“We take the path less travelled,” quipped Japan Vyas, managing partner at Roots Ventures, pointing out that the fear-of-missing-out (FOMO) is overrated.
Founded in 2018, Roots Ventures was started by Vyas, former managing partner of Sixth Sense Ventures and director at IDFC Investment Advisors (IA), along with Ravindra Vashist, former senior vice president at IDFC IA and director at Banyantree Finance and Yes Bank among other senior management roles.
Currently in its first fund, the firm has recently closed its maiden INR 200 Cr corpus with a green shoe option of INR 100 Cr to invest in early-stage and growth-stage consumer brands, consumer tech platforms (mobility) and consumer ancillaries (be it logistics, financial services and contract manufacturing). The fund is backed by a series of HNI investors. Also, Paytm founder Vijay Shekhar Sharma is part of the fund, where he is an anchor investor.
Recalling the initial days of investing in niche startups, Vyas told Inc42 that he had invested in One97 Communications (Paytm) in 2010 when fintech/payments was an unknown entity.
Further, he said that in his second fund, he took a big call on financial services in 2012 when the sector was still nascent.
Similarly, at Sixth Sense, a consumer-focused venture capital firm, Vyas was more keen on investing in private labels and ecommerce-enabling sectors when ecommerce was still booming.
At a time when B2B startups are gaining major traction, particularly in the SMB and horizontal SaaS sector, the fund is focussed on consumer startups in fintech, D2C, mobility, pet grooming and other areas that can be considered unconventional at best. “If a sector is hot, we will tiptoe around it carefully,” said Vyas.
Going Beyond The ‘Tyranny Of Distance’
Carrying forward the same philosophy at Roots Ventures, Vyas said the focus is on ‘People Matter.’
“Educational degrees do not make us starry-eyed, and there is no ‘right age’ for our founders nor does the ‘tyranny of distance’’ prevent us from backing the right founders,” added Vyas.
Here ‘tyranny of distance,’ refers to a book by an Australian historian Geoffrey Blainey; where he talks about how distance played a major role in shaping the economy of Australia and New Zealand. In the Roots Ventures context, it is exactly opposite, where the founder stated the fund will go the extra mile to find the right founders irrespective of the distance, geography and condition of the location.
Roots Ventures claimed that it backs first-generation entrepreneurs, which includes a mix of young, old, men and women founders, thereby keeping diversification of founders in its portfolio, unlike a large majority of the funds in the country which back serial entrepreneurs, graduates from top colleges.
“Our youngest founder will be in their 20s and the oldest is in their 60s. I am personally biased towards founders who come from a humble/back against the wall kind of a background,” said Vyas. However, he clarified that the process of selecting the startups does not have any bias to play out and each founder is judged on the same parameters.
Further, talking about the return of its investments at Roots Ventures, Vyas claimed that it looks to generate a multiple on the investment. “By its very nature, some investments may not work out and on a blended basis on the portfolio we always try and attempt to generate significant absolute returns for the investors,” added Vyas, emphasising on how they spend a lot of time on portfolio construction and thinking about how each of them fit in the whole investing game.
Why Consumer-Focussed Niche Startups?
In a short span of time, Roots Ventures has done 10 investment deals, where 10-15% of its portfolio is in seed stage initially with follow-on rounds. Roots Ventures told Inc42 that the typical seed stage ticket size would be ranging from anywhere between INR 2 Cr to 4 Cr ($500K), and keep adding on to that till Series A and Series B. “Overall exposure to a single company can be anywhere between INR 15 Cr to 24 Cr. Occasionally, we may directly invest in Series A and Series B startups or late stage or listed startups,” he added.
At present, the focus is on investing in B2C startups that are focusing on “expanding the wallet size of Indian consumers” and “adapting to the changing nature of customers.”
“We believe that today, people are moving towards the premium category, and are looking for ‘good-for-you’ brands, where many people are slowly getting aware about what they consume and how it is impacting them, as well as the environment,” said Vyas.
Few of the niche startups in its portfolio include Smytten, a discovery and go-to market platform for premium brands; mobility startup Rahho; pet grooming startup Capt Zack; ayurvedic startup Just Herbs; and traditional Indian sweets and savouries startup Misht among others.
Besides providing capital to its portfolio startups and raising funds for their growth, Roots Ventures said that it provides mentoring and help them in hiring the right team, discussing new ideas, connecting them for strategic collaboration outside and within its portfolio startups among others.
Further, commenting on the Covid-19 times, Vyas said that to the credit of its founders, all of its portfolio startups performed really well during the pandemic times and had a runway of 12 to 15 months. “By July 2020, more than two-third of our portfolio was already above pre-COVID numbers during the pandemic times and are already attracting investments,” he added.
Currently, Roots Ventures is working on pure early stage products centring around consumer brands. In the coming years, it said that it will be launching new products where we will be investing more towards technology. “Going forward, from your traditional style of VC investing, we will be combining all this to come up with new products, keeping investor-focused philosophy at its core.”