Capital can be a competitive advantage only when the entrepreneurs have figured out their business model. Unfortunately, in the last 12-18 months a lot of people have raised money with failed business models or where it is not clear or where the unit economics are not going to work, according to Sameer Brij Verma, Director, Nexus Venture Partners, Bengaluru.

A lot of investors have put in money and it has just accelerated burn, burning that money really fast without really finding a sustainable business model, he says.

“As a result of that,” he says, “there will be some carcasses along the way which will dampen the spirits of investors also.” Once investors start making losses on companies, they will become more cautious. Then entrepreneurs become cautious, everybody starts asking questions on how the venture will make money. In the last 18 months, there has been so much liquidity in the system that if an entrepreneur had a good idea, it would get financed.

“There were people waiting to finance it, even though you had not solved the problem completely, but you were a good bunch of guys going after it,” says Sameer.

Hasn’t this herd mentality among investors been detrimental more to the entrepreneurs than the investors? “I think it is creative destruction. It will go on in these kinds of phases. We will see a downturn, we will see a lot of tightening of capital now, you will see companies failing. It is starting to happen,” he says. A lot of these companies go under because they were competing just by throwing down prices.

Nexus manages near $1.2 billion and has just finished raising its fourth fund, “north of $400 million.” It invests at the seed stage in ventures, putting in as low as $250,000, and in early and early-growth stage companies, going up to $10 million in a single round of investing. It is usually the first institutional investor in a venture. Nexus’ sweet spot is to invest $2-5 million, picking up a significant minority stake in the companies.

Focus areas

According to Sameer, Nexus has two broad focus areas. One is cross-border tech. This includes companies from India that have gone global. Nexus has invested in nearly 15 such product companies, helping them enter the US market and expand there. “We see India as a great place to develop technology and the US as the biggest consumer of technology.” Nearly 65 per cent of Nexus’ portfolio is cross-border tech in nature. Then, Nexus also funds companies in the US – it has invested in about 20 such – that have a strong India angle to them. Which means they will be doing product development in India, one of the co-founders will be based out of here, but all of them will have their front-end, sales and marketing, product management all happening in the US. “The US is the primary market for them to sell, but I would say 95 per cent of them are developing their product here,” says Sameer.

As a fund, Nexus’ thesis was the coming together of two markets – India for its engineering capabilities and the US for its consumption. “Our thesis was that most services companies have had their run and there will be product companies coming out from India,” explains Sameer.

While a majority of its investments is in cross-border tech, the remaining 35 per cent of its portfolio are companies that are based in India and serving the domestic market. Nexus’ strategy here is to invest in ventures that use technology to solve existing problems and in the process shake up the sector, whether it is logistics or e-commerce.

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