Inviting Impact Entrepreneurs for a Probationary Portfolio

Changing the way Impact is created

 
The goal for Malpani Ventures is to fund frugal innovation in India. We have been privileged to partner with entrepreneurs that have been the torchbearers of frugal innovation in India. Today, we want to take this one step forward: by reaching out to frugal innovators in the impact space by providing them innovative funding solutions.

The biggest challenge for investors is to find the right entrepreneurs to back. This is especially difficult for social impact investors because you need someone whose heart is in the right place but also someone who is hard-headed enough to be able to run a business profitability and sustainability and scale it well. The reality is that there is no good way of being able to gauge how well someone can run a startup because there is no correlation between startup success and an IIT degree or an IIM diploma or pass successes, or actually anything at all. And that's why the best way to see how someone performs is by actually seeing how well they perform in the job.

This means we need to run real-life experiments. And these experiments need to be low-cost experiments. We understand that many of these experiments will fail but we are hoping that the overall results will be favorable.

The problem of giving money to entrepreneurs is that investors need to monitor how this money is being deployed. This creates a considerable administrative burden and we want to reduce that and make this self-monitoring so that the entrepreneur does is monitoring for himself and we believe one way of doing it is by insisting that they build in public so that it's easier for us to track the performance and irrespective of whether we actually get a financial return. We are also hoping that the second-order effect of incentivizing founders to share their experiences will also help the Indian startup ecosystem. As a part of SOPs, and KPIs for monitoring the investments we will make in the impact space, we will only prefer to fund entrepreneurs who are willing to Build in Public. The reasons are two-fold:

a)The betterment of the ecosystem if everyone learns from each other

b)If entrepreneurs we fund build in public, we have to spend less time monitoring the portfolio and get more time to engage and fund more entrepreneurs

 
We will start with the education space where we will work with the entrepreneurs creating a deep & long-lasting impact for the betterment of society. In the essence of frugality & innovation- we present '1-10-100' an innovative funding mechanism that provides funds to those founders who are doing exemplary work in education without the hassles of dilution, compliance, and legalese to do what they do best - create impact.
 

How?

The 1

The probation- We will provide a non-equity grant of Rs 1 lac to entrepreneurs wanting quick access to capital to validate their product
 
Why probation?
 
This is the period we want to critically examine and evaluate the business model, its viability. This is our diligence period where we will work very closely with the entrepreneurs to test, evaluate & validate their product. We want to put our money where our mouth is - and our non-equity grant of Rs 1 lac is a signal of our intent, without diluting the entrepreneur who gets cash quickly to start. This is akin to a portfolio company in probation before it is made permanent, if you perform well, you will be retained!
 
Example:
An entrepreneur that wishes to make K-12 learning accessible for all - without the need for fancy apps or technology. MVP built and wishes to validate quickly. The grant of Rs 1 lac is to enable the entrepreneur to finish developing the product and validate with initial customers. We expect the entrepreneur to share publicly: product roadmap, key milestones, and weekly metrics along with weekly update calls
 
We have earmarked a total of Rs 1 cr for these nonequity grants. Whether these grants will be 1 lac cheques to 100 entrepreneurs, or 2 lac cheques to 50 entrepreneurs, or 5 lac cheques to 20 entrepreneurs, we dont know. We won't know until we start doing it, and just like entrepreneurs who start up and pivot after A/B testing or learnings along the way, we hope to find our sweet spot soon!
 
 

The 10

The dating- We will top up the grant with an iSafe of Rs 10 lacs to build their product
 
Why dating?
1-3 months after Stage 1. This period of dating will enable both the founder & the funder to see if we are a good fit for each other. We will take this opportunity to date the founder and build our conviction surrounding their vision. After all, a successful courtship is the hallmark of a long-lasting relationship. We will further strengthen our intent by offering Rs 10 lacs as an iSAFE that can quickly be put into motion without taking the bandwidth of a founder in legalese
 
Example:
Entrepreneur building an accessible K-12 learning venture, that has a functional MVP with successful beta. We will provide funds to enable product building. We expect the entrepreneur to share with us the results of the beta, product demos, customer references. We expect the entrepreneur to share publicly product roadmap, key milestones, and weekly metrics along with weekly update calls
 
We meet hundreds of entrepreneurs every year, but end up funding a select few that we fall in love with. Similarly, those entrepreneurs that shine out of the cohort in the previous stage will be the ones that we would want to continue dating. We have earmarked a total of Rs 1 cr for this stage. Whether these are 10 lac cheques to 10 entrepreneurs or 20 lac cheques to 5 entrepreneurs is again something we will ideally find out later.
 

