Valerie Red-Horse Mohl (Social Venture Circle): Our criteria are very strong on impact, but we also expect the financial return, this is not a philanthropic giving
04 Jun, 2020
Sanjay Nath is co-founder of Blume Ventures in Mumbai, India. He is also a board member on the Draper Venture Network (DVN), an affiliation of global venture firms. He also represents Blume as a founding partner-member of Arka Venture Labs, a cross-border B2B seed fund along with Benhamou Global Ventures (BGV) and Emergent Ventures.
I’ll just tell you a bit of my background. Blume Ventures was started by Karthik Reddy and me. We were both Indian engineers and then we were in San Francisco in the US. We’ve spend between about 5 to 12 years in the US respectively and then came back. I have a management consulting background, foreign marketing background. I’ve spent time with Sun Microsystems. It was around the turn of the century. Then I was with Price Waterhouse and IBM. Karthik had financial background, he ran a private equity division for Times Group. We met through a group called the Mumbai Angel investor group, which was basically started around 2008-2009. The first wave of entrepreneurship was happening in 2010. The moment was we saw all those interesting ideas coming out. The whole idea for Blume was that we wanted to take the best of the Angel network, but we became like a super-angels fund, while not losing the power of the network. Then it was the Blume fund #1, which was set up in 2011. And it was institutional fund, but still acts like an angel fund.
We actually look for a founding team. We typically don’t like to back single founders, we like to work with at least 2 founders. We like founders who are really-really big into solving problems. They are doing it, obviously, to get rich, but they also want to solve a very large problem. That’s one. Secondly, obviously, the market size should be large. And, of course, India is not the only point. We support startups focused on the large India market and, of course, those building in India for the global market. India is a source of talents. And there is a lot of products built in India for the whole World. So, we want large markets. And the third part is uniqueness of products or solutions. Even if the market is large, you need to understand why to support this team, this product, how unique is it and how different is it from the competitors. I don’t want to come to Palo Alto and find three companies with exactly the same things. This changed over the years, because when we started in 2011, we were a micro VC fund, we were investing $100-200k. Today we’re doing $1m investments. Today the proportion of the market size is very important because we’re a $100m fund. Back then it was about finding a right team wishin to build a big company, but today the estimation of the marketplace is much more important.
We are interested in 3 areas. The first is businesses focused on the consumer market in India, the second is SME, and the third is enterprise level, B2B software products built in India for India and the World. In the consumption part these are what you call “bread and butter industries,” like Financial services, FinTech, Healthcare, Education Tech, but we also look into AgriTech. India has one of the the largest agricultural industries in the world, so AgriTech and Logistics are very interesting. We are looking at every space where technologies may be enabled. We are not doing consumer brands, like coffee chains, restaurants and shops. Those are interesting option in India, but it is not for us. As of B2B side one of the most interesting companies is a robotics company called GreyOrange. They make robotic solutions for automated warehouses. This is a great example of company that built in India, but goes after the global market and is serving the automotive, warehousing and logistics industries. So on the B2B side we look for IoT, AI, enterprise software. Regarding software, we have an example, company called Agara Labs, which is, basically, conversational AI to transform the call centre industry and customer support in the consumer products industry. So there has to be some element of technology that can disrupt it. And the last part is SME management, we can try to provide financial accounting solutions and other ways to transform their businesses. These are the three direction of wide range of sectors we look at.
Our first fund was really small, something like 15 to 20 million dollars. At that time we did only seed stage and investments were $100-200k. The second fund, which was 60m, we raised our investments to up $500k. Today we sign $1m checks. We are consider ourselves pre-A because India is a large market with a lot of capital available, so VCs here write checks of $3-5m. Founders today also need more capital. If in 2011 they raised $500k rounds, today they raise $2-3m rounds. We are pre-A, we like to enter at seed stage.
