Reflections on a year in venture capital.

1. Joining Blume Ventures.

One morning in October 2017, and I forget the exact date now, I came back from my crossfit workout to see a series of whatsapp messages from Karthik Reddy. Karthik, briefly an ex-boss of mine at The Times of India Group, had gone on to cofound Blume Ventures, a seed fund, which had evolved to emerge as a much-loved and well-regarded player in the Indian startup ecosystem. We had kept in touch through the years, exchanging notes on startups or me passing on the odd intro or two for a startup. However these whatsapp messages were markedly different from our usual discussions; they were about him thinking aloud about a potential role for me in Blume, and would in turn spur a meeting between us, sparking off a series of conversations with him and other members of the firm, finally resulting in my joining Blume, about a year later.

I am, of course, an unusual candidate to join a VC firm — on the wrong side of 40, not an ex-founder or even an ex-VC. I did have some ‘investing’ experience at Brand Capital, the ad for equity arm of the Times Group, but that isn’t early stage investing, or strictly even investing. Yes, I do write a fair bit, and have a strong view on startup business models, especially in media and edtech, the two sectors where I have been an operator as well, and certainly these would have helped. But what tipped the scales clearly was perhaps my comfort and willingness to join at a non-Partner position and readiness to spend the next half-dozen or more years learning the ropes of the trade.

Given this move, I get the odd request every month from those (some my age, but mostly younger) looking to navigate their way into VC and wanting to meet or talk to me. I turn down almost every single request, and in my response, admit openly that I am not a good benchmark for them to use. I don’t think a VC firm other than Blume would have taken the bet on me. It needed someone who knew me (like Karthik and Ashish did), and it had to be a firm (like Blume) that doesn’t hire the usual cookie-cutter candidates. I got lucky, and yes, Blume got lucky too.

But I am thankful for the luck, because joining Blume has given me the opportunity to occupy a rare vantage point in the Indian economy. One that gives me daily glimpses into the future, or rather possible futures for India, for each startup is but a hypothesis about the future manifested physically. I also get to occupy this vantage point, at a time when there are fascinating disruptions rippling through our industry itself — such as the emergence of seed stage plays by Series A VCs, including programs such as Rebound by Accel or Surge by Sequoia, the rise of supersized rounds and their impact on valuations and the deferral of IPOs etc. More on these in a subsequent essay perhaps, where they deserve to be explored in detail. In this essay though, a personal one exploring the year back, I will look at my journey with Blume this past year, before telescoping out to the wider venture landscape in India.

2. ““…it’s a grind.”

My conversations with the Blume team, especially as 2018 got underway, took place against the backdrop of Blume’s partners working to raise our FundIII. This was to be Blume’s largest fund at ~$80m and they were trying to onboard a bunch of newer anchor LPs (Limited Partners, or essentially the folks who give us money to invest.) I was involved with a few of those LP conversations, where I was introduced to them as a prospective hire. I don’t think I was worried about any meeting or interview with the Blume Partners as much as my meetings with the LPs. Leave alone the implications of my doing badly, I was worried about a poor performance from me impacting Blume’s perception by them as well.

For every commentator on the VC industry, or even an aspirant, portraying the VC role as a cushy job on the ‘buy-side’ listening to proposals, dispensing cash to select founders, and rejecting others, it is worth noting that before VCs can distribute that ‘cash’, there is a lot of selling to be done to LPs, in order to raise those funds. When founders complain about fundraising, we empathize, for we know how stressful it is and also the implications of that. If we can’t raise the next fund, then we can’t fund startups and are locked off from participating in the startup ecosystem. And given that 2% of the fund size counts towards fees, from which salaries and expenses are met, inability to raise funds can also cripple the firm financially.

In Blume’s case, just as with all home grown venture funds such as India Quotient, Pi Ventures, Stellaris etc., the partners who invest are the ones hustling to raise cash as well. This is unlike some of the larger MNC funds in India who typically get a carveout of the global fund raised, with a Partner who focuses on fundraising sitting in HQ. Given that Blume is fundraising while also investing simultaneously — founders don’t know about your fundraising cycles or don’t care — and also has an existing portfolio to worry about, this means a lot more emails, hustle, travel. The partners bear the brunt of this, but it spills over to the rest of the team as well. Accentuating this is the huge volume of inbound early stage investment opportunities (including idea stage pitches), a holdover from our microVC days, that calls for a fair share of time from the organisation. Let us understand this in detail.

