SUMMARY
Sethi said that the startup story has changed tremendously over the past decade
Chiratae is in its fourth fund with a 24 member team, six partners, 83 investments, 33 exits under its belt
A lot of serial entrepreneurs are coming in to solve real problems according to the Chiratae founder
Moneyball
An open tête-à-tête with some of the most influential investors – angels, VCs, corporate funds actively investing in the Indian startup ecosystem on their views about various industries, the ecosystem, and their future plans.
The high risk-high reward world of venture capital is an ever-shifting world where the future of business is predicted today. Inc42’s Moneyball is a series which focuses on the who’s who of the venture capital world, deconstructing the trends, how it works, why it works and what it feels like to be part of the world of venture funding. Explore other Moneyball stories here.
“This is a good time to start a new company — a new startup using technology. There has never been a better time than this. The best is yet to come. India is scaling, be it B2B, B2C or B2B2C,” says Chiratae founder and chairman Sudhir Sethi.
The veteran VC believes that India is building a dominant position for itself in the tech world and is generating new brands, which never happened before.
From starting IDG Ventures with TC Meenakshisundaram in 2006 and raising the first fund in 2007, today Chiratae is in its fourth fund with a 24 member team, six partners, 83 investments, 33 exits under its belt. Its portfolio includes the who’s who of the startup ecosystem in India — from Flipkart to Myntra to Yatra, NewGen, Curefit, HealthifyMe, Zivame, Lenskart and Pepperfry.
Recently, Chiratae launched its Deeptech Innovators programme to scout for deeptech startups, which is one of the exciting sectors for Sethi. “India is now throwing interesting deeptech companies. This did not exist before. More than anything, India is scaling much better on innovation.”
In the midst of raising its fourth fund, which is at $275 Mn, the VC currently has a total of $750 Mn as assets under management. Typically, Chiratae invests in 35-40 companies for each fund, with roughly half of it being for seed rounds. Sethi said the average cheque size in seed round is anywhere between 500K to $ 1 Mn, while in Series A, it will be around $2.5 Mn to $ 3 Mn, up to $5 Mn in exceptions.
As founder and chairman, Sethi says his vision has always been to build India’s finest venture capital firm and claims to have one of the most stable teams in the country. “We believe in growing a team from the inside. Today, we have youngsters leading the fund, in the country and abroad.”
Diving into his investment strategy and philosophy, Sethi told Inc42 that the Indian startup story has changed tremendously over the past decade, so much so that things look unrecognisable. Edited excerpts.
Inc42: You have been in the game since 2006, what has changed since then when it comes to investing in startups? What are your key takeaways from the decade-plus long experience?
Sudhir Sethi: Let me tell you our strategy for what has changed — India has scaled, that is the first thing to keep in mind. In the startup ecosystem, the quality of founders, the quality of ideas, the quality of scale is better than what it used to be when we had started. Today, we have Indian LPs and have raised capital from outside India as well, because the interest is wider.
We truly believe that Indian capital is now investing in the alternative asset class, be it through family offices, financial institutions. That is a very good thing. To that extent, India has changed from where it used to be, where the quality of deals is much higher today. For instance, the difference would be a 10x.
Capital availability is far superior. Today, we have unicorns. In our whole firm, we have built market leaders. Needless to say, entrepreneurs are solving real problems. If you look at our style, we back stellar entrepreneurs, serial entrepreneurs. A lot of serial entrepreneurs are coming in, solving real problems which have not been solved, and are using technology where they are building dominant domestic brands. Last but not the least, they are going global.
Therefore, the four pronged strategy is to back stellar, serial entrepreneurs, solve problems that are endemic to the country using technology, build dominant brands in the country, and take them global. For me, this is what India is all about.
Inc42: Why the focus on deeptech for 2020? Do you have any other sectors that you are keeping a close eye on similarly?
Sudhir Sethi: There are many sectors and subsectors in deeptech. But for me, that is not a critical issue. I think a critical issue for me is finding companies that are solving endemic problems. If they are solving real problems in India, which can go anywhere in the world, be it supply chain, distribution chain etc. Fundamentally, we are helping companies that are solving real problems using technology. That is very critical for us. On that, you can build a scale and build a massive, massive company!
Inc42: How can startups approach you, if they are planning to raise funds? What should they keep in mind before approaching you or other VC firms of the same calibre?
Sudhir Sethi: Essentially, the communication of the idea is very important. A concise deck structure is very crucial for us, which we have provided it on our website. Once you read that, there is nothing to be worried about. If you want a conversation, our people are available and we are open to talking, from younger team members to senior partners, everyone is accessible. Reaching out to us is absolutely no issue at all.
Inc42: Apart from investing in startups? What are the value-additions you provide to your companies?
Sudhir Sethi: We are very active, we are not passive investors. More than anything, we build strong relationships with the founders, we tend to buy into the founders’ vision before we invest in their company, we invest in their strategy.
For many of our startups, we help the founders in building scale, hiring the right talent and help the founders in governance, and we help the founders in fundraising as well. All in all, we are strategic long term partners to the founders, and that is the role that we take. We are open to ideas and we are not constrained by any boundaries.
Inc42: Previously, you had said that you help startups scale their business. Can you help me understand, how exactly you help them? Is it from the monitory side?
Sudhir Sethi: It’s strategy, obviously. Capital is just one aspect, but strategy is what scales the business. Everything, we connect the business to partners inside and outside the country, help them in governance, help them hire the right people. I think there is a whole gamut of things which we enable entrepreneurs in the market space.
We are very active on the board of the company. Fundamentally, even at the early stage of the discussion, we look at the company if they are solving a real problem, can it become a dominant brand in the country? How can we take them global?
In fact, half of our active companies have gone worldwide. We connect with some of the companies and make sure there is an entire ecosystem, which can make them successful here in India as well as outside the country.
Inc42: As a VC, what are your expectations from these startups in terms of RoI?
Sudhir Sethi: Maybe, If I take the liberty of saying. I think there is no expectation!
We work with stellar entrepreneurs, and I think the qualification factors remain the same, plus we add value to the company. Also, it is very important that we understand the business. The entrepreneurs are experts and we are also more generous that we also understand the business. How can we connect to our ecosystem? How can we fund them to become a dominant brand in the country and to scale globally?
I believe that it is not what we expect out of them! What we do is, we engage with entrepreneurs to understand their products, vision, aspirations and also see if we can add tremendous value to make them successful.
It is this philosophy that is very important to us. These days everybody has capital, but we and entrepreneurs can work together for the next seven to eight years to make them successful. That is the fundamental goal here.
Inc42: You have had 33 exits till date, can you tell me like how many were good exits? Do you have any regrets?
Sudhir Sethi: Obviously, some companies did not perform to a level, but, most of them did. I must say, out of 33 companies, we have had some great market leaders. Some of them include Flipkart, FirstCry (partial exits), Lenskart (partial exits). NewGen Public, Yatra Public etc.
Figuratively, we have got about 5-10% in IPOs, and about half of them (50%) were in secondary transactions, and the rest were M&As (40%). In fact, we have had very large companies buying our startups, including NSE and Cisco.
IPO is very crucial, and we are working towards it with our portfolio. In the next 4-5 years, you will see many companies going public.
