Avoiding copycats and embracing enduring companies

As an angel investor, Rehan Yar Khan has an enviable record. He was an early backer, if not the first, of two start-ups – Druva and Ola – that turned out to be unicorns. After being an angel investor for four years, during which time he invested in 16 ventures, Rehan decided to use his expertise to launch a fund. He founded Orios Venture Partners in 2012 and achieved first close of the first fund of ₹300 crore in April 2013 – raising the money from investors within a 10-km radius of his office in Worli in Mumbai; after all, as he says, between Lower Parel and BKC is 70 per cent of the city’s wealth. Another venture he invested in, FabAlley, had become a large company.

“That,” he says, “was the start of the journey.” “Then I expanded that journey by doing the fund. The other thing which I wanted to do was help build enduring companies. We don’t have a punter’s mentality here,” says Rehan.

He decided to focus on the seed stage as that was an extremely under-funded stage. That is a stage at which the founders really need hand-holding. One of the things Orios does is to have a structured mentoring programme for the start-ups it invests in, to help them get to the next stage. “That is our speciality. That we don’t just invest and give some gyan. We have a thorough programme, we have some of the leading founders of the country who are part of the programme and they mentor these companies. That really helps the companies in the initial days,” says Rehan.

Orios writes cheques from ₹50 lakh to ₹10 crore, picking up a 10-15 per cent stake in the companies. The focus is on ventures that are tech-enabled. They can be in B2B, B2C, finance, education, healthcare, media, gaming and software. The firm has a portfolio of nearly 50 companies and invests in 10-15 ventures every year.

Chasing novel ideas

When you are chasing novel ideas, says Rehan, you can’t put too much money on them. “Our philosophy, why we end up with a lot of novel ideas, is we don’t say we will not invest. We will put a small amount,” he explains. In the successful ventures in its portfolio, Orios will invest in multiple rounds. It has four funds – Rehan prefers not to talk about the size of the funds – including a mid-stage fund, from which it keeps backing the companies that look like sure winners. “Our philosophy is to keep investing throughout the lifecycle of the company. Till it is growing at 70-100 per cent a year. After it slows down, then that is not our territory,” he adds. Orios will invest in the ventures till the Series D or E stages, providing they are growing at 2x a year.

The VC firm invested in 18 companies from the first fund; it had a few exits and recycled the capital. It will start returning money to its investors from this year-end. As an angel investor, Rehan invested in ventures that were also catering to the overseas market. However, as a fund, Orios focusses only on companies that are in the domestic market.

What are the qualities he looks for in an entrepreneur before committing funds? Honesty is an important quality, says Rehan and adds honesty is in two forms. One is intellectual honesty and the second is being transparent about what they are doing. The second big quality is that the person should be an innovator by nature. “We never invest in someone who is a copycat model. You would never look at a model in the US and make that investment. What we believe is that if you are not an innovator upfront, then you will not be able to continue to innovate. Which is what the company requires for it to become successful. We tend to eschew copycat models,” says Rehan.

According to him, the pipeline is the best it has ever been since he started investing. There are fabulous entrepreneurs, the size of the market is so large, the number of cell phone users is huge, disposable income is higher than what it was 3-4 years ago and data prices have fallen drastically in the last 2-3 years. At least till 4-5 years back, it was all e-commerce ventures; now, the market segments have increased. A large market, customer love for your product and a good team are the three defining traits that he looks for in any venture.

Weightage for entrepreneur

How much of a weightage will he give the entrepreneur versus the idea and the team? “50-60 per cent weightage,” says Rehan. But a good team and a large market are absolutely essential. “I remember when I invested in Ola, I met one or two other teams which had similar ideas. But I felt this (Ola’s) was a very good team, so I invested in them,” says Rehan.

“Our job as VCs,” says Rehan, “are neither being the horse nor the jockey. We are the guys placing the ticket at the booking counter.”