PeerCapital’s Ankur Pahwa On The Valuable Capital Thesis & Early-Stage Bullishness 

Ask any early-stage investor, and they are likely to be bullish about the current crop of founders and startups that have emerged in the past year and a half. For PeerCapital managing partner Ankur Pahwa, it’s not just that the funding winter has precipitated all focus to the early stage, but it’s also about what lessons founders are carrying from the slowdown of the past year.

But backing this vintage of founders and startups means bringing a lot more to the table than just capital. Which is why Pahwa and PeerCapital have built their fund around the ‘valuable capital’ thesis. In that sense, perhaps the early stage fund is a bit more hands-on when it comes to backing founders.

“Investor-founder fit is equally as important as founder-market fit or product-market fit. In our case, the founder needs to be willing to work with us in building together. We don’t compel anyone to build with us, we trust you, but we want to help you build to maximise your chances of success,” says Pahwa who founded PeerCapital after quitting EY where he was the leader of the ecommerce and consumer internet business.

The Bengaluru-based fund completed the first close of its maiden fund at INR 300 Cr ($37.5 Mn) in February this year, with the final close targeted for September 2023 to raise between INR 600 Cr ($75 Mn) and INR 900 Cr ($110 Mn+) including the greenshoe options.

Pahwa is joined at PeerCapital by managing partner Rohit MA, the former MD and cofounder of Cloudnine Hospitals and Karthik Prabhakar, also the managing partner, and the former MD of Chiratae Ventures.

For Pahwa, the fund’s focus on seed and pre-series stages again comes from the stage at which he believes the fund can best intervene in a startup’s journey. He believes that each of the partners brings a unique perspective to the deal evaluation and offers a different value to the portfolio that is a competitive advantage given the amount of activity in early-stage funding.

With an eye on 30 investments through its maiden fund including follow-on bets, PeerCapital is bullish on fintech, healthtech, SaaS, climate tech and consumer tech services, with a sharp subsegment thesis.

Even before the fund, Pahwa and Rohit have been investors in close to 30 startups as angels. Besides Vaaree, Saveo and One Impression, PeerCapital has also invested in wealth tech app Jar, Indian Twitter rival Koo, social commerce platform Furrl, privacy app Doosra and workplace management SaaS tool UrSpayce.

Despite being a first-time fund manager, Pahwa has been a mentor to startups and investors over the years and he continues this role through initiatives such as the Inc42 AngelX fellowship programme, where he will be one of the mentors for aspiring angel investors.

Joining our Moneyball series this week, PeerCapital’s Pahwa talks about how VCs need to offer value beyond capital, the bullishness of the early-stage investor ecosystem and why the lessons of 2022-23 will hold Indian startups in good stead.

Edited excerpts

Inc42: Firstly, I wanted to ask about your transition from EY to PeerCapital. You spent 23 years at EY, so it must have been a major push that shook you.

Ankur Pahwa: Yes, it was a major push. It was the pandemic.

Once you spend so long in an organisation, it’s always tough to think about other opportunities. I think I was fairly lucky to have been working with the startup ecosystem for the last 14 years since moving to Bengaluru in 2008, when the entire ecommerce and startup journey was beginning with Flipkart and others. Even the VC industry was just breaking out.

Then there was Covid. It was one of the busiest years in the consulting world since massive companies needed restructuring, companies were also raising capital. Obviously, besides work, a lot of my energy was going into thinking about the wellbeing of those around me and the larger world. I asked myself that while what I’m doing is great, what am I doing that impacts a broader set of people.

That’s what got me thinking about how I can expand and deliver more on the learnings that I have over the past two decades and create a bigger impact. I got a ringside view of business building, organisation building, what makes companies succeed and more importantly, why companies actually fail. That’s the value that I wanted to offer to startups.

Inc42: You mentioned seeing up close why companies fail. What do you think is the reason? 

Ankur Pahwa: Companies never fail because of capital. Capital is in many ways table stakes in this business, why they were failing was because they did not have the right value prop, the insight or the help that they needed to scale successfully, or pivot or find the lending that was that will at least keep the lights going, you know.

A lot of success stories are built around these tiny things going right. When Karthik, Rohit and I met, we arrived at the consensus that we need to marry financial capital and intellectual capital to create what I term as valuable capital.

This valuable capital is actually what creates the most outsized returns and impacts for the ecosystem. The core idea was that capital is a commodity and to succeed and to really win, the value piece has to come through more strongly. And it’s reflected in how we built our thesis as well.

