100X.VC: Building a bridge between traditional companies and modern start-ups
WWhen it comes to investing, Yagnesh Sanghrajka looks for stickiness. “It should have a unique value proposition,” said the co-founder and CFO of 100X.VC, an early stage investment fund. Venture capitalist illustrates the signature deal-making approach of 100X.VC, co-founded by Sanjay Mehta, Nenad Karp, Shashank Randv, Watsal Kanakia, and Sanjrajka in 2019. “Everyone should find the product sticky,” he says, drawing on the example of BuildNext .
Started by Gopikrishnan V and Finaz Naha in 2015, Kochi-based technology-based home builder offers a range of solutions ranging from visualization, estimation, product selection, procurement, budget monitoring and project tracking to consumers. BuildNext emphasizes that it leads to a higher level of transparency and reduced costs and time in building construction. But for a fund that cuts a record Rs 1.25 crore check for 15 per cent of future equity in startups and also happens to be the first institutional investor, what has been consistent and compelling about BuildNext, which already had backers? “It’s a pedalite,” he smiles.
It was a tapered feed of 100X.VC. Pidilite, makers of the Fevicol brand of adhesives, has been keen to pour corporate money into startups with an innovative business model. The view of BuildNext and the sector in which it works interestingly has had a strong overlap with Pidilite. “We knew Pidilite products would make sense for these types of companies,” says Sangrajka, who conducted the first round of screening, evaluation, and initial conversations with the startup founders to gauge their interest and then connect interested parties. What followed was a $3.5 million investment for pre-Series A by Pidilite in July of this year.
100X.VC had more venture capital for Pidilite. Kaarwan, a learning and upskilling platform for architects and designers, was discovered as another investment opportunity. Another venture to catch the attention of a venture capital fund is Finemake, an online platform for selecting, customizing and booking designs for modular kitchens, wardrobes and TV units. The collaboration between a large corporation and an investment fund, Sanghrajka emphasizes, is a unique experience in a country where traditional brick-and-mortar players have increased their exposure to benefit from innovative products and services for start-ups. In fact, Pidilite has had a handful of these investments, which include funding in HomeLane and Livspace.
The early-stage venture capital fund is strengthening its role by adding institutional tools to its strategy. The idea is simple. India Inc has been frantically searching for disruptive startups that can help traditional businesses take advantage of undiscovered opportunities over the past few years. Pressing the takeover button obviously makes sense for large companies that can quickly add value by acquiring smart startups. “We are a unique bridge between the company and the startup fund,” says Sangrajka, adding that 100X.VC is well positioned to run companies.
Veteran venture capital refers to the dual benefits that his fund offers. Firstly, being an early stage investment company, 100X.VC has more of an appearance in the game. What this means is broad and deep exposure to the talent pool. What this also means is the opportunity to enter early on the journey of a startup that has not yet climbed the rating ladder. “We are not advisors. We don’t make money from transaction fees,” he says, referring to partnerships with companies. “Our only revenue model is exit,” Sangrajka asserts. Once he leaves the company, he takes a large minority, and slowly builds it up, he is not left out. Overall offer at some point.Second, 100X.VC not only plays the matchmaker, but also reviews, monitors and manages the portfolio even after the company has made the investment. “It’s an ongoing engagement, and we know the long-term value,” he adds.
Meanwhile, in the short term – over the past few years to be exact – 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 contracted during the year of Covid ($3.6 billion in 2020), they rebounded strongly the following year, maintaining their pace in the first three quarters of this year by the publication of 7 billion dollars. Sangrajka sees no reason for the strong influx of funding to decline over the next few years. “Winter financing did not affect investment in the early stages,” he says.
Read also: Early bet and early rise: How Antler is changing early stage investing in India
It is not difficult to understand why the early stages of the ecosystem survive the cold of winter. A pre-incorporation, incorporation, pre-series A startup company is in the 0 to 1 stage of its journey. It is a phase where the founder will continue to experiment, explore and pivot to find the right product for the market, growth and revenue. The money at this point acts as oxygen, not rocket fuel. So there is no rush among daring investors to get into a startup. Even when it comes to the late stage, financing is not an issue. Sangrajka asserts that “money is always available to the most intelligent people”. He adds that most good companies are born out of recession. If the founder is disciplined in the use of capital, does not let the unit metrics skew, and takes advantage of the valuation obtained, then fundraising is not a problem. “There is no fear of missing out (FOMO),” he says.
Interestingly, FOMO was largely evident in the early stage as well. What this does is it keeps the evaluation sane, sober, and rational. Sanghrajka explains that winter funding is for growth stage startups that got a fancy and bullish valuation funding last year, and now can’t get money out of the same crazy multiples. “Forget about the cold. It’s warm and the sun is shining bright for early-stage startups,” he says.
But can too much sun cause trouble, too? Well, the early-stage finance ecosystem has not only grown over the past few years, but has also seen a wave of angels that has given a rough time to capital institutions. “Angels are definitely getting bolder and cutting big checks,” Sangrajka admits, adding that founders have easy access to capital and don’t have to rely on venture capital as their only source of money. But he quickly adds that he does not compete with the angels. “We compete with the big boys who cut smaller checks,” he adds.
What could be the other side? With angels, early-stage venture capital and a host of big-timers — late stage financiers also getting into early stage investing — chasing rookie founders or sometimes serial founders, what does this mean for funds like 100X.VC? Sangrajka points out the biggest challenge. “A lot of guys in the early stages will have credibility issues,” he asserts, making his point.
There are two types of businesses: a VC business and a lifestyle business. The latter may seem attractive in terms of unit economics but it has no scope. “So these are not projects where enterprising investors can put money,” he says. The problem arises when the investor cannot distinguish between these two types of business and becomes very fascinated by the lifestyle. And when this happens, getting out becomes a problem. The second problem is on the part of the founders. With “All Angels Down to Earth” – where a bold investor digs at an alarming pace as everyone turns into an angel and cuts checks – founders will realize that the devil is in the details.
Handing over so many angels will not be an easy task. “Furthermore, the early stage is no longer about capital,” Sangrajka says. “That’s why funds like 100X.VC come into the picture,” he adds, stressing that no matter what the financing dynamics are, the nature of doing business will never change. His one-point advice to all budding founders is this: Understand the numbers. “I’ve seen a lot of great products and tech people,” he says, referring to his interactions with thousands of founders during venture capital offerings.
While most of them are promising, they lack one crucial aspect, which is understanding finances, cash flow, and burning. “Housewives know their math,” he signs.