Our primary thesis at Malpani Ventures is to back early stage founders who want to build business frugally (read – in the most capital efficient manner). In fact, we actively encourage our portfolio and potential investee companies to think about building lasting businesses which add value and don’t require to raise beyond 2 -3 rounds. In the era of new unicorns galloping out of VC stables almost every day, this prima facie appears to be self-limiting and contrarian. But is it really?
As per the India Venture Capital Report - 2021 by Bain & Co., India had about 1 lac start-ups of which 10,200 have been funded. More significantly only 30% of the companies which were seed-funded from the year 2000 onwards have managed to raise subsequent capital (Series A or beyond) while only 220 companies have managed to raise a Series C round (~USD 20 Mn or beyond). This implies that VCs and late stage investors only take a shine to 2% of funded start-ups ever. The above numbers essentially necessitate that founders plan to become self-sufficient or at least extend their runway to its maximum.
What would you choose? A galloping horse or a mythical unicorn?
It is important to note that this thesis does not preclude companies from chasing growth (We wouldn’t be in the business of investing if it did). Rather it urges founders to maintain a lead shank on their galloping ponies. Too often, companies chase the Series A round before having their unit economics in place – this is often disastrous in the long term with founder having to consistently raise funds.
In our experience, the best start-ups from our portfolio actually had periods of limited growth before experiencing a rapid spurt in their toplines after having identified the most efficient business model. Note that there are certain exceptions to this line of thinking – companies in certain sectors such as EV, deep-tech, etc. need to raise several rounds to achieve a scale required to generate a positive contribution margin.
However, it can be dangerous to classify most start-ups in this bucket. While execution speed for early stage start-ups is crucial, raising money to scale faster usually betrays a lack of a strong moat developed. Founders who achieve positive margins with the right business model fit and then press the accelerator to derive the most from operating leverage are best placed to succeed – This is the essence of frugal innovation.
Frugal innovation also lends itself to founders making money by holding a significant stake in case of liquidity event in the future. Building frugally requires a gestation period. We at Malpani Ventures offer patient capital with a focus on building sustainable value rather than chasing the next VC who can provide us an exit. We wish to work with passionate founders across all sectors who align intrinsically with this vision. Are you ready to build frugally with us? Then reach out to Dhruv at ds@malpaniventures.com with your pitch.
Family offices and Micro VCs such as ours are small by design and hire infrequently. As a tight-knit, cohesive team, getting this right is especially important. 18 months ago, we started the groundwork towards building the team. We knew it would be the most important decision we would make in this period.
We actively started our hiring process in the last quarter of 2020. Our criteria were simple: we were looking for someone who is curious, can approach venture investing with founder empathy, is grounded and can build the family office from the ground up. Importantly, we wanted someone who would fit seamlessly into our team — working together while challenging us to lead in new directions.
With today’s announcement that Dhruv Sane has joined the Malpani Ventures team as an Associate, we believe this can be a strong foundation to build this family office. We are beyond thrilled to welcome Dhruv to the Malpani Ventures Family!
Dhruv is a Chartered Accountant, and has cleared all levels of the CFA charter. In his previous avatars, he has worked at Deloitte in Forensic & Dispute Services and more recently at boutique mid market investment bank - Lodha Capital as a banker.
When Dhruv was not performing forensic audits, preparing pitch materials, or sourcing clients independently, he immersed himself in philosophy and spirituality and ran a family backed non profit website and youtube channel around these themes which he continues to do till date.
Dhruv brings with himself strong financial acumen from his forensic accounting days, excellent communication skills and understanding of diverse business models from his investment banking days, and an ability to empathize and ground himself from his deep connection to spirituality.
Malpani Ventures with its focus on impact-led growth will provide me the right platform to pursue my passion for business models, strategies, and market trends, whilst actively playing my part in the Indian growth story. I am of the firm belief that purpose-driven business is the most optimal way for sustainable growth and Malpani Ventures will provide me with an excellent platform to assist such businesses.
