Differential invests in B2B data technology startups using AI and machine learningRead more...
Based in India, the firm is investing in the country's massive digital transformation
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed! While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Swamy is well known for his founding role at ZipDial (now acquired by Twitter) and his role at mChek, the path breaking startup in secure payments, Sanjay has trodden the path of an entrepreneur all through his career. After completing his bachelor's degree in engineering, he headed to Paris where he earned his Master's degree. After a stint at Xerox PARC in Palo Alto, Swamy embarked on a journey to build world class teams and products that took him through startups like Ketera and Portal Software, mChek, Zipdial & Ezetap which he co‐founded in 2010.
An active member of the community, Swamy is a Rotarian and a charter member of TiE, a volunteer at iSPIRT, and organizes the Fintech Panel at the Nasscom Product Conclave. He also played a prominent role on the UIDAI project under the leadership of Nandan Nilekani. He is a frequent speaker and evangelist in the entrepreneurship and payments circuits in the country.
Swamy loves to blog ‐ anything you say that is half‐way intelligent will turn into a subject for his blog.
VatorNews: What is your investment philosophy or methodology
Sanjay Swamy: As you may be aware, the ecosystem in India has evolved quite a bit over the last 10 to 15 years and certainly a lot over the last, I would say, three years. I grew up in India, I did my undergrad here, then I studied and worked in the US for several years, as did my partners, coincidentally. Then all of us lived in Silicon Valley through the 90s and experienced the whole dot com era. One of my partners was one of the co-founders of Snapfish, another partner was at IBM Research and then later at Google. I was in the embedded system space at a firm called Integrated Systems, then at Xerox PARC and Portal Software. So, we all lived and worked through the first phase of the internet boom in the 90s and all moved back to India, coincidentally, between 2003 and 2007, though we did not know each other.
I moved back to India with the idea of starting a mobile payments company. I saw the cell phone revolution that was happening here in India and I felt there was an opportunity there for people to exchange transactions. DFJ was funding a mobile payments startup in India, called mChek, and I was brought in as the CEO right after it had been seed funded. That was a company that attempted to build something very similar to what is today Apple Pay: tokenized cards, but on the SIM card of regular feature phones. I'm talking circa 2006 to 2010. We made a fair amount of progress, we were deployed on all of the DOCOMO SIM cards here in India, and partnered with Visa and three of the largest banks in the country. But, somehow, it was still very tedious to even get a bank account or even get a SIM card in India. The KYC requirements were quite difficult and so, as a result, the company did not make a lot of progress. Around the same time, my co-founders also had moved back to India and I, of course, got to meet them in phases. But India then launched this massive national identity program called Aadhaar, which aims to bring all 1.3 billion Indians into a common identity platform. It’s a new age version of the Social Security number in the US. So, India did not have a national ID, and that led to a lot of leakages in the government programs, so a national ID was a fundamental requirement to open a bank account, to get a SIM card, etc.
So, a lot of the challenges I faced in my journey as an entrepreneur I felt it would be addressed with this infrastructure and, coincidentally, the government brought in the CEO of Infosys, Mr. Nandan Nilekani, as the chairman of this initiative. He was appointed to the rank of a cabinet minister, and said, ‘You should work through this and get every Indian a national ID.’ So what Nanda did was he actually reached out to the private sector and brought in a lot of volunteers from around the country as well as some people of the Indian diaspora in Silicon Valley, who moved back and said, ‘We want to help this nation building exercise.’ I was also privileged to have an opportunity to be a part of the program, as was my partner Shripati Acharya, and that’s actually where we first worked together. We spend about 18 months on the program; India has built a very unusual digital railroad, starting with this national entity infrastructure, where we enrolled about 1.3 billion Indians over the course of seven years into this national identity program, called Aadhaar, which stands for ‘foundation’ in most Indian languages. It's an all biometric system, so every individual resident went through a one time enrollment where they gave up their name, address, date of birth, gender, phone number, email address, photograph, all 10 fingerprints, two iris scans, and that data was sent through a central server and was compared to everybody else who had previously been through the system to make sure that there wasn't a biometric match. Only then where you were you issued a unique 12 digit account number or identity number. The entire program is actually designed to be an online identity, so there is no card or token that represents your ID, there is a REST API that is run by the government, even today, that allows banks or telcos or other service providers to make an authentication request.
