All about the new wave of techpreneurs
Their exposure in startup scene and operational credibility have made them darlings of venture capital firms
His new fintech startup focuses on consumers, and not institutional clients. He is not hiring former Citrus executives because he wants a fresh culture to build a consumer focused product and doesn’t want members of the leadership team to think the “old club” is operating again.
Another difference is the amount of capital he has raised on a paper plan — about $25 million — from top venture capital investors Sequoia Capital India and Matrix Partners India. While running Citrus-Pay, he managed to raise that amount only in 2015, after five years of running the business and revenues to show for it. This time, he had investment offers from eight to nine different venture investors, according to two sources briefed on the matter.
The itch is to do something bigger. “We launched Citrus (in 2011) when the startup ecosystem didn’t exist and sold it at a time when it was just getting traction. There was a feeling that had we stayed longer, things would have been different,” said Gupta. He declined to comment on the funding.
Gupta and dozens of other founders represent a new wave of entrepreneurs in the Indian startup ecosystem. They are either ‘repeat entrepreneurs’, who are looking to build a bigger business, or those who have worked at successful startups in India over the past eight years, bringing operational credibility.
All of them are well networked and have been able to raise over $5 million on a paper plan. This is the fourth wave of venture capital-backed tech entrepreneurs in India (see graphic), and it shows the increasing maturity of the domestic ecosystem, mirroring how larger ecosystems like Silicon Valley operate.
“The profile of entrepreneurs has changed completely. Earlier, experienced operators and repeat founders were a quarter of the deal flow. Now, they are two-thirds of it,” said Avnish Bajaj, managing director at Matrix Partners India, which has backed ride-hailing major Ola and vernacular news aggregator Dailyhunt. “The earlier wave of copypaste entrepreneurs and business models is over and is not coming back. You need this change to build unique India business models.”
Similar trends can be seen at other top venture capital firms, including Sequoia Capital India, Accel India, SAIF Partners and Lightspeed Venture Partners. There is a serial entrepreneur behind about 10 of 20 Indian startups backed by Surge, an accelerator programme for early-stage firms started by Sequoia this year. Investments through Surge are in addition to companies backed directly by Sequoia, the biggest India focused venture fund with $4.2 billion under management. Accel is also working with 10 repeat entrepreneurs as a part of ‘Rebound’ programme.
This wave of entrepreneurs backed by VCs is different from the previous boom cycle, when founders in their mid-20s, just a couple of years out of IITs, were favoured because of their passion even though they lacked execution experience. Amit Lakhotia, a member of the new crop, has over 10 years of working experience in startups, including at Indonesia’s online retail major Tokopedia. In 2011, he co-founded ride-hailing venture Getmecab, which failed. It is his operating experience which has helped him raise close to $10 million.
“VCs saw me operate at Tokopedia and we kept in touch. My round was committed before the business plan was finalised,” said Lakhotia, who is starting up in car parking management space.
The rush among investors to back these startups comes at a time when there is a “financing bubble”, given the excess global liquidity. What has changed for VCs is that the market is deeper, and by backing proven entrepreneurs and operators, they are taking execution risk away.
What has also helped VCs build conviction about signing large cheques at the idea stage is the amount of follow-on capital startups like Cred, started by Freecharge cofounder Kunal Shah; Curefit, started by Myntra’s Mukesh Bansal; and Udaan, started by former Flipkart executives, have attracted. All these founders are building startups that are unique and have localised business models.
“There is a clear demarcation on folks who have shown hustle at fast-growing startups versus those who have just worked in traditional businesses,” said Revant Bhate, who worked at cloud kitchen player Rebel Foods for five years, launching new brands like Behrouz Biryani. He added in raising capital, founders coming from firms like Urban-Clap and Swiggy would have an edge over those from Unilever. Bhate is also starting up in the consumer space.
Founders know they have an advantage and are making the best of the environment, as it allows them to negotiate terms. For some, these are aspects like valuation, for others it is deciding which investor or how many should join the board of the firm.
Investors feel tech entrepreneurship has become more broad-based with internet penetration. For instance, Lightspeed runs mentorship programme ‘Extreme Entrepreneurs’ which saw the number of applications double to 900 in 2019 from a year earlier. The number of towns these applications came from stands at 102 as against 45 last year.
“Five years ago, entrepreneurship playbook was an engineer coming out of an IIT and starting up. I think that’s no longer the case,” said Vaibhav Agrawal, partner at Lightspeed. “As internet adoption gets deeper, where the entrepreneurs come from and problems they try to solve are spreading beyond metros.”
While VCs are betting disproportionately on experienced founders, they are expected to continue backing the younger lot, which has historically created more value. The most valued venturebacked firms in India — like Flipkart ($22 billion), Paytm ($10 billion) and Ola ($6.2 billion) — were started when the founders were in their mid to early 20s with just a few years of outside experience. Oyo, which has a valuation of $10 billion, was started by college dropout Ritesh Agarwal, who was a teenager then.
Some investors think as in 2014-15, the market is moving ahead of itself and VCs are assuming business building is very easy. By backing experienced entrepreneurs, VCs are taking away founder and execution risk. But there are other aspects, such as go-tomarket, business model and product risk, which the founders will have to tackle.
“The rate at which the size of Series A has increased to $10 million in India is in tandem with the US, but the market there is deeper. All these entrepreneurs will have to deliver 3-4x the valuation at which they have raised capital, which is a lot of work,” said a Mumbai-based VC investor.