The 100

The marriage- Will we invest either by way of equity or by revenue-based financing, or a combination of both, in companies that have been top performers in the cohort with a vision to multiply their reach and build a sustainable venture to create impact
 
Why marriage?
3-6 months after Stage 10. A successful long term relationship between two persons who want to build their lives together. The funder-founder relationship is such - one of equals. In order to further strengthen our relationship, we will offer Rs 100 lacs to the entrepreneur by way of equity or revenue-based financing or both, depending on the business model. This is to enable the entrepreneurs to run, not walk, their way towards creating impact & value, without a lot of equity dilution
 
Why a combination of equity & RBF?
  • To show intent in the business model by putting in capital as equity
  • To not dilute the entrepreneur on the cap table
  • To nudge the entrepreneur to build a sustainable business based on positive cash flows that are required to service an RBF

Example:

Entrepreneur has built an accessible & affordable K-12 product. We will provide the entrepreneur with funds to scale, and further develop the product if required. By this time, we have walked with the entrepreneur through their journey, now we wish to run. The entrepreneur has the liberty to build the venture for growth, or cash flows, or exit. We expect the entrepreneur to share publicly product roadmap, key milestones, and monthly metrics along with monthly update calls. 

This stage is something that will happen about a year from now, and hence we will take our learnings from the two steps above before we earmark funds for this.

 

We will require the entrepreneur to promise the following:

1. A promise to keep obsessing over the customers

2. A promise to do the right thing by the business

3. A promise to be fair and transparent to all stakeholders

 

In return, we promise the following:

1. A promise to be customer-first, with founder-friendly approach

2. A promise to provide patient & long term capital & support

3. A promise to be a sounding board, and mirror to enable founders to do the right thing

 

Just like any other entrepreneur, we want to get out of stealth mode and get our MVP out quickly. We want to run this low-cost experiment to validate our hypothesis.

 

If you are an entrepreneur in the education space with an exciting idea or model to create impact, please be ready to pitch to us. Details will follow shortly.

Callify.ai

Why we decided to fund Callify.ai?

At Malpani Ventures, one of the key things that we get excited by is the deep insight a founder brings to solving a particular problem. While there is no IP on insights, we have found that such insights can act as moats surrounding your business, providing you defense.

When Devang told us about his vision to change the way people snack, combined with the experience Parag brings in setting up efficient supply chains, we knew we wanted to work with Fab Box. When Janani shared her vision to set up contamination-free and infection-free zones across hospitals, labs, and homes, we knew we had to invest in Biomoneta.

We had been in touch with Chetan for over a year. When we reconnected with Chetan, we were floored by the unique insights he had on outbound calling: businesses make a huge number of calls every day, where a large part is a wasted effort, with the majority of the calls being false positives, which this leads to employees being overworked, and inefficient.

Chetan Indap - Founder & CEO of Callify.ai

He explained how Callify has been working with a number of large organizations in India to solve their outbound efforts in the space of recruitment. Today, the company has the who’s who of corporate India using their conversational calling bot to quickly reach out to thousands of candidates at the same time, get measured responses, and make informed decisions - all at the click of a button, within a few hours. The same effort, performed without the use of Callify’s software would take four times the amount of staff, and more than eight times the time.

 

Today, Callify.ai is proud to announce the closure of their seed round, led by Malpani Ventures, with participation from Venture Catalysts, Calega Ventures, Chennai Angels, and Marwari Angel Network. We are excited to work with Chetan and his team in building this fantastic venture.

Team Callify: From Left: Avinash (Tech), Misha (Ex-Sales), Chetan (CEO), Sunny (Tech), Deepanti (Product), Poornima (Operations).

Why conversational calling, and why now?