The reason I'm delving into this is because it’s a one of a kind infrastructure that we have in India and it has led to a lot more digital infrastructure that the country has created. Today, we have a national real-time inter-bank payment network called UPI, which has grown from processing zero transactions a month to three and a half billion in five years. And these digital rails that we have built in India are unique to India. So, three things happened in India: one is we have this identity infrastructure that came in; the second was, on the back of that, people were easily brought into the telecom infrastructure; and, third, people were given bank accounts. So, three core things that people did not have, all of a sudden, over the course of seven years, pretty much a billion people now have got an ID, have got a SIM card, and have a bank account. Now, the private sector also jumped in on top of this; Reliance, for example, created Jio, which is the first full 4G network, and that network was built up without a single piece of paper. So, every individual was brought into the system with a full KYC account, only by using Aadhaar and biometric authentication, and that was done in every single corner of the country. Every agent just had an Android phone and a SIM card and a biometric fingerprint sensor attached, and they were issuing SIM cards at very, very low cost. So, what this has done over the last five or six years in India is it's brought about 600 million people to the internet; as of 2010, we probably had 20 million people on the internet, and suddenly, a decade later, we have 650 million people on the internet. And, for most of them, their access to the internet is through a smartphone, not through a laptop or a computer.
This is a long way of telling you that India has gone through a massive digitization and transformation and we, as entrepreneurs who had seen the impact of the first generation of the internet in Silicon Valley when we were there, looked at this opportunity and said, 'there is going to be a massive explosion of technology-based transformation in India, to solve some of our fundamental problems and problems around financial services, problems around education, problems around logistics, problems around healthcare.' We have a very strong talent pool in India; we have a very hungry, emerging upper middle class, and lower middle class as well, that's aspiring to get better and better. That means the first time access to the internet could be used as a vehicle to drive all this transformation on the back of the digital railroad that the government had paved. So, that's where we felt that entrepreneurship was going to be something that was going to a) have massive opportunities and b) address some of the biggest challenges that the country faced. And that's when we decided that we wanted to become a VC firm.
Of course, venture capital firms come in all different shapes and sizes, with different focus areas and things like that. Since all three of us partners that lived and worked in Silicon Valley through the dot com era and, as I said, one was the founder of Snapfish, one worked at Google, I myself have been in the industry, we've all got strong operating backgrounds, we chose to work in the very early stage as seed stage investors, where we can work closely and collaboratively with the founders because we've been operators and that's what we like. We’re company builders, and that's been our approach.
VN: What are your categories of interest?
SS: There’s one theme, and it translates to a few verticals, and the big theme is the digital transformation here. So, we're looking at financial services, which is a core area for us, and education, where one of the side effects of the unfortunate 18 months that the world has experienced with the pandemic is that education has been forced to go digital and that has been a huge boom for that sector. The third is healthcare, which has transformed, again, as a result of the pandemic. We had funded a company that was in the telemedicine space like Teladoc, a company called MFine and in their first eight quarters they'd signed up 200 hospitals as their partners; in the first eight weeks of COVID they signed up 300 hospitals and they have gone from strength to strength. So, healthcare has been digitized in a big way. And then the fourth one is digitization of the informal sector. So, everything that has to do with security, physical security of buildings or residential complexes, logistics; India has about 10 million trucks, most of them are owned by smaller mom and pop operators with one or two, maybe three trucks. That's like 85% of the industry, but through digitization they're able to bring all their trucks into a common platform, they're able to track where their trucks are at any point in time, things like that. And so, that's another area where we see the formalization of the economy. So, these are the core areas that we look at.
Then, at a global level, there is obviously a lot of emergence of SaaS companies from India, and that's an area that we look at. So, broadly, things that are digitizing India, and then SaaS from India are the two core areas for us.
VN: Do you only invest in companies that are based in India? Or will you invest in companies in Silicon Valley, for example?