With all the things happening today, COViD-19 and all these, we still want to see a bit of traction. We want to see that the team is more than the stools for people. If it is a consumer market, we want to see more than a prototype, rather a product that has been in use, that has a good amount of downloads. On the enterprise side we want to see paying clients. Actually, we like to see companies already operational. We don’t back companies after pitching and talking over coffee, we want to know them, see what board members think about each other. And we want to see some traction and give them money not to stabilize a company, but enlarge their market. Because of the reputation Blume has built, more and more teams approaching us take it seriously. We have to have somebody from the ecosystem in the industry to vouch for that founder, ensure, that the startup has an interesting project and a good team.
We are focused on the India market, but we see a lot of various possibilities. Usually most of the founders are either Indians or of Indian origin. One of the companies we backed is called ZipDial, that was acquired by Twitter. And there was a founding lady who studied in America, at Stanford, and then came back. We have another company in agritech business, Jai Kisan, which means “Power to the Farmer!” One of the founders is Indian, the other is Filipino-American. You can see that Indian entrepreneurs started looking at global markets. We have one company that’s based in Europe with an Indian founder. It is interested in clean energy, in catching the carbon dioxide coming out from chimneys to reduce the carbon footprint. A lot of European companies are interested in their technology. We cannot just come, say, to Ukraine or to invest in Polish founders interested in French market, but we support Indian entrepreneurs aiming for the global market.
Major idea of making a startup, for us, is the desire to change the world, and it is great to have that vision and that confidence. But you need someone as sounding board, somebody who will tell you what will work and what won’t. And we want that sounding board that gives an objective feedback. And you need a team of complementary strengths. One person is really good in fundraising, building investment relationships, building the ecosystem, somebody else is working at the product, and the third person is maybe building operations on the ground and in the office and doesn’t really want to be visible to the outside world. So complementary skills are very important, that’s why we want to find out how long the founders have known each other, can they fight, can they disagree, how do they resolve conflicts.
I would say it was a very interesting team. I think that Steve Jobs needed Steve Wozniak and vise versa. You cannot have two Jobs or two Wozniaks in a team. Both of them have a role to play. If you look at teams behind world changing ideas, you may find that those weren’t nice people, but they’re making the world. Steve Jobs is a perfect example. Do people know him? Absolutely. Had he changed the world? Absolutely. Would people like him or invite him to their house if they could? Of course. Was he a nice guy? I’m not sure. So you need a balance. We have some very hard charging CEOs. They are good people, maybe not great, but they changed the world. But you have to have a Steve Wozniak with them, the one who hire people, who is nice to customers. I absolutely think that to build a company you can’t be just a great individual contributor, you have to be able to hire good people or have someone who can do it. This is a key function of a good CEO.
This number has changed a lot now. I think the cold emails, pitches and contacts through LinkedIn, etc. could be 3000 or more a year. India has a large market and everybody wants to be an entrepreneur, which is both good and bad. To separate the best from not so good, we have a team of analysts, who evaluate the quality of the pitches, who look for interesting areas and marking them against those pitches. When we started, we were looking for interesting ideas of any kind, now we are more specific. AgriTech and FinTech are very big markets here, because more power is in the hands of farmers today. That makes one interesting sector. SpaceTech is at very early stage, but it is going to grow in the next years. So, more than 3000 companies called, all of them filtered, and $100m fund invested, I think, into 20-25 companies over 3 years.
We have built quite a strong brand, we’re known as one of the best homegrown VCs. We have Accel, Sequoia, LightSpeed, many others operating on Indian market. Blume is known as one of the best early stage VCs. The best strategy to reach us is to find somebody who can introduce you – our portfolio founder or CEO, an advisor or mentor to Blume. This is always helpful to find a person who vouches. Of course, we have LinkedIn and Facebook pages, we are very active on Twitter and open to requests. We speak a lot at conferences and panels. We are a part of Draper Venture Network – a global affiliation of venture capital funds. We also have strong connection to Silicon Valley, because Karthik and I spent a lot of time there. Indians, who were successful there often want to come back. All these are sources for startups to us.
