100X.VC: Bridging traditional companies and new-age startups

100X.VC: Bridging traditional companies and new-age startupsYagnesh Sanghrajka, Co-Founder, 100X.VC Image: Mexy Xavier

WWhen it comes to investing, Yagnesh Sanghrajka hunts for stickiness. “It has to have a unique value proposition,” says the co-founder and chief financial officer of 100X.VC, an early-stage mutual fund. The venture capitalist outlines the distinctive business style of 100X.VC, co-founded in 2019 by Sanjay Mehta, Ninad Karpe, Shashank Randev, Vatsal Kanakiya and Sanghrajka. “Everyone has to find the product sticky,” he says, using the example of BuildNext.

Founded by Gopikrishnan V and Finaz Naha in 2015, the Kochi-based tech-enabled construction company offers consumers a range of solutions ranging from visualization, estimating, product selection, procurement, budget control and project tracking. BuildNext, Sanghrajka points out, leads to a higher level of transparency and reduces cost and time overruns when constructing buildings. But for a fund that cuts a standard £1.25m check for a 15 per cent future stake in start-ups and also happens to be a first institutional investor, what was so tacky and compelling about BuildNext, which already had backers? “This is Pidilite,” he smiles.

It was a pointed letter to 100X.VC. Pidilite, the manufacturer of the adhesive brand Fevicol, was very interested in supporting start-ups with an innovative business model with corporate venture funds. Interestingly, BuildNext’s offering and the segment in which it operated had a strong overlap with Pidilite. “We knew that Pidilite’s products would make sense for this type of company,” says Sanghrajka, who conducted the first round of screening, evaluation, and preliminary discussions with the startup founders to gauge their interest, and then those who were interested brought parties together. What followed next was a $3.5 million investment by Pidilite in the pre-Series A in July of this year.

100X.VC: Bridging traditional companies and new-age startups

100X.VC had even more in store for Pidilite’s Corporate Venture Capital. Kaarwan, a learning and training platform for architects and designers, was spotted as another investment opportunity. Another company that caught the VC Fund’s attention was Finemake, an online platform for selecting, customizing and booking designs for modular kitchens, wardrobes and TV units. The collaboration between a large corporation and a venture fund, Sanghrajka points out, is a unique experiment in a country where traditional players in the brick and mortar business have stepped up their efforts to tap into the innovative products and services of start-ups . In fact, Pidilite has made a number of such investments itself, including funding HomeLane and Livspace.

The early-stage VC fund is increasing its exposure by adding corporate leverage to its strategy. The idea is simple. India Inc is feverishly searching for disruptive startups that can help traditional businesses unlock opportunities that have been unexplored in recent years. Hitting the acquisition button obviously makes sense for large companies that can quickly add value by acquiring nimble startups. “We are a unique bridge between a company and a startup fund,” says Sanghrajka, adding that 100X.VC is well positioned to hold companies.

100X.VC: Bridging traditional companies and new-age startups

The veteran venture capitalist points to two advantages his fund offers. First, as an early-stage investment firm, 100X.VC has more impact on the game. This means broad and deep exposure to the talent pool. What it also means is an opportunity to get early in the journey of a startup that has yet to climb the evaluation ladder. “We are not consultants. We don’t make money with a transaction fee,” he says, alluding to partnerships with the companies. “Our only revenue model is the exit,” emphasizes Sanghrajka. As soon as a company, he says, takes over a significant minority and slowly builds up, a roll-up cannot be ruled out at some point. Second, 100X.VC not only plays matchmaker, but also performs portfolio review, monitoring and management even after a company makes an investment. “It’s an ongoing commitment and we know the long-term value,” he adds.

Meanwhile, in the short term – the last few years to be precise – the early-stage investment ecosystem in India has exploded. It jumped from $5.1 billion in 2019 to $8.7 billion in 2021. While the numbers shrank in the Covid year ($3.6 billion in 2020), they rebounded strongly the following year and are having the pace in the first three quarters of this year maintained spending 7 billion dollars. Sanghrajka sees no reason why the strong inflow of funds should decrease in the next few years. “Winter funding hasn’t impacted early-stage investments,” he says.

Also read: Early to bet & early to rise: How Antler is transforming early stage investing in India

It is not difficult to understand why the early stage ecosystem survived the winter cold. A startup in Pre-Seed, Seed, Pre-Series-A is at Stage 0 to 1 of its journey. It’s a phase where the founder continues to experiment, explore and pivot to find product-market fit, growth and revenue. Money serves as oxygen rather than rocket fuel at this stage. So there is no jostling among VCs to get into a startup. Even in the late phase, financing is not a problem. “There is always money available for the wiser,” claims Sanghrajka. Most good companies, he adds, emerged out of recession. If the founder is disciplined in their use of capital, doesn’t let the unit metrics go haywire, and lives up to the valuation they have, then raising funds is not a problem. “There’s no fear of missing out (FOMO),” he says.

Interestingly, FOMO is also largely noticeable in the early stages. This keeps the assessment reasonable, sober and rational. Funding for the winter, Sanghrajka explains, is for the growth-stage startups that got funding at outlandish and sky-high valuations last year and can’t get money now at the same insane multiples. “Forget the cold. It’s warm and the sun is shining brightly for early-stage startups,” he says.

100X.VC: Bridging traditional companies and new-age startups

But can too much sun also cause trouble? Well, the early-stage funding ecosystem has not only been overloaded in recent years, but it has seen a wave of angels giving institutional VCs a rough time. “The angels have definitely gotten bolder and are writing big checks,” confirms Sanghrajka, adding that founders have easy access to capital and don’t have to rely on VCs as their only source of funds. However, he is quick to add that he does not compete with angels. “We compete with bigger guys who write smaller checks,” he adds.

What could be the downside? What does that mean for funds like 100X.VC when angels, early-stage VCs, and a bunch of big boys – late-stage lenders who also invest in early-stage – are chasing rookie founders, or sometimes serial founders? Sanghrajka points to the greatest challenge. “A lot of guys in the early stages are confronted with credibility problems,” he emphasizes, explaining his point of view.

100X.VC: Bridging traditional companies and new-age startups

There are two types of companies: VC fundable companies and lifestyle companies. The latter may look attractive in terms of unit economy, but lacks scale. “So these aren’t the kinds of ventures that VCs would put money into,” he says. The problem arises when an investor can’t differentiate between these two types of companies and falls in love with the lifestyle companies too much. And when that happens, getting out becomes a problem. The second problem is on the side of the founders. When “all angels descend to earth” – as one of the VCs pointed out, the alarming rate at which all become angels and write checks – founders will realize that the devil is in the details.

It will not be an easy task to hand over too many angels. “Also, in the early stages, it’s no longer about capital,” says Sanghrajka. “That’s where funds like 100X.VC come in,” he adds, stressing that regardless of the dynamics of funding, the nature of the business will never change. His one-point advice to all aspiring founders is: understand numbers. “I’ve seen a hell of a lot of brilliant product and technical people,” he says, alluding to his interaction with thousands of founders during VC pitches.
While most show promise, they lack one crucial aspect, which is an understanding of finance, cash flow, and combustion. “Housewives know their way around mathematics,” he underlines.

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(This story appears in the 18 November 2022 issue of Forbes India. To visit our archive, Click here.)

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