Episode 20: Sanjay Mehta- Being a Founder Friendly Inves
About Sanjay Mehta:
My next guest on The One Percent Project is Sanjay Mehta, Founder & Partner at 100X.VC and Mehta Ventures Family Office. Sanjay has invested in 150+ Start-ups across sectors with a 86% internal rate of return. In his words “Most startups will fail, so you can say everything sucks and be right most of the time. Although you never lose money with that strategy, you never make any either.”
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In this conversation, he talks about:
His learning from investing in Startups.
The ethos of 100X.VC.
His advice for new angel investors & VC on brand building and mentorship.
His “So What” strategy while evaluating a business idea.
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Transcript:
*The transcripts are not 100% accurate.
Pritish: Welcome Sanjay to One Percent Project.
Sanjay: Look forward, Pritish, thanks for inviting me.
Pritish: You've been an investor, an entrepreneur, and now found a partner at 100X VC. What have you learned about investing?
Sanjay: It has been one decade in terms of, for me investing in startups, but definitely lots of learning. And I think becoming an investor with startups is continuous learning. I mean, it is not probably a single moment that every deal teaches you and every deal you invest teaches you more. So, I think it has been a continuous journey of learning and a very exciting one, and gratifying one. Couple of points, which I think are very relevant for investor side, one is building good relationship, is very, very important kind of stuff in this business. Your opportunity to get access to the deals is going to be very important. And that's based on relationship, you might not have access to those deal flows, which relationships can bring you in kind of stuff. If you are an investor trying to invest into startups, your relationships are going to be prime important. Second is going to be being a founder friendly VC. And I've been very successful, it is a conscious effort to become a founder friendly VC where you want founders to be successful. And how do you first give back and before you actually start working? So giving back should be your first motto in terms of working with entrepreneurs. While that is true, I'm very clear that VC is not a charity business, is not a charity, it's a full fledged business and metrics has to be followed of course. My final learning is risk is one x and upside is unlimited. That's what I believe because it's just your capital and upside can be unlimited. This is the name of the game.
Pritish: 100X is a unique venture investment model for the Indian ecosystem using ISAFE. What made you think that ISAFEs is going to be the way forward in India? And why did you think the market is ready for it?
Sanjay: So, in my personal journey, when I invested over, maybe now it's like 150 odd startups, individually and through family offers, I didn't see rogue founders coming in. I mean, yes, there are failed founders. But, that's an idea which has failed. Usually entrepreneurs have got, you know, mindset thinking when they start across. And somewhere the ideas don't work out. And it fails across what I have not seen broke founders. And at early stage, when you're writing small checks, it doesn't warrant to have those onerous shareholder agreements, and which is going to take from a couple of weeks or months to close across. Safe notes when I got exposed to Silicon Valley investing safe notes were prevalent, and a lot of deals were happening. That's where we got inspired and brought that to India and customized to India's simple agreement for future equity, which is customized to Indian laws. And the focus was to do volume investing, whereby trying to invest across 100 companies every year kind of stuff, that that's the whole goal, what do we have across while we are on that journey. We have just completed 29 investments in one year, hopefully, we should be able to maybe in a year or two touch that 100 mark every year.
Pritish: Why do you need a code of promise in 100X?
Sanjay: What happened across in our class one, this we introduced across in class two, we invest in a class mode every batch is there. And in class one we saw across one deal, where the VC didn't want angels to come in or individual investors to participate. And there were commitments which were there. And we VC was trying to push out angels. How do you get that part sorted across where investors who are committing smaller checks continue to be on the cap table and quickly close the round. That's where while the documentation is in progress, this code of promise is just a--it's not a legally binding one, but at least ethically and morally between both investor and founder there is an agreement saying that at whatever the valuation cap or amount which is going to be invested, both of them are agreed across that. Again, we are just a discovery platform. We don't get into negotiations, we don't get into that transaction, we are just trying to ensure that the transitions are smooth and every investor gets a fair share of their exposure with startups which they like.
Pritish: You as somebody who has a very strong brand value in the venture market in India. What will be your advice to new angel investors and VCs?