SS: We do have a few investments in the US, whether it’s Silicon Valley or Seattle or New York, but, generally, most of them will have some strong presence in India as well. There could be an exception but, for the most part, we are an India-based, India-focused investor. And, once again, as I said, we are early stage company builders, we like to work closely with the entrepreneurs, and, despite everything that we're now doing on Zoom, the reality is proximity plays a big role. There are only so many problems that can be solved with a whiteboard conversation. So, that's certainly our comfort zone.
VN: What's the big macro trend you're betting on?
SS: Certainly the pandemic has changed a few things. It has proven that good entrepreneurs can be from anywhere. We used to be much more focused in Bangalore and Delhi, but now we're finding entrepreneurs from around the country. We've also backed a company in Singapore recently and I would say that some of the boundaries are breaking down. We just announced a co-investment with Union Square Ventures, their first investment in India, a company in the electric vehicles infrastructure space. So, we are seeing a collaborative effort across the globe now, and I expect that we're going to see a lot of overseas investors coming into India. So, that's one interesting change that we're noticing of late. And Indian companies will also not just look at India as their opportunity, but they’ll look at the world as their opportunity. So, we're going to see a lot more collaboration and it's kind of symbolic that Air India and United have this nonstop flight from San Francisco to Bangalore. The world is getting smaller and smaller and we'll see a lot of interactions between the two.
On the technology side, especially as we start looking at some new areas like gaming and things like that, a lot of those depend on developer ecosystems and India happens to have a very strong developer ecosystem. So, I suspect that a lot of global startups will be formed out of India as well, and so they're really excited about that.
VN: What is the size of your current fund and how many investments do you typically make in a year?
SS: Our new fund, which we just announced about three weeks ago, is a $100 million fund. We typically make about four to six investments a year as a VC, so those are new investments.
VN: What stage/series do you invest in and how much is that in dollar amount for you?
SS: We typically are the first institutional investor that comes into a company and our check sizes have quite a lot of flexibility but our sweet spot is probably between $1 and $2 million in the first year and then typically we reserve, probably, twice that amount on an average for companies in follow on rounds.
We are very long term investors, most of our LPs are primary capital, and so we want to build large companies. That's the only thing we are looking at so we want founders with outsized ambitions, and we're ready to back them all the way.
VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?
SS: We have founders who have come to us at the napkin stage but, these days, what we're finding is the bar to build a product and roll it out in the market, and test it out with the market, is actually pretty low because you don't need a data center. Everything is done with AWS and you don't need a lot of money to validate a few things. So, we really like the founders who have put some skin in the game and shown a little bit of validation.
Now, they may have raised a little bit of angel money or something like that and that's fine, but what we really want to see is enough proof of some differentiation that they’ve got. Obviously, when you’re looking in the early days, the team is critical and obviously that is one that we look at very closely. We like founders who’ve got some unique insights into the market, either from personal experience or some good understanding of the market. We like to see that they're solving a real problem that customers will pay for in the future. That doesn't mean that they have to start monetizing it yet but there should be some plan as to where the money is going to come from. And, obviously, venture capital as an asset class only works when you have founders who are aiming to solve really large problems with outsized outcomes potential. Right now the probability might be low but success has got to be worth the hard work, so we totally understand that not all companies are going to make it but the ones we back, when they do succeed, we want it to be a large outcome. We don't want it to be a small outcome. It's harder to build a small company than to build a big company, because the world conspires to make you successful if you're solving a large problem. We're seeing a lot of that in the founders themselves.
So, the short answer to your question is, we'd love to see some traction but revenue is not necessarily the most important metric for us.
VN: What about the product? Do you need to see a product at that point?