We, investors, often say, “Investment is a line, not a point.” And however good is a company at the first meeting, we like to track it, see, how they move, have they been able to sign new customers, etc. Average period from the first contact to the term sheets given is 2 to 3 weeks and it is another one to two months till a check appears in a bank. So, it takes time to know each other with founders. First we meet in Bangalore office, then one of my partners meets with a team for a coffee. Then we get our analyst to look at this space. We make some customer due diligence. And only then we have finally an IC process, we check all the materials gathered by the team, the founders come and present the team and somebody has to sponsor an investment. And I would say it takes about 3 months from the first meeting till all the money’s in the bank.
We are starting with about $750,000 at the low side to about $1,5m, maybe $2m with our current fund. We also have Arka Venture Labs, which is an enterprise B2B cross-border accelerator platform, launched in partnership with Benhamou Global Ventures and Emergent Ventures. It’s an interesting B2B idea that is a product aimed for the global market, better based in the Valley and be targeting other companies and customers based in the Valley. That entity got smaller checks, less than $100k. Also, very selectively, Blume may consider higher investments into companies of founders we know really-really well; it would be $250k for Arka and more than $2m for Blume itself.
Most venture capitalists are underwriting for at least 4x to 5x, which means that the fund should return at least 5x gross and 4x net. Your largest companies will bring you that 5x, but we are all always look for unicorns. Everyone looks for the next Flipkart, an Indian e-commerce company bought by Walmart for 16 billion dollars.
Coronavirus became one of the global red flags, because corporations are cutting back their spendings, there are mass layoffs, people become paranoid, stopping buying products and services. This is a microeconomic red flag today. On the fund level, we look at the founder’s integrity, does he have a maturity to deal with bad news and deliver, how he fights. Is he telling us the truth. If you heard that one employee stealing or financial mismanagement happen when you heard about it – what would you do? If a founder is not open, very rigid, doesn’t like a feedback and doesn’t listen to advise, it is a big red flag. You can fix a lot by hiring proper people or changing your model, but you need to listen what you’re told. Today the ability to raise capital, to persuade investors, or stakeholders, or customers, or employees to join you and invest is very important, and if you cannot do this, it is a red flag. The ability to build a team is crucial as well: if nobody wants to work with that person, it’s a red flag for us too.
It happens all the time. We are in the tricky business, we try to predict a company’s future. There are always companies we liked and looked at, but passed for multiple reasons. Obviously, some of them have done well, but I like to compare it to the bus: if you missed one, there is always be the next one coming. We make decisions in limited time based on limited knowledge and the market moves fast. You always miss something, but get something in exchange. For example, we had a company aiming for growing real estate market in India, proposing some technological solutions for the real estate. The idea was right, the market was right, the founder and team were wrong. We’re literally back the wrong horse. You may regret the backing of a wrong team, but if the team was right and they did their best, you will never regret it.
We supported a robotics company Systemantics, which is still quite exotic and even glamorous idea in India. The company is building robots moving around warehouses. Their next project may be drones. It is very interesting. Even the carbon capture company is very interesting, because a technology of separating carbon dioxide is not what you find every day. And we backed a very interesting company which is now become mainstream, called Dunzo. Basically, they are handymen, ready to do any tasks for you, like even bringing you not a full pack of cigarettes, but just a couple cigarettes. So this is a company providing you handymen and handywomen with tremendous focus on delivery. At the next round they were backed by Google, because they have very interesting insights about people’s buying behavior. We backed a Bitcoin company called Unocoin. It was a very successful business in India, but when they installed their first ATM, both founders were arrested, because it was ruled to be illegal in India. They were later released and fought against this regulation. This year the ban was lifted, at last. All this story was kind of participating in Hollywood movie, you know.