Sanjay: I love sharing my experiences and hard learning lessons as an angel and I run venture investing master classes with I've done a couple of them. One was with Association of Wealth Managers, with TY, now doing with Indian Merchant Chamber. So, the focus is to help him spread as much knowledge that more investors or angels or early stage investors join in and the pot becomes bigger and bigger. There are things like for example, there are not enough lead investors available in the early stage ecosystem, which can with a conviction leader deal and put a large check as a lead investor or do the first check would like to see across how I can help across those early stage angels becoming a lead investors rather than just passively putting money into the deals. Second is I would like to see across mentoring first attitude kind of stuff. While yes, money is very important, capital is important for startups, but angels bring in a lot of value, which can help across the startup meet in the contracting, be it across just just trying to guide them on a small stuff and like pricing models in terms of how to hire or fire across and employ. Help founders take interview of the team members from their recruiting, various stuff where an angel or an early stage investor can be valuable. Mentoring is what I would look upon. And lastly, act like shadow co founder to the startups. That that brings a lot of value. It brings a social proof for startup saying that if a reputable angel is investing in it, brings a credibility. That's what I think what startups they at early stage ideas are very fragile. They need lots of nurturing. But, if investors can do that, I need piece back in multiples whenever you invest founders recommend across and that's where you can create your own brand and reputation where the proprietary deals start coming at your end.
Pritish: In one of your interviews, you spoke about painkillers and vitamin ideas. Can you explain what that means and which of these will be most effective post COVID?
Sanjay: The way I look upon is typically painkillers are quicker to move, faster to close across and you the things are broken across and there is a desire to solve that pain. So, any solution around it will be quick to adopt by the customers and you don't have to do hard work. And typically there is a you call across a tailwind which is we end that because a customer is searching for painkiller. So, that's where it helps across. In the COVID times we see across a lot of consumer behavior change which whereby future of work change drastically, everybody is able to now trying to see across how work is being done across remotely on various aspects. That was one and secondly, education tech kind of sectors called usually accelerated with with help of technology and startups were at the forefront transforming those industries kind of stuff. So, it has been each sector had its own impact, and many of them could take a positive advantage to COVID and accelerate it. If you look into it, the cost of hiring or talent availability became very easy in the COVID times the cost of customer acquisition has gone down drastically because people are adopting across technology and tech enabled solution in nutshell, I think startups which are able to work, which were able to work on or are able to overcome this obstacles are making most of it.
Pritish: You mentioned in one of the other interviews that founders should be able to approach the investors in decision making specifically in the COVID scenarios. How would you advise a founder to do that? How should they approach their present investors and get them to be a part of the decision making process?
Sanjay: It's all about frequent communications, more you are able to do open, honest, candid conversation with your investors. I think there is a common interest to see across the founder becoming successful. Everybody's aligned into that direction. It's just what is a way or approach to becoming successful is going to be a difference of opinion. But, if you can arrive at a middle ground and ensure that investor is buying in the way you are thinking or you buying in to the investor thought process. So, I always say it is not who is the founder or an investor it is what is for the companies to be done across the best case scenario would be if it is an interest for the company, that's a decision which has to be taken.
Pritish: You assess startups in three buckets. Product and then this product plus users and there is product, users plus revenue. What do you look into when you're evaluating startups in the bucket one and two? When you're looking at the product you look upon, is this something unique? Is it is this just an idea or can I convert this idea into a business? The product has to be converted into a business. Let's say for example, a startup founder says, now build a 128 bit security. For me, it doesn't mean anything I ask what and then he says, okay, this is an unbreakable security. And I ask what? And when he says that, okay, this is like, if I'm using a credit card online, it is unbreakable. Now, there is a product which is converted into business. So, that's where if there is a possibility where product can be converted in business, then you are more interested to invest. When you when you have product and user, which means the traction you would like to see across the retention ratio of the users, are they using the product continuously? What's the kind of traction? Once you have that it works across well to invest into it.
Pritish: Usually, ideas are built for the advanced market, the 200 million English speaking, Indian cosmopolitan metropolitan cities. On the other hand, when you look at bottom of approaches, investments that are made by the Bill Gates and Melinda Foundation, do you think that the impact of COVID is going to change or get VCs looking at businesses which are really helping the lowest pyramid of society?
Sanjay: Definitely today, if you look into it, based software, the focus is on India and Bharat And there are lots of funding which is happening across for Bharat software, be it across on rescaling, be it across on trying to get them entertainment, be it across where the education at the bottom of the pyramid, which is there. So, many startups are trying to build stories around it. And VCs are definitely funding the Bharat side of the software. If you if you look into it, we ended up investing, for example, in a company called DO.ai, which is a blue collar worker hiring platform. If you're looking after Naukri there is no other platform, how do you build it? So, yes, people are investing into this stuff.
Pritish: If there's something that you would like the Indian venture space to change, what would that be?
Sanjay: I think quicker transaction closure. And second is value the contribution of early stage investors.
Pritish: What are your thoughts on your missed opportunities?
