Sanjay Nath of Nath of Blume Ventures talks about challenge of early-stage investment, dearth of exits, and the hype around e-commerce in India
The bad news is raising early-stage investment in India is very challenging. The good news is that the ecosystem has improved tremendously in the last three-four years.
Rise of angel networks and seed venture funds such as Blume Ventures is shaping the startup culture in the country. We are also witnessing incubators and accelerators taking in young entrepreneurs and mentoring them.
In an exclusive interview with e27, Sanjay Nath, Co-founder and Managing Director of Blume Ventures, a VC fund that backs startups with both funding and active mentoring, talks about the company’s investment strategy, lack of exits from India, expansion plans and more…
Tell us about the early-stage investment scenario in India.
The ecosystem in India has evolved and become vibrant. About three-four years ago, VCs were only doing growth-stage equity, but today, there are many early-stage funds. There is a healthy ecosystem below us where incubators and accelerators are doing a very good job of filtering companies and passing the best ones to us. It is an exciting time to be an entrepreneur in India.
What is the investment strategy of Blume Ventures?
Our investment strategy is to be the first institutional capital into companies. The business model doesn’t have to be proven, but we want the companies to have a proper plan in the technology space. The idea is to seed and nurture the companies and then take them to larger investors.
I think that when investing early, you are investing in a team, but as you go further, you start investing in the balance sheet and the business model, with the team becoming less important.
We typically don’t invest in single founders because it is difficult to do everything on your own. We believe that having a team of at least two or three co-founders is very important. Blume invests in entrepreneurs who are willing to work with the first cheque of typically INR 50 lakh to INR 1.5 crore (approx. US$100,000-US$300,000) and twice that range (where we co-invest).
It is also said that VCs are most risk-averse, so before investing there should be external validation of the company’s claims. In a nut shell, we want ideas that aim to dramatically improve the way a certain product or service is delivered.
Why has India seen fewer exits?
There haven’t been enough exits from India because Indian corporates want to build versus buy.
Many Indian companies want to get acquired either in Singapore or in the US. Most of these companies have foreign money, so the foreign investors do not want the company to get acquired by an Indian. However, we would love to see Indian corporates acquiring, investing and partnering with startups. It will be great to see more domestic mergers and acquisitions in India.
What are the sectors attracting maximum capital? Why is e-commerce over-hyped?
The situation is going to change a lot because most of the e-commerce companies are either going to shutdown or get acquired. E-commerce has become fashionable because consumers are constantly using these products as opposed to a service company creating a product which can only be used by certain people. Travel is also a part of e-commerce attracting a lot of attention.
Video and audio content is gaining importance. Mobile-first and mobile-only strategy will continue to be an attractive category in India. Robotics, Internet of Things and the marketplace models are becoming very interesting.
What are the common mistakes made by investors before investing?
Investors don’t spend time with the founders, initial teams and the related customers. They waste time on PowerPoint presentations rather than getting the claims validated by people who matter. Investors need to partner more strongly with corporates and executives who want to advise and mentor companies. We have to learn a lot from our global counterparts.
Tell us the difference between the startups in India and those in Southeast Asia.
The talent and energy in India is fantastic. The social stigma and negativities associated with being an entrepreneur is fading away. Some of the Indian companies are solving local problems and investors are also happily backing them. But most entrepreneurs in India want to start an e-commerce business without realising that there is not enough room for growth. The biggest challenge for us then is to discover how to say no very quickly to these business models.
In Southeast Asia, the deal flow and the number of companies are fewer but they are more mature. They are coming up with innovative solutions that can truly prosper.
The Indian market has a lot to learn from other governments such as Singapore. Why don’t we have a place in India similar to The HUB Singapore where people can meet, discuss and debate ideas and VCs can come and mentor startups.
What are the expansion plans of Blume Ventures?
We are planning for a larger fund later this year. We want to actively partner with advisors and mentors to help grow the ecosystem and develop more of global footprints.
What would be your three tips to budding entrepreneurs?
- Always think carefully of a real problem and don’t do it because somebody else did it.
- You need to find the right team member because you spend most of your time with your co-founder in a startup, so it is critical to have the right partner who is smart and thinks differently.
- Startups should be open to feedback and build a network around them.
This post was originally published on e27