Industries like Warehousing, Logistics, Industrial Goods and Services – all of these will be always very profitable. Still we don’t invest into these spaces, but do invest in technologies that transform these industries. Also Blume never invests in consumer brands; while that’s a great idea we just set up not to do it. Yoga, Coffee, Fitness, Organic Produce – they need special consumers, millennials, young men and women. These are very attractive industries, but we don’t invest there.
I have to say I feel quite guilty here. I’ll give you some names but I am very skilled at picking up books, reading them and not finishing. In November in India we have a big festival – Diwali, and every year the gifts for the Blume founders are books about startups and entrepreneurship. The last year it was the latest book by Ben Horowitz What You Do Is Who You Are: How to Create Your Business Culture, I think this book is very important, as well as his Hard Thing About Hard Things. Peter Thiel’s Zero to One is a great book. I hadn’t read Trillion Dollar Coach by Bill Campbell, but many members of my team said that this is a great book. In terms of movies, I think Steve Jobs is a good movie. Sequoia Capital made a documentary about their history, and it is also an important material to understand business world. Social Network by David Fincher, while being very interesting to watch has an important message for founders: this is a game of high emotions, and you have to be ready for it for the long time – it’s not for the weak-hearted. I often see it with VC funds, that people do not realise, that it takes 20 years, not a year or two, to create a company. All these books and movies carry this message for startup founders: You have to be ready for a long game, for 20 years of hard work ahead. It is not about quickly getting rich.
The first one, obviously, Apple. Definitely, it comes with Steve Jobs personal ups and downs, like that he started the company, then skipped out, returned later. Basically he brought the element of design and user experience into Apple products. I think, user experience was invented by Apple in some sense, because there were some fantastic products before, but none gave the emotion that people feel when they have an Apple product. It is different. The next one is Amazon for its ambition to take on the world and dominate it. Starting for its name – the largest river in South America. I give you only American examples, still Google will be the third one. It is constantly innovating, and not only its search engine, but self-driving cars and hardware to recruiting and building a fantastic community of googlers. Those are top three, but I’d like to mention others. Like Zoom. I think, it is an incredible company. It used to be Cisco Webex, and now we have Zoom – this thing is so simple. I’m a big fan of it, I stopped using Skype. Or Tesla: there is one man’s ambition to send people to the Moon, to come up with EV cars, that put EV on the map, and now all Fortune 500 companies spent money on interesting projects.
I didn’t invest yet, but I’ve been mentoring a young startup by undergraduate college students called Pixxel. They send nano-satellites into space and build high-resolution images and maps that can be used in agritech. The SpaceTech is going to be huge. It is going to transform our lives. We always were fascinated by explorers, by adventurers. Sometimes we even call ourselves “Adventure Capitalists!” You need to embark into adventure, this is how you discover new things. SpaceTech is very interesting, but it requires a lot of capital and a lot of stomach to go.
As a part of Blume Ventures and personally I have something standing in front of us. We have to deliver results from India. Our country is the world’s hub for talent, like CEOs of Google or Microsoft. But many of these people and startups were going to the Valley. Still we have some fantastic Indian companies, and this is what makes me happy. We deliver fund 1, deliver funds 2 and 3, we helped some great Indian startups who exited with significant value. When we started Blume, it was about “What can we do to make the world a better place?” In times of crisis the whole world comes together. And not only in crisis: we are sitting in different countries half a world apart – and are talking together through Zoom. If you asked me what would makes us happy, I say that it is when we deliver some results, when we can support entrepreneurship around the world. This is why we became a part of Draper Network – to see how we can change entrepreneurship globally. In the new world companies can have a globally distributed model, and maybe their headquarters located in India, or maybe in Kyiv or Luxemburg, while the head of sales stays in London. When India will open its borders after all the coronavirus settles, maybe we have even a lot of foreign entrepreneurs here. Silicon Valley is not special because it is America, still everybody wants to go there. Can India be like that? Great not only for Indian founders, but from people all around the world? That would make us happy.