Nurturing seed-stage businesses

When Ashish Taneja started growX Ventures in 2008, he says, the idea was to provide promising and innovative entrepreneurs with the management capital that they so needed but did not have access to. Financial capital was available, but some of the creative entrepreneurs lacked the ability or the inclination to build large businesses, says Ashish. So, growX Ventures partnered with a few creative entrepreneurs and set up businesses, some of which are still running.

“While on this journey of working with creative entrepreneurs, we started getting a fair bit of deal flow. People started to ask us, would you invest and we kept saying no,” says Ashish. In 2012, according to him, Sheetal and he started investing in start-ups in their personal capacity. After a few investments, some of their friends were keen to invest along with them. “We pivoted completely from a consulting creative entrepreneur asset class to a full-time early-stage investor,” says Ashish. They made their first investment through growX Ventures in 2012, made 3-4 more each in the next two years, by when they had completely transformed into an early-stage investor. It has a portfolio of 23 companies.

“The portfolio has performed quite well. Because of our corporate experience, we ended up doing a lot of B2B companies. We said these are the kind of ventures we can add value. We had connections with large corporates and we could help entrepreneurs accelerate growth,” he says.

Managing portfolio

Today, says Ashish, the fund is solely focussed on B2B start-ups leveraging deep technology to solve hard business problems. “The growX job was to find the right opportunity to do the deal and then we would go to the network and say, this is what we are investing in, tell us if you are interested. We will take that capital, go in as a collective, take board positions and manage the portfolio. We ran it like a fund, but it was an on-demand aggregation of capital. We had about ₹50 crore ($7.5 million) at our disposal and said we would go out and make seed investments,” says Ashish.

The cheque size varied. The smallest amount was ₹50 lakh and the largest ₹3.5 crore. The purpose of the network, according to Ashish, was to do seed stage investing. They would rope in other investors so that the round sizes would be larger. The intent was to invest in more companies in the seed stage as opposed to doing follow-on rounds. At least 12 of the 23 companies in their portfolio have raised the next round of capital, with growX participating in 6-7.

Now, growX is setting up its first fund, of ₹200 crore. With this fund, growX will follow the same strategy – come in at the seed stage and invest in B2B start-ups leveraging deep technology – but invest in follow-on rounds, at least at the Series A stage. “The core capability we have developed over the years is largely around helping seed stage businesses go to Series A,” says Manu Rikhye, Managing Director.

He adds, “we are raising just the right amount of cash that we need to sustain the platform that we have built and expanded. We will still be able to invest in about 18 companies through the fund and back some of them at the Series A. We believe that is the differentiator for us in a crowded VC space.”

According to Ashish, the initial cheque size will be bigger, at about ₹3.5 crore ($500,000) and growX will invest up to ₹14 crore ($2 million) overall in a venture. The idea, he says, is to put larger pots of capital behind a concentrated set of investments.

 

Bullish on fintech

Ashish says growX will be sector agnostic, but every year will come out with a strategy for the next 12-18 months.

“Today, we continue to be excited about fintech. We think there is still a lot of under-served niche opportunities for entrepreneurs to go out and tap those. Within fintech, insure-tech is a big opportunity. Digital health continues to be an area of interest. Within B2B, enterprise SaaS or emerging technologies continue to be a large area of opportunity,” says Ashish. He adds that growX also has a negative list. It is not excited about travel as an opportunity, nor will it look at the education sector.

“From our thesis of creating large differentiated businesses, we think the two sectors offer limited opportunities,” he says.

growX has invested in a few ventures – Paygilant based in Israel or Quandl based in Canada or AdSparx, US-headquartered but with a development centre in Pune – that are not based in India. The idea is they will help these companies become a relevant business in India.

growX, he adds, is also building relationships across different ecosystems around the world, so that not only will it get a better deal flow, but also enable the entry of Indian businesses into those markets.