Looking back at the financial year gone by
Last year was an anomaly - more and more VC funds were launched and raised, more first-time investors entered the fray, and more multi-million dollar rounds happened; yet we did not partake. We shared this document with our investment committee as a mark of our thought process.
As FY23 comes to an end this month, we’d like to take this opportunity to share what we’ve done in the past year. With the great VC funding boom in 2021 & 2022, we took a step back and worked on our core competencies. This document will take you through our thought process and actions over the last year:
Hit reset - Exercised the liberty of not having to participate in a funding boom
Narrowed focus - Focused on pre-seed & seed (early stage), B2B (predictable), SaaS (the future), and shared B2B SaaS thesis
Ran MVP programs - Focused, highly efficient, early-stage deal-flow machines with 175 pre-seed B2B SaaS deals screened over 2 cohorts
Sourced deals - Identified 5 pre-seed B2B SaaS deals (2 term sheets, 2 raised from others)
Expanded network - Connected with other investors, invested in another manager (deep tech B2B SaaS focus), formed partnerships
Value addition - Leveraged our core competency of intellectual honesty to help portfolio companies identify gaps, form fundraising strategies, and made relevant introductions
In 2021 & 2022 we saw multi-million dollar early-stage deals happening on the basis of ideas. We continue to not subscribe to that thought process and decided to exercise the liberty of not participating in the boom.
We identified B2B SaaS as one of the key areas of focus for Malpani Ventures. We continue to find value in startups selling to corporations that can improve and/or automate their processes to see higher efficiencies and/or profitability. Our previous successes in the portfolio (Vdocipher, Creditas, Callify) of creating software to help other businesses attested to us venturing into the space. We find it to be more frugal than a consumer or deep tech story. We shared our detailed thesis post-research.
MVP program was a frugal experiment to generate a very targeted inbound dealflow. The idea was simple, a time-bound application program where selected startups will receive a predetermined amount of capital at a predetermined valuation - taking away the laborious complications of setting terms. Over time, post the learnings of cohort 1, we tweaked the format to keep it range bound to provide us with the flexibility to go both over and under. We deem it a success after receiving 175 pre-seed stage B2B SaaS deals over 2 cohorts thereby giving us eyeballs on a considerable number of deals our peers were also looking at. We will continue running the program at defined intervals.
Out of the 175 deals we screened, we identified 5 which fit our mandate and liking. We issued terms to 2 companies. There were other companies which we really liked, but where we could not proceed partly due to our faults & errors. But we’re happy they received funds from well-known investors thereby also validating our initial hypothesis on the attractiveness of model, industry, and founder-market fit.
Expanded our network
While we hit a funding reset, we continued to build our network within the early-stage ecosystem by connecting with numerous other investors. This enabled us to get a clearer picture of the funding environment along with another set of eyes to get our deals screened. In the process, we identified IdeaSpring Capital as a fund we wanted to invest in. We also empanelled with a growth marketing firm specializing in B2B SaaS - GrowthSpree to help existing portfolio companies with their outbound lead generation.
All of the above is incomplete without putting it into action. We worked with portfolio companies to understand their issues. Some of them listed below:
Company A - Identified an ageing pipeline with cold leads which moved nowhere, the need to lower pricing to shorten sales cycles, helped the founder find solutions to issues within the team (letting go of CXOs which were not good fits, setting up a hybrid office to get the moral of WFH sales employees up), urged launching on marketplaces which eventually got ~$25k in revenues, 800 new users and invaluable user feedback, and made potential customer introductions
Company B - Identified 'capacity' as the make or break metric in becoming contribution positive, advised on the low probability of raising a large round validated by multiple investment banker inputs & discussions
Company C - Identified 'utilization' as the metric to predict customer renewals, made investor introductions & pitches for their raise, advised not to raise a large round due to low appetite from dipstick with other investors, and offered a bridge
Company D - Made introductions & first pitches to other investors to complete the round, counselled founder on valuation expectations vs reality, and ESOP planning
Areas of improvement
Cross-pollination of learnings & ideas within the portfolio is a key area of focus for us in the coming 12 months. We intend to hold an in-person founder’s event in the coming year for portfolio founders.
We made an error investing in a company. For a consumer business, we underestimated the level & impact of churn at scale. We also realize that pre-seed consumer businesses need to be adequately capitalized (between Rs 4-8 cr) to have at least 18 months of runway for experimentation.
All of the above makes us believe we are on the right track and that FY24 is the year to double down on the learnings & do deals with more confidence. Based on our frequent content marketing on LinkedIn, Substack, and Twitter, we now receive deals in broadly everything B2B with a focus on Healthcare & Software - which are what we intend to fund.
We have set ourselves a target of growing our portfolio companies in FY24, deploying a higher amount of capital per deal. We intend to do this with a higher quality and targeted deaflow rather than a spray-and-pray approach.
As always, we remain grateful to our principals - Dr Aniruddha Malpani & his family & our IC member Manish Gupta, our entire portfolio, the founders & employees at investee companies and partners we work with.