Sanjay: I've got tons of empty portfolio I mean, I bucket into two sectors, one is where I took a decision to pass those opportunity and second is where I lost a deal to a bigger VC or a bigger investor. The hurt part or the... or the you know, I believe that there is nothing more expensive than a lost opportunity which was big. I believe the decisions where I have passed it, I tried to learn from it and refine my investment thesis. And where I am losing out on other VCs, there is very little which you can do in that sense, that's luck, what we call across.
Pritish: What do you thoughts of YC being in in in India?
Sanjay: I's great I mean, YC was always in India before 100X also and now they are actively soliciting deals. I think their model is quite different than what 100X does across. We are focused only on India startups where as they are doing across global one. Our understanding on ground is much different than how they would be looking at startups. So, while both of us are doing both both institutions are looking to invest in early stage, both have got a different thesis and approach.
Pritish: WhatsApp Payment is just become I think a thing in India now, which obviously gives competition to the major players, but I think it makes the young FinTech startups life much more difficult on penetration and lots of other other areas. What will be your advice for a new FinTech startup, which is competing against the WhatsApp of the world?
Sanjay: Pritish, the way I look upon is FinTech unless you got something very breakthrough, like for example, you have an execution capability like Zerodha, which is very unique and which created a new market, while existing incumbents were already prevalent and well entrenched. Very few of them would be into that space. Most of the FinTech are eating the leftovers of bank. These are like non-profitable businesses, which banks are not doing and that's where I'm always worried about the unit economics with the FinTech guys in terms of how would they make money. While India is is a massive country, and you blindly throw a stone, anywhere and you will find a problem, you will hit a problem FinTech can solve across everything it starts and ends that money, kind of stuff. But, what is that unit economics? Will you be really be able to make money is going to be a question mark for I mean most of the fintechs. They need to find that set of customers where they can create a fundable and a sustainable business.
Pritish: When we look at a super app, I'm not sure if India is going to ever have one in its own totality like WeChat. But, if it does, do you think transactions need to be at the heart of it?
Sanjay: Absolutely. The super app, I mean, the whole utility of super app is going to be where you are able to do multiple transactions today. If you look into every phone would have at least 100 plus apps that I downloaded for various stuff, which is and if India has that super app, which can solve across the need, I think nothing like it. PTM is trying to build something very similar, where I can do payments of bill, I can book movie tickets, I can do all possible transactions. PTM is trying to go across I can book bus tickets, I mean, various stuff, which is there. So, yes, we don't have a massive ecosystem like how China has. But, I believe that is a still an opportunity to build one.
Pritish: China has a more homogeneous environment ecosystem compared to India. And I think that's why there's such a strong penetration of WeChat, Alipay, and all that stuff. Do you think the penetration of or the launch of WhatsApp Payment or geo coming along with Facebook, that's going to give an opportunity to create a more homogeneous, a super app environment?
Sanjay: Yes, there is a huge opportunity over there to work across and build it. Will Geo try to do across? Possibly Yes, I don't see why they should not be doing it. But, it will take some time while Geo is still settling on various and fighting on various fronts. Even if you look into it today, Amazon is trying to come into various verticals. So, Amazon is trying to become like a super app in that country if you look into it. So, with Phone Pay, and Flipkart, they are trying to do very similar stuff. Recently Flipkart acquired one of my company called Mac Mocha. So, it is a gaming company. Idea is everybody's trying to get into that position, including I would say across government, which is driven through NPCI, their own UPI app. Various aspects which will get created across very similarly, I don't see that as a thing that it's not happening, everybody will try to jump into it.
Pritish: Are you somebody who usually has a very packed day, or you pace yourself out throughout the day?
Sanjay: I'm not a structured guy, it's usually going to be as as things come by I take my day, nothing is well organized kind of stuff. And I do on a priority basis because of the large portfolio there is some action which is happening across and which needs continuous attention. That's where my priority goes across. But, one thing which I love across and I continue doing in today is to review deals and listen to pitches. I mean, that's like my daily, kind of it just satisfy my hunger kind of stuff. I mean, I love meeting founders in COVID times, I've done marathon like kind of pitch calls and stuff. That's what I enjoy doing it and I continue making time for it.
Pritish: Now, three rapid fire questions. One word or one sentence, one book or a blog that has made the most difference to you.
Sanjay: Straight from the Gut, Jack Welch. That's a book which I read in my earlier days in my college times, and that that had a good impact.
Pritish: One superhero?
Sanjay: I think Peter Thiel.
Pritish: Oh, wow, I was thinking of you would say a comic hero, but yeah. How do you see competition?
Sanjay: Most welcome. Competition should exist. That grows the market.
Pritish: Brilliant. Sanjay, it was a pleasure speaking to you.
Sanjay: Sure. Thank you, Pritish, and look forward for more engagement.