We typically get around ~3.5k pitches a year. About a sixth to a fifth of these are referrals. The cold pitches get anywhere from a minute to five minutes (very rarely, a bit more) while the referrals get at least 15–20 mins and a mail back. Very often, the referrals lead to a meeting. Sometimes two. Then there are calls from journalists, hiring interviews or calls (everyone wants to explore a role in the industry; often the intros come from very senior folks or LPs which mean at least a 30-min call) and often mentoring discussions or calls that don’t have a pipeline or portfolio outcome. Add to this, portfolio catchups or calls, and you can quickly lose control of your schedule. A day spent in meetings is at least 60–70 mails piled up. I don’t think I have worked under 60 hours in any week since I joined Blume.

In this regard, I though this tweet by Leo Polovets, a VC with Susa Ventures, on the VC business was particularly interesting (the second observation I thought was on point.)

I keep a list of the books I have read every year. I have been maintaining that list since 2004; last year saw the lowest number of books read, and I only joined Blume in September! Between family, work, fitness, reading and sleep, something has to give and very often it is reading books (you do need to keep sometime for the articles and newsletters that are sometimes essential reading in our trade). The other thing that usually gives is fitness, unless you really really make it central to your personality. No, I am not going to tell you how many kilos I have added since I joined Blume:-)

3. From Blume to the wider venture industry.

From the outside, the venture industry is seen as a tremendously exciting place. “What, you get paid to sit and listen to pitches all day long? Wow, I would love your job, man?” is something I have heard, more than once.. There are of course, many pluses to this industry, but there are also negatives. That said, it is hard to come by any nuanced, thoughtful take on the Indian VC sector. What you see often oscillates between breathless takes putting VCs on a pedestal, and on the flip side, relentless criticism of them. There has been very little considered exploration of what it means to be a VC in India. This is also compounded by the fact that Indian VCs haven’t written enough about the industry and working practices (Avinash Raghava, Accel’s community lead has two pieces, a clear exception — see 1 and 2). Hopefully that will change in the coming years. In this section, I want to explore a few facets of the VC industry that I found especially interesting, and are not as apparent to the external world.

Amongst the most dramatic differences between the VC industry and other traditional industries, and one especially visible when you make a transition like I did, is the time you spend with 20-somethings. I can go days without meeting anyone in their 40s. Yes, we do get pitches from older founders, but the vast majority of startup founders are in their late 20s / early 30s. This is especially true of B2C startups, for in B2B you do see older, more experienced founders. But a vast majority of consumer startup founders are young. And speaking for myself, it has been hugely energizing to meet these fearless young founders, out to change the world. You can feed off their excitement, their energy and their passions. Even so I wonder if we celebrate youth a bit much in our industry. Rather the worry isn’t as much our celebration of youth as much as whether a subtle discrimination towards older founders is creeping in, especially first-time founders in their 40s.

Faced with a pitch from an older founder, I have sometimes had to check myself to not judge the pitch unfavourably. There is a real reason for this, especially if the founder has had a successful corporate career before starting up. The assumption here is that he has enough money in the bank and enough taste for creature comforts not to struggle for too long. As with all such assumptions, there are no universal rules. For every founder in their 40s who will quit fast, there are others who will persist as well. But the human mind searches for shortcuts. It is actually bizarre that I, who is in his 40s can, if not careful, end up discriminating against another 40-yr old. That I suppose is the danger inherent in the territory. True ageism as seen in the Valley isn’t here anywhere in India yet. But as with all valley trends, I wouldn’t be surprised to see its presence in India soon.

I spoke earlier about how VCs sell to LPs in the context of Blume and other homegrown funds. However, it is not just LPs to whom VCs have to sell to. We also sell to founders. A hot space with hot founders can see VCs lining up to pitch to them, instead of the traditional arrangement where founders line up to pitch VCs. This is especially true of successful founders starting out a second time. There aren’t too many of these, and when you hear of a founder planning to startup again, there can be a VC rush resembling a feeding frenzy. Recently, I heard that a successful Indian fintech founder was approached by 3 different VCs on the day the news of his exit from his present company leaked. Effectively the demand supply gap in favour of VCs (vs founders), inverts in favour of founders as we reach the top of the founder pyramid. There just are more VCs chasing high quality founders than the other way around. In this context then, as Karthik Reddy mentioned in a podcast — “the trick of the trade is actually, it is not about you saying I know how to pick well, it is whether the best entrepreneurs want to pick you.”

