The Indian seed stage ecosystem is capital starve — most funds are investing larger checks at a later stage
Mumbai-based Mehta launched a venture capital fund called 100X.VC in July, which will invest in 100 start-ups in one year.
New Delhi: Sanjay Mehta, a serial entrepreneur-turned angel investor has invested in over 130 companies since 2011, including OYO Rooms, Box8, LogiNext, and Block.One. Mumbai-based Mehta launched a venture capital fund called 100X.VC in July, which will invest in 100 start-ups in one year. Edited excerpts from an interview:
The Indian seed stage ecosystem is starved of capital— most fund managers are investing larger checks at a later stage, in a smaller set of companies. All the investors who earlier used to do seed stage funding have moved up the ladder and now fund across later stage deals. In fact, according to reports, seed stage funding has reduced by over 70% in India. My aim is to fund 100-odd companies in a year, investing between ₹25 lakh to 1 crore per startup and ensure that I become a feeder for the next round, so the venture capitalists (VCs) will get a ready pool.
How will this work?
I will run this like a class. We will have 4 classes or 4 batches of about 20-25 companies every quarter. I will give them the seed funding and work with these founders for 30-60 days like a finishing school, help them become investible and then do a VC pitch day. So, we will get 150-200 investors in a room where this class will showcase their business plan and make the pitch. Any founder takes typically six months to reach all the VCs. Here, I am getting them the ecosystem in one room; so, the advantage with this is that it will cut short the time of reaching out and there is no fear of missing out on any VC.
How do you screen start-ups?
We have already got a phenomenal response. More than 400-plus companies have applied to join the class. We have five parameters for screening. First is the founders’ selection—do they understand the space, do they have domain expertise. Typically, we fund a team, not a solo founder. Second, does the business model have strength. Third, what is the unfair advantage or moat, and last is the conviction of 20x return—will I be able to get 20 times return on my exit.
I have had 12 exits till now, over seven years of investment, 14 companies dead but I just write them off; I don’t get into the salvaging business.
My belief is that we should be able to create 200-odd unicorns in India by 2025 and I should be part of that unicorn list in at least 10-20% of the companies. If I have to do that, I need volume-based investing. Another learning which I have is what in baseball is called the Babe Ruth effect, which means every ball which is thrown to you, you will push it out of the park. So, the more shots I have, better the chances are. If I invest in 100 companies, the outcome is higher.