What Funding Winter! Have Set Eyes On 100 Startups This Year: 100X.VC’s Ninad Karpe

With an aim to have 500 startups in its portfolio in the next 2-3 years, homegrown early stage venture capital firm 100X.Vc has its eyes set on signing 100 startup funding deals this year, Ninad Karpe told Inc42 in an exclusive interaction on the sidelines of the MoneyX conference that was held last month.

100X.VC, a sector-agnostic VC investment firm, typically invests in early stage ventures and writes small cheques on the lines of the US-based startup accelerator, Y Combinator.

The investment in early stage startups is converted into equity when they raise Pre-Series A or Series A funding. The funding happens through an instrument called iSAFE (Safe Agreement for Future Equity) notes.

Karpe credits his firm for introducing this concept to the Indian startup ecosystem and is not pioneering the show. The instrument has now been adopted by many early stage venture capital firms. According to Karpe, this investment process usually restricts investors from having a seat on the board and curbs the time of the deals that take months to close, like in the case of conventional startup funding.

Founded in 2019, 100X.VC is a SEBI-registered fund, which is led by angel investor Sanjay Mehta’s family office, Mehta Ventures.

Speaking on a range of topics, from funding winter to corporate governance issues plaguing the world’s third-largest startup economy, Karpe outlined that neither there is a dearth of deals nor investors looking to place their bets. However, founders today need to get their act together in striking a balance between dos and don’ts while sitting on heaps of investor capital.

Edited excerpts…

Inc42: What impact has the ongoing funding winter had on 100X.VC’s investment strategy?

Ninad Karpe: Funding winter is a big word. It is all-encompassing, but, if you come down the ladder and slice and dice, there is no winter in some cases.

As early stage investors, we get 25,000 to 30,000 pitch decks every year. While, on the one hand, there is no dearth of deal flow, on the other hand, there is no shortage of interest from angel investors to invest in the early stage.

Also, we are witnessing greater interest from a lot of individuals who are willing to take high risks with small ticket sizes, which is a good sign. Another positive development is that we are seeing a lot of founders emerging from Tier II and Tier III cities, which has only added to the deal flow.

So, when we talk about the funding winter, the pressure is more at later stages, Series C, D, E, and so forth. However, we provide bigger VCs a solid pipeline of startups to invest in for the next 3-5 years, and by then we believe any remaining traces of the funding winter will subside.

Inc42: So, according to you there is no funding winter right now?

Ninad Karpe: I think the exuberance is gone and reality has struck, and this is both from the perspective of founders and VCs.

I think we are at the fag end of the funding winter. In the next couple of months, we should start seeing more and more funds where people are more realistic about everything, sans the blind chase for startups or ideas.

The Indian VC ecosystem is still nascent compared to the West. There is a lot more headroom for a country of our size, and we can easily grow a hundred times from where we stand today.

Inc42: How many number of deals have you closed this year?

Ninad Karpe: While we have already closed 47 deals so far this year, we intend to do 100 deals in 2023. As of now, we aim to close 30-40 deals, however, the range could vary between 80 and 110 deals. Notably, these will be the startups from the 30,000 pitch decks that we have received this year alone.

Inc42: Is there any corpus that 100X.VC has built to invest in startups?

Ninad Karpe: So, we want to keep investing. We are the first institutional cheque writers, and we want to continue with this philosophy. Within the ecosystem, founders know that 100X.VC signs the first institutional cheque by deploying founder-friendly, agile funding instrument iSAFE notes, which we have pioneered in India. So, we want to continue doing this.

Inc42: Are you looking at any specific industry vertical to invest in this year?

Ninad Karpe: Given that we are sector agnostic, we look at groundbreaking ideas, which don’t get funded by anyone else.

Inc42: What is 100X.VC’s exit strategy? Is there any timeline that you set?  

Ninad Karpe: Since we are the first cheque writers, we take a more patient approach. Realistically speaking, I don’t think that we will get an exit within five years from our investments. Given that our fund is only four years old, we haven’t had any major exit yet. However, we expect some good news in the next 1-2 years.

During the pandemic, our investment slowed down, but we are back with a bang, and we want to invest in a hundred startups every year. Hopefully, we will have 500 startups in our portfolio in the next 2-3 years.

Inc42: How have the recent issues around corporate governance that cropped up at several big Indian startups impacted your strategy or relations with your portfolio companies?

Ninad Karpe: Corporate governance is an issue that needs to be fixed. It has happened in some cases due to various reasons.

At 100X.VC, we don’t take any board seats as a VC, however, we have now started including a separate session on corporate governance and its importance before investing.

Corporate governance issues that have recently cropped up among Indian startups could be a lesson for many founders on what should not be done.

Also, founders should be aware that if they mess up, it is pretty much over for them. The situation of bad actors in the ecosystem can be kept at bay if the guilty are easily let off the hook.

Inc42: What, according to you, should young startup founders learn from recent corporate governance issues?

Ninad Karpe: Founders today need to understand that if they have the requisite capital, it is unnecessary to spend it all, just because they can.

In the Indian startup space, a root cause of the evils that have recently emerged is the flow of excessive capital, and hardly restriction on spendthrift founders.

I don’t think this will work anymore. However, this also does not mean that investors do not want founders to scale their businesses. What is important is to understand the nuances to strike a balance between dos and don’ts.

We need to understand that young founders come with a lot of enthusiasm to make a difference. They’ve quit jobs or they’ve not gone for jobs and come to the startup ecosystem where the success rate, at best, is just 10%.

When capital was flowing freely, many failed to spend it consciously. However, this will be history now, and the Indian startup ecosystem is going to see a lot of disciplined founders emerge not too far in the future.