SS: Yes, I don’t just like to see the product, I like to use the product. I rarely ask entrepreneurs to show me an investment deck, I straightaway want to see a product demo. I want to see what they're thinking because, ultimately, in today's startups the only differentiation we have is product thinking; that's one area where you really have to invest in having differentiation. That tells us how they’re thinking about go-to-market, how they’re thinking about supporting the customers, and how they’re thinking about making the customer's life better. And I really like to see product experience. I know it's not going to be perfect, but it tells me a lot about how the entrepreneurs are thinking. It's a version one product or it's an alpha version product and all three of us actually have been product managers in the tech industry, so we know that version two will look extremely different from what we're seeing, but it helps us gauge the mindset of the entrepreneurs. So, to me, that is the most important thing. And, of course, along the way we will ask questions as we're seeing the demo of the product or as we're using it and in seeing how the founders react to that, what their thought process is behind the product. I can't imagine investing in a tech product without seeing any product.
VN: What about the market? Obviously if a company is building a product, there has to be a market for it, or at least you believe there's going to be a market for it at some point.
SS: If they have some early customers, and by customers I mean any new users, not necessarily paying, the engagement will tell us if customers really care about this product. I mean, if we took this product away, would customers say, ‘That's okay, life goes on,’ or will the customer say, ‘oh my god, please don't take this product away.’ It really has to be an aspirin for the customer, it's not a vitamin. It's not a ‘nice to have,’ it’s a ‘must have.’
The only other point for me is, are there enough such customers who will consider this to be a must have? Is there a sharp end of needle where you can go to a customer and they say, ‘Where have you been? I've been waiting for you.’ That’s the first reaction you want to have. The second is, they try it out and say, ‘Boy, this thing rocks. It's not perfect but it solves the main part of the problem.’ And the third is, are there enough such customers? As the famous Henry Ford statement goes, ‘If I had asked customers what they wanted, they would have said faster horses.’ So, founders sometimes see the future before their customers do, and that's a leap of faith we're willing to make because, again, there's only one outcome that matters, which is the large successful outcome. So, in the success case, are these people capable of getting the customers to all start using the product? That’s a leap of faith you have to make and we'll be right some of the time, but we will be wrong many times as well.
VN: What do you think about valuations these days, especially over the last 18 months or so with what's happened with COVID? How has that been affected what’s happening in India?
SS: You're saying 18 months, I was thinking of the last 18 days, it's such a dynamic market (laughs). Valuations are, in some ways, determined by the size of the outcomes that are possible. What we're finding in India is, as recently as five years ago, the size of the opportunities were very small. It was important for us to be able to get good outcomes and multiples, so you needed to make sure that you were not spending a lot of money in building businesses because you couldn’t. But, today, we're seeing the potential truly for unicorns, decacorns, even potentially a $100 billion company before the end of this decade coming into the startup ecosystem here in India. So, we're starting to see a lot of that happening; the size of the opportunity is huge. The second thing is, it's also possible to build large companies relatively quickly by doing one narrow thing. It used to be in India that because there wasn't depth in the market, startups had to do multiple things and that never plays to the strength of the startup. So, that’s a long answer of saying that it's natural that the valuations have also gone up and because of the size of the outcomes, there's more money chasing the startup ecosystem.
We're right now in a bit of a frenzy and so we're seeing the rate of change of these valuations go probably a little faster than one would like, but it will probably stabilize. We've seen these waves. But, ultimately, what really matters is being in the right companies and the opportunity to build something really great so our philosophy has been we'd like to be the first institutional investor, that way we get in at the lowest possible valuation, hopefully, but it's more important to be in the right companies. What used to be a $7 million valuation might now be a $14 or $15 valuation; it might be higher, it might be lower, but our success is only determined by the companies we get into our portfolio. The short answer is, valuations have gone up, but it's not necessarily a bad thing.
VN: I would imagine that round sizes have also gone up.
SS: But the salaries that we need to pay engineers and a lot of the other costs have also gone up. It’s just getting more expensive to do a startup in India, so we have to be pragmatic about it and say that we're willing to do what it takes to get the company from a seed stage to what they need to get to the Series A stage. It used to be half a million dollars eight years ago, it used to be $1 million four years ago, it might be $2.5 million today. Essentially, companies are built in stages and we need to make sure that we capitalize the companies well so that they can make it to the next stage.
VN: When people see higher round sizes and higher valuations, sometimes they say that that puts pressure on those companies to deliver quicker, or maybe they’re really raising too much money. It sounds like you don't really think that that's the case, that round sizes and valuations have gone up relative with the ecosystem and it's not going out of control.
