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.
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“We feel that the next 12 months will be quite tough from a fundraising point of view. Most importantly, the companies that survive this time frame will come out very strong in the near future,” Rahul Chowdhri, partner, Stellaris Venture Partners.
That’s a sentiment that many VCs have expressed in the past few weeks. For Stellaris’ Chowdhri, the time has come for companies to become more efficient in every way they can, focus on core strengths and start building on those.
With Stellaris’ portfolio spanning consumer goods, education, mobility, healthcare, logistics, social commerce, fintech and SaaS, Chowdhri has thoughts on the state of the market, where demand for many products and services has been impacted.
Currently, with a team of seven people in its investment team, Stellaris has raised its first fund and has invested in more than 15 startups, leading 13 of those investments. The average check size for Stellaris is between $500K and $3 Mn for seed to Series A stage startups. Some of the portfolio companies include Whatfix, MamaEarth, mFine, Loadshare, Signzy, Shop101 and Vogo.
With the likes of Vogo, Shop101 and MamaEarth having to curtail operations due to the coronavirus pandemic and the subsequent lockdowns affecting the transport, ecommerce and retail sector, these startups are among the most impacted businesses.
Speaking to Inc42, Chowdhri opens up about the advice being given to these startups and more.
Inc42: How has coronavirus pandemic impacted your firm as well as your portfolio? What’s the topic of discussion in the investor ecosystem?
Rahul Chowdhri: There are two ways to look at the current pandemic situation — what is happening right now and what will happen in the future.
Ever since the lockdown situation, few spaces are seeing an uptick in their business. For instance, online grocery, online healthcare, online education and online entertainment has gained a lot of positive traction in the market because people are at home and are finding more time at their disposal.
At the same time, enterprise software companies focused on the global market have stable revenues because of the recurring nature of the revenue.
Then there are companies where the business model entailed on the ground execution. These have to be temporarily halted due to the lockdown. As soon as lockdown is lifted, these companies will be back in business.
Broadly, these are the different types of a portfolio that we already have, which are addressing problems in their own unique ways. As their investors, we are also trying to figure out how to help them sustain the business in times of crisis.
While we are meeting new companies and finding newer avenues to invest in, we are also focusing on our existing portfolio companies.
Inc42: What about the future? What developments can we expect in the investment space directly as a result of the pandemic?
Rahul Chowdhri: We feel that once this is all over, we will find online businesses growing faster than before due to the behavioural shift which is currently pushing people to go online, be it doctor consultation, education, buying grocery. What this means is that both digital payments and online transactions will grow in the coming years.
In future, we will see more growth for tech products/online services in the coming years as transaction and digital platforms start picking up.
Inc42: What are the hottest sectors according to you, given the current economic climate?
Rahul Chowdhri: I feel nothing has changed in terms of sectors. In the sense that anything online will have an advantage and that is the broad areas which we focus on anyways — ecommerce, edtech, healthtech, fintech and marketplace services etc.
Once people have got the taste of being online, the usage will only multiply with time. Clearly, a lot of services will grow. For example, education was not something which people used to search online earlier. That is also starting to happen in the country, and kids are doing that because they are at home.DOWNLOAD YOUR COPY NOW!
Inc42: From your previous experience, what were the lessons you learned that helped you understand the investment game?
Rahul Chowdhri: Obviously, some didn’t do well and some did really well. It’s a mixed bag there. For instance, Bigbasket, Toppr, Simplilearn, iD Fresh (with Helion Partners) among others they did really well. On the other hand, the ones that didn’t do well included Hoopos, MySmartPrice etc.
“It was harder for some of these companies to scale, but as the internet and smartphone penetration improved. A lot of these companies did scale very fast.”
In general, what we look for are large spaces where consumer adoption trend is in the right direction, and find great founders who are ready to take that journey.
Inc42: In terms of investment thesis and strategy, what has changed or what is expected to change, compared to how things were?
Rahul Chowdhri: Actually, not much here either. Our investment thesis is still the same which is to invest in online consumers/ SMBs in India and software products for global enterprises. We are using this time to build a thesis in different verticals and what sub-spaces might become interesting in a few years. That is the regular part of our investment process.
Obviously, in the last 13 years, India itself has changed a lot. Most importantly, at a digital level, there is a tremendous amount of transformation that is happening each passing day. When I started investing, we had like 20 Mn internet users and 2 Mn broadband users.
In terms of investment, back then we had invested in companies, where a lot of the efforts went around building an offline strategy in reaching consumers. That has changed dramatically.
Today, reaching consumers online is not at all a question with 500M+ online users. At the same time, the younger demographic is an advantage for us — half of our population is barely at the age of 30. That matters a lot because these are the people who will more easily adopt online channels.
At the ecosystem level, the introduction of GST and digital payments like UPI is another big change that has happened over the past few years. The reason why I am talking about these things are very important, for any startups to cherish their business in the long run, they need to know the right platform to cater to the digital-enabled customers, digital payments etc.
At the founder level, we have seen a dramatic change as well. In 2007, a lot of founders were from the US, who had worked in a large corporation were coming back to India to start their businesses. The picture has changed dramatically. Today, good founders are coming for senior positions in other tech startups and are more aware of the problems that they need to solve.
Capital wise, that also has changed. Back then, it was hard to find an investor, who would invest in your company. So, a lot of funds did multistage investing to support their company. Today, in India we have a plethora of investors, be it angel investors, venture capital firms and India dedicated late stage investors. In addition to all this, there are large global funds and corporates wanting to invest in India.
“In 2007, 100 Mn dollars exits looked very large. Today, people are not happy with the billion dollar exits. That again shows a lot of the potential of the market, and the hunger that the founders bring to the table.”
Inc42: What is the hardest thing being a VC in the Indian startup ecosystem? Tell us about your experiences with dealing with founders and how it has shaped your approach.
Rahul Chowdhri: It is a feedback loop, the founders have every right to know why we said ‘NO’ and that is why we keep it very frank and open. We tell them what we have seen in our past experiences, and they need to value our opinion, and hopefully, it will be useful for these founders.
Obviously, at a fund level, sometimes we find founders, who are extremely good. But, there would be other reasons such as the conflict in our portfolio companies. In which, we have to say no. But, at least saying no, in general, I don’t think it is something very hard.
Inc42: And how do you vet founders?
Rahul Chowdhri: Their learning capability, leadership quality and storytelling ability.
If we believe there is a large market, we don’t look for specific business models, it is very hard for us to judge the specific product that they have. However, what we do look for is how they went about building the product.
At the end of the day, that product might change, but we look for if the person understands why they did it, what they will do in the future. That gives us a lot of confidence.
However, there are a few exceptions, like if the company is into deeptech kind of a product, we might go deeper into understanding the product.
The art of story telling. I would say that the pitch has to be right, be it in terms of how you prepare your presentation. Always make sure you know the mindset of your clients. What kind of questions may arise from the investor?
Build a story around what you are doing today, and also give the picture of what can happen tomorrow. Most importantly, the founders who have thoroughly thought through all the pain points and how they are solving them have an edge over other founders.
It is similar to hiring a new employee, you will have to sell a story, saying why this is the best company to work for. It is the same story you pitching to the investors also, why this is the best company to invest in!