It is important to take the right call on the product, the team, the market trend, and the timing in early-stage investments to find the right investment bet to help startups scale up to become billion-dollar ventures, said senior venture capital investors during a panel discussion on Venture Capital: Building billion dollar businesses at Mint India Investment Summit.
“The tech or product, team and the market, these make a great business. India grows at 7-7.5% real GDP, which comes to a nominal GDP growth of about 11%. You pick up consumption, you get another 3% kicker. You pick up a sector inside consumption, whether its retail, healthcare, FMCG, and you get another 2-3%, and then you get another 3-4% by picking the right company. That CAGR in a 7-8 year cycle gives you an outcome that is very large," said Gaurav Sachdeva, managing partner, JSW Ventures.
The product, team, and market are important, but early-stage investments also mean lack of enough credible data to analyse these aspects. Thus, betting on the right founder is critical, said panellists. “In the early-stage business, there is not a lot of data to depend on. So, a lot of it comes down to being able to perceive whether the person sitting across you, the founder, is a money maker. There are different types of opportunities in the world so there is no one type of person that can be the cookie cutter answer to where money making is done," said Mohit Bhatnagar, managing director, Sequoia Capital India.
One has to also evaluate the sustainability of the business model to achieve that scale, while one is looking for scalable businesses, according to Rajesh Sehgal, managing partner, Equanimity Investments.
“We all believe that this team, for this time, for this market with this technology is going to be able to spell magic. The only caveat that I would like to add is how sustainable that scalability is," he said. Ritesh Banglani, co-founder and partner, Stellaris Venture Partners, cautioned that it is important to catch the right market trend, or else, a startup might face many challenges despite having a great team at the helm.
“Very often if you have picked a great team, but the market trends are going against you, it’s very, very hard to build a business, even if it is a fundamentally sound business. On the other hand, very often, a rising tide will float all boats and we have found that a big part of venture success is to be able to forecast a market whose time has come," said Banglani.
According to Pranav Pai, founding partner and chief investment officer, 3One4 Capital, scaling up throws several interesting challenges at startups, one of them being allocation of capital. “By the time they are at Series D they might be in the top three in their sector, they are thinking about what to do next, what’s adjacent. That’s where there is a lot of divergence in thinking and that leaves a lot of founding teams confused on what do they do next," said Pai.