SS: Oh, there’s a little bit of that and there are situations like that, for sure. Typically, we will stay out of them. It used to take three to five years for a startup to get to $10 million of revenue in India, and now we're seeing that happening in nine months. So, when you look at those kinds of opportunities, that tells you that it's okay to be up a little bit because the company could be a rocketship and it's going to grow very fast. We’re literally seeing companies that are projected to get to $100 million of revenue in two and a half years from launch; we've never seen that. Even by Silicon Valley standards, that would be considered a fast growing company and we're seeing that happening in India. So, definitely those types of companies can command, and will warrant, higher valuations and higher round sizes.
What happens is, unfortunately then there’s a lot of money chasing entrepreneurs and that bleeds across the board. One of the partners at Mayfield told me, ‘Good companies don't die of starvation, but they could die of indigestion.’ There could be some situations where companies have got too much capital and don't know what to do with it and sometimes feel compelled to use the capital because they've taken it. And so you end up chasing these phantom metrics and things like that. So, there will be a little bit of that but, generally this ecosystem tends to normalize pretty fast. These cycles don't last forever. Building a business is a marathon, it’s not a sprint, it has to be done the right way. You have to build it layer by layer and you have to make sure that every layer is rock solid when you're building. It's kind of like building a house; you can't just build the penthouse and say you’ll worry about the rest of the structure later. So, good entrepreneurs realize that you have to build things the right way. We are hearing about entrepreneurs who actually are pushing back on investors where they feel the culture is growth at all costs. We're seeing several entrepreneurs saying, ‘I don't want that because I need to build my business and I know the stages it's going to take and I have a well thought out plan. There will be some risk that somebody else might come in and steal the opportunity, but there's no way I'm going to be successful if I just only focus on one metric.’ So, there are fairly thoughtful entrepreneurs and that's what we're looking for.
VN: There are many venture funds out there today, how do you differentiate yourself to limited partners and to entrepreneurs?
SS: Three things: one is the backgrounds of the GPs. All three of us have very strong operating experience and very unique backgrounds, so we have a track record of having built things. Our earlier funds are, I can't share the exact numbers, but they're doing outstandingly well and we’re returning multiples of capital back to LPs already. The funds are really doing very well, performance wise, so that is also very important. LPs like us because we have a very unique story and role to play. We're all company builders, we don't do a lot of investments; we do, as I said, four to six investments a year, which is actually, right now, at an all time high. It used to be three to five investments until now, so we've gone up a little bit. What that means is we spend a lot of time with the portfolio, and that also is a competitive differentiator to entrepreneurs as well. So, each of the GPs has very different experiences, and we make sure that all three of us are available to work with all the portfolio companies, so it doesn't matter whether I lead a deal or Amit or Shripati lead a deal; the founders get to interact with all of us, because each of us has our own areas of expertise and strength and I would like companies to benefit from everybody's strengths, not just from the partner that they happen to be stuck with. That has happened with a lot of firms where they have a large number of deal that they're doing. Both our LPs, as well as our founders, actually appreciate that about us and they like that approach.
From an LP perspective, we keep our fund sizes still relatively small; we've seen funds go from $60 or $80 million to $200-plus million in the next fund, but we’ve stayed very consistent. The first fund was very small but after that it's a $46 million, a $76 million fund, and our new fund is $100 million, which, if you think about it, is really going to have the same number of deals in the fund, approximately, but it's just that the market has moved up a little bit and we need a little more powder. Our story and our approach hasn't changed: we're staying consistent to early stage, we are staying consistent in areas that we have expertise, where we can add real value to the founders, and we're building our team so that we can continue to work very closely with founders. What LPs say they like about us is it's a consistent story that they hear from us and our implementation of the strategy also is exactly what we're telling them we're going to do.