Founders need to pitch to investors all the time. You need to woo them if you want to engage with them, and unless you can get into their heart and their brains, you're not going to be able to get into their wallet. This is why you need to learn to empathize with them , so you can understand what their world view is.
Think of it like a dating game. Do you remember when you were wooing your first girlfriend ? Before you made your first move, you tried to find out as much as you could about her. You tracked her for some time; you figured out what she liked and what she didn't ; and you tried to learn more about her interests , so that you'd have common topics of conversation . You tried your best to charm her and you need to do exactly the same thing for the investor. What is in their present portfolio? What are their extracurricular interests? Look for common ground which you can use to start a conversation.
This is common sense, and because investors are human, they will be gratified that you've taken the time and trouble to do your homework before reaching out to them . No one wants to read a tired, recycled , standard generic pitch. This is why you need a very precise targeted approach , rather than trying to use a machine gun to spam every investor's email you can lay your hands on .
Before you reached out to your prospective girlfriend, you talked to her friends first, and tried to convince them to put in a good word for you, so she'd realise what a cool dude you were. The same rules apply. Try to get a warm introduction , because this makes it much easier for you to open the door to the investor's office. They're also much more likely to give you a patient hearing, because they trusts their associates have done due diligence before connecting the two of you.
Remember that the investors default response is always No, because they is trying to conserve their bandwidth . They are swamped by prospective founders, and you need to be able to convince them that you're the right person. For example, it's a good idea to make a list of all the common questions, objections, worries and doubts which they may have . Try to anticipate these and answer them proactively. They will be able to see that you've done your homework , and this will allow them to move on to a more detailed discussion, so they can dig more deeply into your business model.
Conversation is a two-way street , and just like you hope to get their money, they also hope to become a little bit smarter as a result of talking with you. Not only should you be happy to share information, you should also try to learn from their insights . Investors have tons of experience and have dealt with lots of founders. They'll be able to point out the flaws and pitfalls in your business model , and thus reduce your risk of failure.
Just like investors create an anti-portfolio, you need to create a list of investors whom you've reached out to but who didn't fund you. This may seem counter intuitive - after all why should you bother to talk to people who've said no to you in the past ? The reality is that the startup ecosystem is a small world, and you are quite likely to come across that same investor in a new avatar down the road.
If you've taken the time and trouble to remain in touch, they'll be able to see how much progress you've made, and this will inspire confidence. Also, other prospective investors will ask them for their opinion about you, which is why it's a good idea to remain in contact.
This doesn't mean that you need to divulge confidential information to them, but you should be able to show them that your company is making progress. For example, you can send out monthly emails to all your well-wishers, and you can request them for permission to add their name to this. This will allow you to differentiate yourself from other founders , and since you never know how they maybe able to assist you in the future, please take the effort to stay in touch with all people you have reached out to for help.
One of the best ways to set up a founder, and startup for growth and success is to provide him/her with annual performance reviews that detail how they are doing their job. In a fast-paced, young startup, this responsibility falls upon the board or key investors.
A review well conducted offers significant value to the founder. It can help highlight the strengths of the founder providing them validation, and the weaknesses that they should be working on providing them course correction opportunities. At the end of the day, good performance is doing more of what you do well, and doing less of what you don't do well - and this exercise is exactly meant to reinforce the same.
