple of times now. Could you delve into the frameworks that All In Capital uses to determine this? 

Kushal Bhagia: It sounds really simple, but it’s about what the founders know and what they can do or can’t do.

Essentially, it’s about the key skills that a founder needs to have to be able to crack the opportunity. What is the key risk and what are their earned secrets?

Let me explain. So, at First Cheque, we invested in Rigi, which is a company that works with gaming creators and the gaming community. After our investment, Elevation Capital and others followed on in its Series B round this year. So, the founders had deep experience in the gaming space since they had run a fantasy gaming company called Halaplay, which was acquired by Nazara.

At HalaPlay, they saw that people were getting fantasy gaming tips from Telegram channels, where they were being charged a minor fee. But these groups did not know who had paid and who had not. So, this was their earned secret and that’s why we believed in the Rigi promise, which is basically allowing these channels to monetise better.

There are thousands of creators in gaming, and this space is mushrooming. So, this was the Rigi founders’ earned secret or insight, and that can be a moat. Even if somebody copies them, it’s fine.

Inc42: Your point is valid, but this is true mostly for founders who have the past experience of building a startup, right?

Kushal Bhagia: In the case of first-time founders, they need to have a proven and clear ability to build. Have they launched a consumer tech product before, or if they were working for a tech company, did they handle products and services at scale, did they manage transactions? These are clear skillsets.

Of course, beyond these there are some instincts that come into play.

For instance, one type of team we like to back is the ‘Dil Chahta Hai’ team. Essentially, close friends or a team of founders with long shared work history.

ShareChat was kind of like that, or Meesho, slice or Swiggy. They went through a relentless grind and pivots before arriving at some form of product-market fit. It never stops, of course, but the complementary skill set of the team was a strong point.

This is critical for ideas that are very hard to predict, basically Snapchat-type ideas, where if somebody comes to an investor and tells them the idea, the first reaction might be it won’t work. But the team and the founders made it work.

Of course, there are things like vision and mission. Directionally, they have to have a thesis on what they’re building towards, or rather they need to love the problem they are trying to solve. The problem vector along with the team or the founder who will not give up for five-six years.

Inc42: I think it’s time we delve into what a contra-bet means for All In Capital. Could you explain this in the context of backing proven founders? That seems like a safe bet more than a contra-bet. 

Kushal Bhagia: Well, we only do contra-bets. We’ve realised that there’s no such thing as a safe bet at this stage, no matter what the pedigree of the founder.

The market or the customer does not care what the founder has done in the past. Even when we back a third-time founder or someone like that, there is a huge amount of risk.

You may be a Sachin Bansal, but when a customer opens the Navi app, they don’t judge it from the lens of Flipkart. As a customer, they might not even know that it’s a startup run by the Flipkart founder.

Of course, Sachin [Bansal] is perhaps an exception but the point stands. Some investors might consider that a founder who has built and sold a company is going to be a less risky investment, but that’s usually not true.

The other way to do a safe bet is you go to a company, which is already doing revenue and has profits and you back them. But then I can’t get into those companies since I write small cheques and there I’ll be competing with the Accels, Sequoias, Nexuses of the world.

Just look at Giva, which has raised follow-on rounds after our initial bet. But when I invested, it was definitely a contra-bet. So, in my opinion, there’s no safe bet in the pre-seed stage. Yes, in three-four years, my bet will start to look safe, but it was not when I invested.

The way we de-risk is with price and volume. We see a lot of companies, something like 300 to 500 companies every month. We pick two or three, so in a year we’ll end up doing roughly 20 to 30 deals.

For the fund one cycle, we’re doing 60-70 companies, and the maths of it is one working should help us return the fund. So, this naturally means doing enough deals, and the valuation at which you’re entering should also be sensible so as to not disrupt this maths.