Once you and the entrepreneurs pick each other, the relationship quickly changes. Investing is only the beginning. It is all of the working together over the next few years, and supporting and adding value to the founder’s life through mentoring, sparring on strategy, support on hiring and fundraising etc., that really helps set the startup for growth and greatness. As this tweet puts it well, the VC business is as much ‘customer service’ as finance, and that is just as good a lens to see this business through.

4. The shifting sands of venture.

My entry in to venture capital comes at a time when the venture industry, globally and in India, is going through two interesting trends. They are

  • easy access to capital and its impact on increased valuations, delayed IPOs

The first trend, manifested in easy access to capital, is thanks to greater LP (and international) interest in the Indian market. This is an outcome of not just the performance of the Indian market — exits such as Flipkart and other uprounds creating unicorns certainly — but also in some sense the inevitability of the Indian market, in that there is no other large market that can grow anywhere close to the rates the Chinese economy grew at. A fund manager for Tiger or Coatue sitting in NYC or SF, or even an LP sees the world in terms of different IRRs (Internal Rates of Return, or the metric used by any investor to determine attractiveness of an investment). The Indian market’s IRR is now attractive enough and there are enough success stories to create interest in the market. This manifests in greater allocation by LPs to Indian funds, which mean more money chasing founders and rising valuations. It is also seen in more direct investments by the likes of Steadview or Softbank in Indian companies, bumping up valuations and often delaying imminent IPOs, in an attempt to extract as much of the value before the startup goes public.

A related explanation is the emergence of second-time founders in India over the past couple of years, thanks to exits and the maturation of the Indian startup ecosystem. VC funds find investing in these second-time founders a less ‘riskier’ opportunity given their past track record, and consequently there has been greater competition from VC funds to invest in these second time founders. Accel recently launched Rebound, a program which targets second-time founders. Other VC funds too have similar programs. The result of this competition for second-time founders has been valuation inflation, justifiably or not. One interesting manifestation of this has been supersized seed rounds, such as in Cred which had a $30m round at its birth, or Curefit which saw a $15m seed round. These are effectively Seed and Series A combined (in the case of Cred, maybe even a B).

‘$ Signs’ by Andy Warhol

This is also a good segue into the second interesting trend that is underway in the Indian market — traditionally later stage investors doing seed investments. Surge is the strongest outward manifestation of this, but there is also Lightspeed’s Extreme Entrepreneurship Program, and other under the radar / opportunistic optionality plays from other funds. The primary reason for this, in my view, is the availability of second-time founder bets, especially founders who have a successful startup or exit behind them. Allied to this is the arrival of highly pedigreed first-time founders — i.e., CXOs / PMs / Tech stars quitting large successful startups looking to build their next big thing; often having the founders of these megastartups as their angel. Lastly, we now have powerful signalling mechanisms as the Indian ecosystem matures such as the emergence of super angels like Kunal Shah, Ramakant Sharma, Raghu (TaxiforSure) and the symbolism of their presence on the cap table, or say getting selected to YC from India.

All of the above mean a startup bet with much reduced risk and also easier identification, and thus the excitement for traditionally later-stage investors to play. They are easier to play, but more expensive as well.

The implications of these trends, and what it means for the Indian venture market is waiting to be discovered. But for now it is making for a vibrant, or as some say frothy private market, standing out sharply from the lacklustre public (stock) market. In fact, this contrast between private boom, reflected in supersized startup funding announcements, and public gloom, manifesting in dropping auto and consumer goods sales, is particular striking. Mood in startup land is still optimistic, but there is a sense that we may, if the public market and the larger economy doesn’t pick, be in for some mild turbulence soon.

5. End.

I wrote this, now a rather long piece, as a part narrative of my journey and experience, and a part reflection on the Indian venture industry and what is happening here. It is a particularly exciting place to be, and I am grateful for the vantage point I occupy in the investment team at Blume. Through this piece, I wanted to give the reader a sense of what it is that I see from that vantage point. I do hope it proves useful to someone looking to learn and understand more about the industry, and the role. Feel free to reach out if you have any questions — I would love to help answer your queries and have a conversation.

An abbreviated version of this piece was published in Quartz.

‘VC’ at Blume Ventures, an early-stage fund from India | Writings on startups, venture capital & other miscellany at sajithpai.com