Periodic resetting of strategy, and reviewing it helps the founders and investors agree on the short & long term strategy of the company. At the end of the day, founders and investors need to be on the same page, if they want to grow the business
Both founders and investors are left unsatisfied and frustrated at times due to lack of communication or effort from the other party. By coming together periodically, improving the quality of communication, you can set yourself up for better outcomes
Validating the positives, and outlining the negatives helps a founder understand their own performance. This helps them focus on bettering themselves
a) Strategy of the company
b) Ability to build the team & lead the company
c) Financial performance
a) At the end of the year, the founder states objectives achieved during the year, does a self evaluation, and summarizes key learnings during the year
b) The founder asks other founders, investors, and direct reports to review the document, and share feedback, agreements & disagreements
c) The founder sets up a 60 min call with other founders, investors and direct reports to get a detailed opinion, agree/disagree on the self evaluation, feedback. This call should be conducted by lead investor or chair of the board
d) Post the call, the founder should recreate the document taking in all the feedback from the board, co-founders, direct reports, and share call notes along with the revised document
e) Have a one-on-one conversation with lead investor to go over the evaluation process, and report. This is the time to voice opinions, seek inputs on key points discussed
f) Finally, the founder should present the results to the entire board at the end of year board meeting
Now you may ask, does an early stage company need founder performance reviews? The question is why not? All founders irrespective of stage of the company, benefit from constructive and actionable feedback. Yes, for early stage companies, you can skip the formality of the process and make it more informal - but setting up processes early on doesn't hurt. It reinforces the systems and values of the company. Do not skip important processes just because a company is young!
Jeff Bezos’ Letters to Shareholders are nothing short of a goldmine, and can put many expensive business school curricula to shame.
We read through 24 years of Letters so you don't have to!
Sharing bite sized nuggets condensed into 100 bullet points by year so you borrow from the mind of a maverick - all into a downloadable PDF. You can download it here.
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In case you'd still like to go through them in detail (something we highly recommend), find the links here: 1997-2016, 2017, 2018, 2019, 2020
Rethinking Competitive Advantage - New Rules for the Digital Age by Ram Charan & Geri Willigan aims to be a refresher on what it takes to create, maintain and expand your competitive advantage in a digital-first world.
The digital age has changed the way customers experience your business. The prices are lower, convenience is high, access is quick - and now customers expectations across categories have become the same. A company we were evaluating was asked this question by its customers “If Amazon can do it in a day, why can’t you?”
The author says that creating a competitive advantage is different in today’s day and age i.e. the digital age. Gone are the days where the company having control over distribution channel, brand, patent, or tangible assets emerges are the winner. Today’s company has to win the ultimate prize - the customer’s preference. And, repeatedly!
Read along, as I share some key learnings from the book!
A personalized consumer experience is key to exponential growth
Algorithms and data are essential weapons
A company does not compete, its ecosystem does
Focus on cash generation! Money making is geared for huge cash generation, not earnings per share and the new law of increasing returns. Founders understand the difference.
Personalize the Customer Journey - divert all effort towards this!
People, culture and work design for a ‘social engine’ that drives innovation and execution personalized for each customer
Keep reinvesting to reinvent
Leaders continuously learn, imagine, and break through obstacles to create the change that other companies must contend with
Creating competitive advantage is different in the digital age. The ultimate prize in a digital world is winning consumer preference. It comes from what a company does vs what a company has.
Imagining new market spaces and revenue pools that can scale up at unprecedented speed is just one way that digital companies are born from the start.
The old adage of stick to your knitting or build on your core competence narrows a company’s imagination in a digital world
They imagine a 10x to 100x market space
They have a digital platform at the core
They have an ecosystem that accelerates growth
Their money making is tied to cash and exponential growth
Decision making is designed for Innovation and speed
Their leaders drive learning, reinvention and execution
Nothing actually, however this is where Digital vs Traditional comes into the picture
A traditional company’s downward curve starts with price declines, margin pressure and flight of investors
Some conventional advantages will always persist, such as brand, reputation, patents, and scale matters in commodity businesses
The biggest difference to create competitive advantage vs the past is the speed of competitive action and response
Leadership obsolescence is a reality. Reviews in legacy companies are largely focused on the rear view mirror
Many traditional leaders have an over reliance on outdated theories
Core competencies have a shelf life, they become obsolete, and new ones have to be built
A digital leader recognizes this and is on a continuous path of improvement
Leaders who have ‘observational acumen’, the ability to notice what others miss are often the ones who land on a better consumer experience.
