Investor’s Corner. TAM, team and timing are now important

One unique thing about Prime is that we are all operators and entrepreneurs, company builders and product builders. So we call ourselves accidental VCs. Back in 2012, when Prime was started, the idea was to bring in a Silicon Valley style of professionalism to India. It started with a demo fund of a little less than $8 million. I joined the firm two years after that in 2014. It has been a wonderful journey so far. We have seen the entrepreneurial ecosystem, capital markets and ourselves evolve. From a modest fund of $8 million in 2012, we have come to $120 million in 2022. We have invested so far in 40 companies. Another unique thing about Prime is that in addition to the capital, we try to give start-ups all the help they ask for, whatever they need. Some want access to our Rolodex. Some may want help in building their product strategy or business strategy.

We have had several exits. In 2015, there was ZipDial to Twitter. Last year was a big bonanza with three big exits – Recko to Stripe, its first acquisition in India, Perpule to Amazon India and Happay was acquired by Cred. One of our companies  has filed for an IPO. Indian markets are opening up for IPOs.

We are an early-stage fund. We come in early, when a lot is not known about the company. One thing that has not changed is we look for category defining companies. Every one of our companies is trying to do something unique and different. Of course, you will eventually bump into competition, but you will be doing something hatke.

Our loss has been very low. Out of 40 companies to date there have been only three shutdowns.

So what has not changed in how we invest is:

 First, the fact we look for category defining companies. We say the firm must be doing 10x better than the rest.

Second thing — we look at whether there is a viable business to build. I have a lovely quote on this — “Every feature is not a product. Every product is not a business. Every business is not an iconic company.” So we spend a large amount of time even before investing on figuring out — Can this be a large viable company, hopefully an iconic and generational one.

What has changed are three things — TAM, Timing and Team.  Earlier we did not pay too much attention to TAM (Total Addressable Market). Now we are only willing to back companies that have very large addressable markets.

Second, we pay more attention to timing. The why now question. We firmly believe there is no bad start-up idea. It’s just the question of timing. There are great ideas that sometimes are too early.

Third, we have become more nuanced on how we back entrepreneurs, looking at the team and the people.

I think the market is flush with capital. Capital will become a commodity. Firms will get distinguished by either their circle of competence or by what else you can bring to the table beyond capital. If you look at the US and China, that’s how they have evolved. There are over 200 VC firms there. The entrepreneur has so many choices but they are not going to talk to 200. So being specialised will become more crucial for VC firms. Jack of all trades will not work. You have to be more distinguished.

There will be a proliferation of micro VCs with tiny fund sizes of $8–10 million  or so. 

Many funds are today USD funds. Some INR funds will also start.