Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Ritesh Agarwal was recorded in April 2020.
Ritesh Agarwal is Co-Founder and Managing Director at CerraCap Ventures, a deep tech-focused early stage firm.
Sramana Mitra: Let’s get you acquainted with our audience. Discuss a bit of your background as well as some of the underpinnings of CerraCap Ventures.
Ritesh Agarwal: We are four partners spread across the world. We have been together for the last 25 years. We all come from hardcore tech backgrounds. I started back in 1995 in India. I did all my education in India.
I moved to the US and started with Ernst & Young. I later joined Bank of America. I’m proud to say I was in the C-suite for a while. Then I left to join a services company, which is now a million-dollar services company, and was responsible for starting their operations in Latin America.
What we figured out is that technology in the early stages was supposed to be a support function. It became the main driver of the business. In some instances, it was driving the business.
I got an opportunity to work in a corporate venture. That is where I learned the art of investment and exits. All four partners started CerraCap in November of 2015 with the notion that we will fund early-stage companies.
I have specifically worked in the AI space for a very long time. My other partners have been into cyber security and healthcare IT. We have done two funds. Fund one was $5 million. The second is $50 million which we are closing in the next week. We are invested in roughly around 12 startups.
These are not early stage in the sense that they are not in the concept stage. They are seed or seed plus where they have a POC, a team, and an office. We specifically focus on three domains – AI, cyber security, and healthcare. Pretty soon, we’ll be starting our third fund of $120 million by the end of this year. Let’s see how this COVID thing works out.
Sramana Mitra: Let me double-click down on stage. You said you do seed and seed plus. It sounds like you are doing relatively deep technology ventures. When you are looking at companies, you want to see a product. You want to see a team. What else do you want to see by way of validation? These kinds of products take a little bit of money to build.
Ritesh Agarwal: Let me explain how our due diligence process works. It’s a little different than most of the VCs in our space. There are two things that we do. One is that a team is a must. It is through referrals that we get.
Second is, we have two things that we do. We have a CIO council. We have many CIOs and CTOs that are part of our council. Let’s say a company comes to us and they have an AI product. We like the team and what they have achieved.
We then take that into our CIO council and ask them if this is something they will buy. If they give us positive feedback, we would be very interested to give them the opportunity to launch their product and do an M&A down the line. That is one of the markers for us to make an investment. If CIOs are getting excited, we’ll go to the next step.
The second piece is, we always see what we can do for a company. We are not a spray-and-pray model. We are very much involved. If we are investing in a company, we want to see how we can scale up that company and get them to a point where the revenue is sustainable and they can run on it.
If we are making an investment, we’ll take care of your scale. CEOs should focus on building the product, team, and culture. Out of these 12 companies, two are on the way to become a unicorn. They are already at a $600 million valuation.