Digital leaders blend data with intuition. They have the mental capacity to think big 10x or 100 x. They are focused on the customer
The founders of today’s tech companies put a lot of effort in recruiting right
There is a fluidity to their thinking, they welcome change and even seek it. They are hungry for what’s next and are willing to create and destroy
They rely on metrics and transparent data to drive execution
When leaders fail, it is because their business skills do not fit the challenges of the job
A dominant psychology of incrementalism and short term thinking.
A blind spot when it comes to customers
Acceptance of existing boundaries
Belief in mass markets and segmentation
A market of one is the ultimate in personalization. M = 1
Starbucks caters to 170,000 possible beverages options at its stores according to its website
Mapping the customer journey is emerging as a distinct expertise
A digital platform on its own is not a competitive advantage, but not having one is a competitive disadvantage
The real impact of digital technology and platforms comes from combining knowledge of what technology can do and business judgement about how to use it
Combining and refining algorithms over time build competitive advantage
Consumers get great value from company use of data and algorithms, however, that can quickly disappear if privacy or security is compromised
Digital giants and their ecosystems are not linear, i.e. not only aligned with their own supply chain, they are exponential and multidimensional. They have a vast range of partners
Digital plays can often require substantial amount of capital before they become the exponential growth, cash generating machines we want them to be
It is essential to find funders for your business who are aligned with your strategy, and get the big picture
Digital companies create recurring revenues from consumers. Digital companies see growth as a series of S curves
Breaking work into bite size missions and giving stand alone teams the autonomy to figure out ‘how’ leads to faster, better decision making
Digital platforms make real time information transparent to people in other parts of the organization, people feel liberated and send more time doing what they inherently need to do
A lot of advice in the book does not seem very concrete, and can be passed off as offhanded remarks. The authors suggestions on strategy may also be simplified down to ‘brainstorm with your team’, or ‘find trends that will be sustainable for the next decade’.
What this book does is to share high level understanding of very successful companies, which can seem very inspiring, but a lot of generic advice can be passed off with an eye roll.
A good, quick read to touch upon the basics!
This post originally appeared here.
In part of the series on Pitching to Investors, we will share our views on an effective framework for pitching. Despite widely available resources on pitching, we find that founders somehow always end up confused.
In part 1, we discussed your primary objective of a pitch, what materials can be used to pitch along with a general framework on pitching.
Today, we will share a generic structure of a good pitch. This is nothing fancy or unique, but observations from numerous pitch decks we have had the privilege to look at.
In the next post, we will share how to take the next meeting, a product demo (if any), FAQs, handling investor questions, and final comments!
In this new series of Pitching to Investors, we will share our views on an effectively framework for pitching. Despite widely available resources on pitching, we find that founders somehow always end up confused.
What will we look to cover over this series:
You used to walk up to the door of the fancy VC office with laptop in hand and freshly updated pitch loaded and ready to go. You now are Zooming your way in a pitching process. But at the end of the day, what are you hoping to accomplish?
Your primary objective of a pitch meeting should be to get the next meeting. You can use the pitch to:
But that's not it. You can also use the first meeting to establish your credibility and create the base for an on-going relationship. You can also use the meeting to seek and work on feedback and demonstrate that you are coach-able. And at the end of the day, you want to show them that you can be a fun or interesting person to work with!
Yes and yes
Yes - Its a sales pitch but not for your product or service, but of your business
Yes - If your product succeeds, the company can create a lot of value and the investors can generate large returns
The Indian startup ecosystem has become more 'American-ised' in its way of working. So its more about 'Sell me this pen in 30 seconds' coupled with smaller teams that run on low bandwidth and even shorter attention time spans. Having said that, an investor pitch is not a make it or break it for you. There are other resources available like:
At Malpani Ventures, we do not fuss over a pitch. In fact, we like if it can be a simple phone call where we can understand the background of the founding team and covers the following:
At the end of the day, whether it is a pitch, or a sales call, or a job interview - some common themes remain the same. Having said that, here are some of our views:
In our next post on this series, we will share our views on a pitch deck structure! Stay tuned!