Today a leading IT company hires more than 10,000 candidates in a calendar year. Considering their inbound, and outbound efforts, they reach out to over 50,000 candidates, screen over 30,000 resumes, interview over 20,000 candidates and eventually extend an offer letter to about 12,000 to fill these positions.

Callify’s software allows them to reach out to thousands of these candidates with the click of a button when the recruiter leaves their desk at 6 pm on Monday. The conversational engine records responses, convert the speech to text, ranks the responses in the order of 1-10, and helps the recruiter make informed decisions when they get back to their desk with a hot cup of coffee the next morning.

In today’s world where better decision making, in a short amount of time is vital for the success of an organization, Callify aims to support the organizations achieve more in lesser time, at a lower than legacy costs. Gone are the days organizations want to spend human and financial resources on sunk costs - today’s resources are better allocated towards Learning & Development - something Callify provides the liberty to do.

We are very excited to start this new journey with Callify, and wish the team our best in their quest for success!

Reflections > Learnings > Guiding Principles

This is a post by our associate Siddharth Shah. It originally appeared here.

 


2020 has been a 180 degree for me personally & professionally since I moved from a public equity profile to an early-stage VC profile. The two worlds are connected, yet poles apart. I believe my professional and investing career is an extension of my personal self because it is impossible to have two different faces.

And it is only useful if: Reflections => Learnings => Guiding principles 


  • Relationships > Returns

    • This is my overarching theme for this year

    • Every episode in life (investing or otherwise) can be one to strengthen relationships

    • Good episodes mean you can strengthen relationships, bad episodes mean you can fall back on relationships


  • Human being first

    • Being an analyst in VC, one is permanently in the crosshairs since the position is one of gatekeeper without authority

    • Hence empathy, transparency, and communication becomes even more important

    • I have found that founders become much more appreciative the moment you start sharing your internal notes and memos with them highlighting how you are thinking

    • A few times despite us passing up on investments, founders have reached out for inputs, feedback & also provided references/introductions. This cant happen if you operate like a machine

    • Special mentions: Shiv, Divyanshu, Armaan, Niranjan


  • Jockey >/= Horse

    • The jockey is equally, if not more, important than the horse

    • Few times in the past year we have passed opportunities because we were not comfortable with the jockey. This reiterates #1 (Relationships > Returns)

    • This also means that you are the jockey for someone else:

      • They will prioritize your ethics more than your track record



  • Writing always helps

    • Speaking is easy since you use gap fillers

    • Writing is difficult, but highly effective if done right

    • This always reminds me of the quote below by Marcus Cicero/Blaise Pascal (attribution unclear, messaging is loud and clear nonetheless)


  • Purpose + Passion, not Purpose/Passion

    • Quote by Valerie J Coleman: "Passion without purpose leads to frustration. Purpose without passion leads to procrastination. Passion with purpose leads to success"




  • Words are precious

    • Choose and use wisely, or not at all


  • Subjective > Objective

    • Going out on a limb here, and disagreeing with a vast majority of people who prefer Objective > Subjective.

    • Even robots & machines can be objective

    • Being subjective is to take into consideration your surroundings, experiences, and episodes

    • This is where you and your learnings come into the picture

    • I am sharing a quote on this by Heraclitus: "No man ever steps in the same river twice, for it's not the same river and he's not the same man."

    • It is vital to let your experiences, successes, failures, and learnings shape your decisions going forward. Stagnant water becomes putrid

    • Subjectivity embraces the grey areas in life

5 lessons from Jeff Bezos' Annual Letters to Shareholders

At Malpani Ventures, we love to read. This is because we know how much we do not know and that there are far brighter minds around than ourselves. And what is more productive than learning from the success and failures of others?

Every year, for the past two decades, Jeff Bezos has been writing an open letter to Amazon's shareholders. These letters, much like Berkshire boss Warren Buffets letters, have become an unparalleled source of insight into the world's brightest minds. From Bezos' letters, we understand his views on efficiency, customer experience, retention, crisis management, and much more.

Today, we share 5 key lessons from Jeff Bezos' Annual Letters to Shareholders

1. Stay terrified of your customers

“I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation. And we consider them to be loyal to us — right up until the second that someone else offers them a better service.”

