Dr Apoorva Ranjan Sharma, who founded incubator Venture Catalysts in 2016 to support and mentor idea-stage startups, decided to launch investment firm in 2019.
With Rs 500 crore in total disbursement, the firm has so far invested Rs 100 crore in over 60 startups. A good chunk of the investments is made in startups beyond metro cities as Apoorva feels “startups from Tier II, III, and IV cities have sustainable business models and innovative ideas”.
Giving an example, he says Silvassa-based food product startup My Fitness was making Rs 5 crore in monthly revenues before 9Unicorns invested in them, while Bengaluru-based Janani created a product that could help in child conception.
In an exclusive interaction with YS, Apoorva reveals why 9Unicorns is bullish on non-metro and idea stage startups and speaks about the VC firm’s investment philosophy.
Edited excerpts from the interview:
YS (YS): Why did 9Unicorns choose to invest in idea and pre-seed stage startups?
Apoorva Ranjan Sharma (ARS): Idea-stage startups are usually our focus because India has a huge potential to produce more unicorns. Currently, India has become a 100-unicorn economy and around 300 startups are in the soonicorn stage. A lot of entrepreneurs who have worked in the space have sold their startups to these unicorns and gone on to start other businesses. This means India is flush with potential.
Tier II and III cities are producing a large number of ideas. Earlier, 80 percent of the deals used to come from metro cities, but now 30-40 percent of deal flows are coming from beyond the metros. We see there is an opportunity to create an accelerator fund in the idea stage to target these first-generation entrepreneurs and serial entrepreneurs. We usually give Rs 1-1.5 crore to first-time entrepreneurs while experienced ones get between Rs 2-3 crore for investment.
These startups need support — not just money but also mentorship. We have been fortunate enough to get a lot of deals from Ahmedabad, Raipur, Rai Bareilly, and others. I just got a deal from Silvassa, called My Fitness; they have become the market leader in the peanut butter space. Venture Catalysts has also become so big that they make about 10-15 investments per month.
Dr Apoorva Ranjan Sharma (right, sitting) with his 9Unicorns team
YS: What is the difference between entrepreneurs from small towns versus those from bigger cities?
ARS: Entrepreneurs from small towns have really good business sense. For example, My Fitness is doing Rs 5 crore in revenue every month and did not even raise capital yet. When we invested in them, their bottom line was also very good. Beardo, which came to us from Ahmedabad, had another great business model. They are not just fascinated by this idea of a startup. Not to say that entrepreneurs coming from metro cities do not have good business sense or models. But companies beyond these areas are non-tech as well as good business ideas.
YS: What do you look for in a startup before investing?
ARS: We are totally a founder-first investment firm. We look at a founder’s business sense, capital-raising ability, and business models. The idea is also important but if a founder has all these qualities, then there is a good chance the firm could be in business for a long time.
Startups at the idea stage need help with hiring good talent. They need guidance on strategy for one year. They also need support to raise the next round of capital and strategic investments. For Janani, we got Apollo Hospitals as an investor. But not every startup is looking for everything. It differs from firm to firm. They are also quite smart enough to figure many things on their own.
YS: When do you try to get an exit from pre-seed stage firms?
ARS: Normally, this period is one to three years. Sometimes, even five years, because idea-stage investors get multiple exit offers when institutional investors join. But some deals get good returns and you lose money on some. Some startups also die in a couple of years. In 9Unicorns, we have around 10 deals that have subsequently raised another round.
YS: How has the pandemic changed the ways in which startups operate?
ARS: This pandemic has been really good for startups. A lot of US-based venture capitalists are investing in India. We are getting amazing deals in the idea and seed stage. Many people have also left their jobs to start a business; many have come back to India and started working here.
YS: How has the startup ecosystem changed since you started Venture Catalysts in 2016?
ARS: The Indian ecosystem when I started had only 500-1,000 angel investors. Today we are around 20,000 angel investors. The ecosystem has grown a lot. We added around 15 unicorns this year and there is a potential of adding 100 unicorns, which are spread across at least 20 cities.
Startups are trying to solve Indian pain points rather than being clones of American or Chinese companies. Unit economics and business models are much better and at least 10 percent Indian startups are targeting global markets.
