#102- Future of tech investing
Indian tech, particularly software, is at a crucial point. The market is ripe for a B2B software fund which specializes in funding early stage companies with the focus of launching in the US and later listing in India. There are enough playbooks to build in India, launch in the US, and do so sustainably. This also promises tangible returns to all stakeholders - employees, founders, and investors.
What?
The fund would invest and enable 15-17 software companies to-
Build strong products
Fund to launch in the US
List in India
How?
Building strong products is a no-brainer. We have ample talent comprising returning & homegrown founders/employees from different parts of India who want to build great products and a solid business. These founders must possess the vision and determination to scale their businesses to a ₹100-150 crore run rate in order to achieve a ₹1000-1500 crore valuation upon listing.
Penetrating the US market requires adequate capital - the UI, the BD team, the suave closing - these things need financial backing in the first 3-4 years. The goal is to fund these companies sufficiently to secure their first $3-5 million in revenues from the US. This is a crucial step in establishing a foothold in the world's largest SaaS market.
Listing in India is challenging and critical. Over a 7-8 year period, these companies need to become free cash flow positive, and with less capital raised than revenue earned. This disciplined approach aims for a minimum 50% success rate across the portfolio which is not unattainable with initial & follow on capital invested.
Why?
For Employees
Stock options become significantly valuable, providing a substantial financial incentive and reward for their contributions. Actual liquidity, not paper or manufactured artificially by raising more money.
For Founders
A partial exit at a ₹1000 crore valuation, owning 40-50% of the company, can be life-changing. It offers financial security and validation of their hard work and vision. Let us not kid ourselves here. We have seen a lot of go big or go home literature where founders end up going home emptyhanded - we have to change this narrative.
For the Fund
By staying invested until the company reaches maturity or stability, the fund can expect a ~5x Distributions to Paid-In (DPI) or a 25-30% IRR on the portfolio depending on the investment period.
Who?
Portfolio/Fund specialist
Someone who can source, make and run the investments, actually manage the portfolio and work with founders on a regular basis, i.e. the fund manager
US GTM specialist
Someone who can open doors, help formulate & navigate the market to get the first $ 3-5 mn in US revenues
Tech specialist
Someone who can get under the hood and to understand and provide the founders a direction to build products suitable for the market
Ideal LPs
Indo-US Founders
These individuals, having had multi-million dollar exits in the IT/tech sector, can bring invaluable experience, networks, and financial backing. They can serve on the Advisory Board, providing strategic guidance even as the GTM/Tech specialists above.
Family Offices
Having experienced the volatility of VC investing, family offices seek a systematic approach to investing in tech. They have the deep pockets necessary for patient capital and will value the structured, sustainable returns this fund promises.
What next?
There are a ton of founders who want to build solid, real, sustainable businesses, and companies which many consider to be 'zombies' who can grow 3-5x with some infusion of capital and rejigging the cap table.
There are LPs sitting on the side who want to invest in early stage technology but are wary of the traditional VC model (the less said here, the better).
There are fund managers who really want to invest in and earn returns from companies for their LPs and founders, and not just create podcasts and tweet.
So far, I've been involved with ~30 early/growth companies, some of which can/will/have built in a way that this ₹100 cr revenue mark is achievable and a tangible exit for all participants is possible.
The magic number for the marginal Indian company is not $1bn, it is ₹100 cr. This belief might be controversial, but it’s rooted in practical experience and a clear understanding of the market dynamics.
Maybe the industry is unwilling today, but this is a distinct possibility in 2-3 years when participants realize the importance of sustainable business building and investing.