Mentoring tech start-ups to ride the digital wave

“There are some stupendous companies coming up in India. There is an underlying theme we are focussing on — digitisation. Coming back to why we did fintech and SaaS in the beginning, those are the places where we felt that the first wave of digitisation was hitting and creating large enough opportunities for companies,” says Sanjay Swamy, Managing Partner, Prime Venture Partners.

A seed-stage venture capital fund, Prime invests in and mentors technology driven start-ups in three broad sectors — fintech and financial services, SaaS and enterprise solutions, and healthcare and education.

It recently announced the close of its third and largest fund, at ₹400 crore ($60 million).

Founded in 2011, Prime raised its first fund of $8 million in 2012 and its second fund of $46 million in 2015.

“We were,” says Sanjay, “riding on those large waves.” “What we are seeing now is,” he adds, “digitisation in India, because of smartphones, is going way beyond these one or two sectors. It is going to every sector, whether it is healthcare, education, logistics, agriculture...all of them are seeing the potential benefits of digitisation.”

With mobile internet taking off in a big way in the country, the cost of accessing the Net coming down and technological developments like Artificial Intelligence, Sanjay says there will be some spectacular innovation that will happen in the next 5-10 years.

What was the thesis when you founded Prime? Sanjay says the three founders – Shripati Acharya and Bala Parthasarathy were the other two founders, of whom Bala has become an entrepreneur again – had been successful entrepreneurs and had experience in building companies. Prime’s founders believed there was an opportunity for Silicon Valley-style start-ups that needed not just capital, but support to build the right business model, what needed to be done to establish the right product-market fit and the right structure to have in the company. There were gaps in the ecosystem that funding alone could not have solved.

“We felt that what is really needed is true first hand experience. You can only read so many books about swimming. Ultimately, you have to manage in the deep end. We felt we needed to collaborate closely with the entrepreneurs and give them, beyond capital, a lot of support,” says Sanjay. They roped in Amit Somani, who has more than 20 years experience in tech and internet industries, as Managing Partner.

Focus areas

Prime Venture’s focus was on early-stage companies, most often being the first institutional investor in them, and give them sufficient amount of capital. It started off with $500,000-750,000 cheques and now does $750,000 to $1 million in the first round. “It is meaningful capital, where they can achieve major milestones, but they also have enough capital to make a few mistakes and course correct.” Prime has a portfolio of about 20 companies, doing 3-4 deals a year. All the companies, says Sanjay, are doing well. “For a seed stage investor, we have a near perfect track record in terms of the companies. Lot of it has to do with our model of being ultra-selective about the companies and working closely with them,” he says.

Prime was the first investor in ZipDial, a missed call-based start-up that Twitter acquired in 2015. Its portfolio includes Ezetap, a mobile payments company; KredX, an invoice discounting platform; NiYO, a payroll and benefits company; myGate, a mobile-based security management solution for gated premises; Maya, a women’s health tracker; Affordplan, a fintech company that deals with healthcare; MoneyTap, a fintech company that offers credit lines on mobile for customers; and, Synup, a marketing company that helps its customers control their digital assets.

On the third fund, Sanjay says they were able to close it quite comfortably as investors saw “our differentiated approach and they believed in our philosophy of a concentrated portfolio with deep involvement.”

According to him, the three broad sectors that Prime concentrates on see a lot of digital and technology play. Besides, the partners themselves have wide experience in these areas. The entrepreneurs, he says, have a 10x insight into the business, they know something that others don’t, something that is unique and special about the business.

“Can they build large companies? Can we have a formula we call 1:10:25,” he asks. That is, what does it take to have revenues of $1 million, then to hit the $10-million mark and thereafter scale it to the $25-million mark. “If it is an outrageous amount of capital, then we are hesitant to work in those companies,” adds Sanjay. But, he says, the smart companies in India will figure out they don’t need a lot of capital to hit those milestones. Prime tries to figure out if the entrepreneurs have unique insights into solving a problem and then tries to work with them.

Investment strategy

Prime also makes sure that it does not invest in something that is a copycat, according to Sanjay. “We have stayed away from that completely,” he says and adds there are two reasons for this strategy. One, obviously the first guy has had the benefit of all the thinking and analysis into arriving at the business. The second guy is looking at the outcome and saying I want to prove that.

“You don’t know why the decisions were made. You are always looking at the other guy’s website for what to do next. As it is, a start-up has a 2 per cent success rate. Why would you want to fail at something that somebody else has already succeeded at. If you are going to fail, try doing something new and fail,” says Sanjay.

On the investment climate, Sanjay says valuation expectations are more tempered and much more realistic now. The quality of entrepreneurs is improving dramatically. And, entrepreneurs also realise that there is no quick-fix. They realise they need to plan to execute well. “The fact is that it is a seven or nine years slog in India, everybody is beginning to accept that,” he adds.