The lesson- Put customer success first

The moment companies put customers-first, the entire game changes. More effort spent on creating and developing a relationship, less effort on finding new customers & retaining older ones. It becomes a virtuous cycle - a happy customer brings two.

2. Bring shareholders who align with your values

“We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise.

Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies.”

The lesson- Thing long term

The moment you start thinking short term, or monthly revenues, you start doing injustice to your long term vision. Short term distracts the long term. Everything that Amazon is today - market leadership, promise of fulfilment, customer growth, retention, comes from keeping short term in the backseat and focusing on the long term vision. And for that, you need to align yourself with the right names on your cap table.

3. Work backwards from customer needs to know what to build next

“’Working backwards’ from customer needs can be contrasted with a ‘skills-forward’ approach where existing skills and competencies are used to drive business opportunities. The skills-forward approach says, ‘We are really good at X. What else can we do with X?’ That’s a useful and rewarding business approach. However, if used exclusively, the company employing it will never be driven to develop fresh skills.”

The lesson- Think what the customer wants to buy, not what you want to sell

It's a good thing to keep selling more of what you do best. It's playing to your strengths. But does the customer want it? If not, then you might have to force-feed, employ sleazy tactics and spend to incentivize the customer to buy. Instead, have you thought WHY does the milkshake bring all the boys to the yard? Why are you still busy selling lemonade?

4. Build high standards into company culture

"How do you stay ahead of ever-rising customer expectations? There’s no single way to do it — it’s a combination of many things. But high standards (widely deployed and at all levels of detail) are certainly a big part of it. We’ve had some successes over the years in our quest to meet the high expectations of customers. We’ve also had billions of dollars’ worth of failures along the way. With those experiences as backdrop, I’d like to share with you the essentials of what we’ve learned (so far) about high standards inside an organization.”

The lesson- Make high standards the norm, not the exception

Great companies are built on high standards. The moment you make high standards an exception, you are signalling that you are not competitive enough. The moment high standards become a norm, you start incentivizing people to level up. And there is massive value in levelling up!

5. Measure your company by your free cash flow

“Why focus on cash flows? Because a share of stock is a share of a company’s future cash flows, and, as a result, cash flows, more than any other single variable, seem to do the best job of explaining a company’s stock price over the long term.”

The lesson- Cash is king

It is hard to prioritize free cash flow in a young startup. However, that should not keep founders from aspiring to be cash positive. Cash burn comes at the cost of dilution. Free cash flow comes with the ability to avoid dilution. Build a sustainable business that can run on its own, and you will have investors lining up to throw cash at you!

It is these lessons that enabled Amazon to create the massive value. It's on founders to choose, obsession over these lessons or obsession over the valuation?

How storytelling helps create value

It is very easy to confuse cost, price & value.

Allow me to simplify:


Entrepreneurs are focused on pricing – how much they charge for their product, but they forget there is a big difference between price and cost. The price is the sticker price – how much you sell your product for – for example, its MRP or, maximum retail price. This is in your control, and entrepreneurs take pride in boasting about how much cheaper their product is, as compared to the competition. They are often happy to give a discount as well, because they are desperate to sell, and believe that all customers care about is a low price. However, this is flawed reasoning.


While superficially it may seem that a low price is attractive, there’s a big difference between your price your charge and the customer’s cost. Normally, these two terms are used interchangeably, but the customer’s cost is not just how much they pay for your product, but the additional cost of learning to use your product. The switching costs, onboarding and training costs, as well as the opportunity costs, are often much more expensive than the actual sticker price!


And at the end of the day, a purchase is never just a financial transaction. Customers are focused on value. If your product adds enough value, your customers will not quibble over how much you charge for it. And if it doesn’t add value, then you need to go back to the drawing board!


So while you determine the price of your offering, it’s the customer who knows the cost they have to pay, and the value they extract from it!

Jack Butcher on Twitter tells us to 'Build margin with story'. Because 'story = value', and 'value = how you are better than everyone else'. You can find his tweet here.

Credits: @jackbutcher

So, how can we increase the brand & value? Simple, by selling stories!

Don't believe me? It's okay. Read for yourself How storytelling increased the value of an eBay item by 6395%?

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Dec 14, 2020