Inc42: Is there a framework that you had in mind when building your thesis around valuable capital? 

Ankur Pahwa: We knew certain things made business sense.

We looked to invest in the seed to Pre-Series A stage in the $2 Mn cheque size range because we saw the the VCs that were doing this were vacating this space as they raised newer funds. It was going to become harder for them to deploy small seed cheques, so as they graduate, who’s gonna fill this space?

Secondly, this is also really where our skills also came into the picture more strongly than otherwise. It’s our competitive advantage because as an investor clarity and discipline around the overlaps of your interests and your beliefs are key success factors. We knew the zero-to-one journey and it is the best place for us to apply our skills.

All problems are not created equal. Success for businesses comes from identifying the right problems and creating solutions for these problems in a functional manner. So the real opportunity is the problem and not the solution, because the solutions can keep changing.

So we look for this mentality in founders and once we find such a founder we look to see how well they might fit within our ethos where we look to go beyond capital. We want to be true peers that they can grow with.

The third thing was to calibrate our focus around the sectors. A very focused portfolio strategy helps us create impact in our portfolio companies. And that’s ultimately what creates the outcomes.

Inc42: Could you delve deeper into exactly what value you talk about and why it’s so critical for PeerCapital.

Ankur Pahwa: People talk about PMF, or founder-market fit as sort of elements that they use to guide their decisions. These are of course important. We are looking at founder-investor fit because this is a long-term relationship because we bring more to the table and they need to be ready for it.

Personally, my experience from EY is also very relevant in the current environment where we are all talking about corporate governance and fraud, etc. So at least if I look at my northstar metric, it’s about being able to trust a founder. Capital is an instrument of trust and belief in a founder and their vision.

The three of us had not obviously run a fund before, but we have been strategists, operators and investors for the most part of our career. I’ve raised money for companies, I’ve diligenced companies, helped them from a strategy point of view, go-to market and scale. I looked at governance and so on.

We had complementary skills that are very relevant, especially in today’s day and age, when governance and compliance was becoming a big topic. So that’s the really critical value that we bring along with the capital.

Inc42: What kind of challenges did you face as a first-time fund manager? Are LPs asking a lot more questions in 2022 and 2023 given the spate of controversies in the ecosystem? 

Ankur Pahwa: Of course, our timing was not great. When we started to raise capital, the economic climate was not very conducive for new funds. Plus we were seeing some controversial issues at many startups.

One of the key things that obviously matter to an LP is the manager’s historical track record as an investor right. Rohit was part of the Sequoia Scout early-stage programme and ran a family office, Karthik has worked with Chiratae and I have been an angel investor and we have all invested with strong outcomes, but it’s still technically our first time managing the capital of others and getting the fund manager licence.

What was very clear in our mind was that what we haven’t done, we haven’t done. But increasingly, the startup LP network has started to recognise that emerging fund managers are actually some of the biggest value creators in the market.

LPs also need to see that VCs have very clear guardrails in terms of stage of investing and not be swayed by opportunistic or momentum investing that I call tourism capital. While the journey has been challenging, with what’s happening in the macro markets, we’ve actually not had that much of an issue.

LPs know you will not have a massive corpus target so their exposure will be limited. Plus funds such as us offer better portfolio diversification for the average LP. We are very clear about where we will invest. The third function was that LPs look for investors who are in it for the long haul. Our historical pedigree told LPs that we have stuck around in our organisations for a long time with the mission and vision of building long term monoliths.

Inc42: And as new investors in the market, what do you feel about the current crop of founders? Do you see a change now versus your time as an angel before PeerCapital? 

Ankur Pahwa: I think this entire funding winter is a little overblown, especially for businesses that are being built today. I mean startups that are raising seed funds now. We love the vintage of what we are seeing today. Maybe it is serendipity that we are building in this time. The quality of the companies, founders, and their asks are all exciting. They are not tainted by the habits of startups that raised tourism capital 18 months back.

Founders that started in 2022 and 2023 are frugal founders, focused on building tangible, sustainable, meaningful businesses. There is real business and real meat in what they are trying to build, versus just scaling up for the sake of it and only to reach the next stage of funding.

There’s this famous Ayrton Senna quote about driving in the rain about the difference between man and machine, “You cannot overtake 15 cars in sunny weather…but you can when it’s raining.” 

It’s the sort of market where the human element and the quality of founders makes a bigger difference than the funding.

Update note: March 23, 2023 | 9:47 am

Some portions of this article have been rewritten for clarity

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