Sramana Mitra: What trends are you seeing in the entrepreneurs who are coming to you for funding? What kinds of entrepreneurs are coming? What resonates with you?
Aniruddha Malpani: As I said, the social impact piece resonates with me because I actually think these companies will be far more profitable, partly because of the financial capital we’re providing. They also have human capital. The employees these companies attract are very different from the average employee who works for a for-profit institute.
Then there’s that social capital angle, which means customers are far more wiling to pay a premium for some of these products. That’s my soft corner. Because I’m not limited to one particular domain, we’re quite happy to listen to pitches. We get pitches from everyone. As you know, the startup space is becoming fairly hot. Lots of incubators and accelerators are trying to get students interested. I have a soft corner for the failed entrepreneur.
Sramana Mitra: Have you invested in a failed entrepreneur that you would like to tell the story of?
Aniruddha Malpani: Yes. The advantage of a failed entrepreneur is someone who’s a little more mature. I think he values money far more because he understands the importance of what can happen if you run out of money. This is a great company which is not one of my standard thesis companies. It’s a little more mature. It is called Zophop and is run by entrepreneurs who invested earlier in the same company and are now looking for more funding.
They’re trying to make public transport in India far more sensible. When you take a BEST bus in Bombay, you have no idea when the bus is going to come and when it’s going to leave. You waste so much time on public commutes and transport. These people now have a model so that they’ll be able to tell you where these buses are in Bombay.
Sramana Mitra: How do you process the current investment climate where capital is moving further and further upstream? How does a seed investor or an entrepreneur mitigate the Series A gap that is widening and widening?
Aniruddha Malpani: It’s always a problem. In some sense, that Series A gap is good because quite frankly, not all startups deserve to continue to grow. For some, it’s kinder to pull the plug because they’re not going anywhere. It’s okay to cut your losses.
For the others, our focus is to be able to fund companies which will become operationally cash flow positive within about one and a half to two years so that with the money we’re able to provide them, they’re at least in charge of their own destiny. Once you become cash flow positive and have customers, investors will want to give you money because they can see you’re on the path to growth.
Sramana Mitra: I have this saying, “Investors like to come to the rescue of victory.”
Aniruddha Malpani: I completely get that. As an angel investor, what I’m trying to do is develop that reputation of being someone who’s founder-friendly so that we become the port of first call for someone who wants to raise money but understands exactly what value we’re bringing.
Sramana Mitra: I’m hearing something else also in what you’re saying. You want to invest in companies that are going to be profitable relatively quickly. One of the ways you mitigate the Series A gap is by choosing capital-efficient companies that are going to turn profitable quickly as opposed to being dependent on a Series A.
Aniruddha Malpani: Perfect. That’s our sweet spot. If we can find an entrepreneur who thinks the same way we do, we can hold their hand and serve as partners. We know that sometimes things don’t go well. They will need an additional bridge round before they get ready for Series A. We’re quite happy to continue funding them as long as we feel that we can continue trusting the entrepreneur and his attitude and his ability to deliver – character and competence.