From a founder perspective, our philosophy is very simple: we will be the hardest working investor on your cap table, no ifs ands or buts about it. All of us work very closely with the founders, you can wake me up at any time of the day with a crisis and I'll be there for you. We use all the products; we use every single product that we back. If it's a B2B product, our company is using it, and if it's a B2C product, as consumers we're using it. I'm literally on test flight on every single application that we have backed, to the extent that founders actually take me off test flight because I find bugs in the product and they're kind of sometimes a little bit irritated by that (laughs). We have really good product guys and we really believe in the product. They're happy to test out new things and so on. Obviously we know our boundaries; at the end of the day, we are investors in the company, we're not running the company, but we’re very very, sometimes overly, passionately involved with the company, but founders care about that a lot. They actually like the fact that we, as investors, are really thinking about the metrics that they should be tracking, how the metrics should be represented, what the next on deck should look like, introducing them to new investors, really helping with the positioning of the company. We work evenings and weekends with a lot of our founders, because that's when they have the downtime from their day-to-day operations to sit down and actually talk to us and think and brainstorm a lot more strategically. And since we've been operators ourselves and we've been entrepreneurs ourselves, in all of those meetings, we’re not board members, we’re not investors, we’re part of the team. We're side by side trying to solve the problem. Yes, once a quarter I have a fiduciary responsibility because, at the end of the day, I'm managing other people's money and I have a role to play as a board member, but 90% of our interactions with our founders are outside of board meetings. That's something that, for an early stage, works very well. And that's what is unique about our approach.
So, both on the LP side as well as on the founder side, these attributes are really what they find differentiated and attractive. For LPS, at the end of the day, returns are returns, that's one metric, but most of our LPs want to be associated with building on a large scale. Good outcomes will come as a result of that, so they're not chasing the returns, they're chasing doing the right thing and focusing on doing the right thing with an implicit assumption that good things will happen as a result. We've been very selective with who we pick as LPs, as a result of that. So, it's also very important that our LPs have the same mindset as we have, which is let's just build great companies, and don't measure us by the numbers. IRR to the second decimal place is the wrong way to look at it.
VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?
SS: The first one I'll talk about is this company called Quizizz. If you've got children and they're in the K through 12 system in the US, they quite likely have used this product. In fact, anywhere in the world. Quizizz is a classroom quizzing platform; making learning addictive is their goal. This company came to us when there were two founders and one engineer and they had just launched this quizzing platform. There were probably about 800 students and maybe 20 teachers on the platform; it was two or three weeks old. When we spoke to some of the teachers who were using the product, one lady said, ‘They've caught lightning in a bottle. I do a quiz on Quizizz and the kids just love it, they want to do more.’ Most of us that have been in school, the moment the teacher brings a quiz you want to run away from the classroom, so it was amazing for the teachers to say that the children just love Quizizz and they just want another quiz over and over again. So, we did the seed round in that company way back in 2015, and the company just grew silently. They did no PR, no marketing; today Quizizz is used in 120 countries around the world, they have 80 or 90 million monthly active users. It's in the US, it's in Indonesia, Thailand, it's in Africa, India, you name it, all over the world. Up until six months ago, the company had 19 employees, so it was a very small company and they processed, as you can imagine, a few billion questions a month being answered on their platform, so the infrastructure was robust, clearly people love the product, and they had a very low burn rate. We did the seed and then Nexus came in and did the Series A, and it hardly raised $3 or $4 million until about six month ago. They've since suddenly raised a couple of big rounds from Horizons and Tiger Global and GSV have come into the company, but I keep joking with the founders that they raised in total about $60 million now and they don't even that 60 employees in the company, so if they liquidated we could all be millionaires, but I'm just joking, of course. And they recently turned on monetization after five years and people are really happy to pay for the premium version of the product.
So, this is an example of a true technology company being built out of India. It's a consumer brand, it's a household name now, it's used all over the world, and, in fact, one of the recent investors, when I told her about the company, she said, ‘Oh, let me play a quiz with my family at home.’ Her daughter was so excited, she said, ‘I used this in my school,’ and that literally sealed the deal right there. So, it's really exciting to see something like that built out of India, and we are really privileged to have been the first investor in that company.
I'll talk about another company called Dozee, and they have a sensor that they've designed that goes under the mattress. It's not under the sheet but under the mattress, and it’s connected to the internet. It converts any ordinary bed into a clinical grade, step-down ICU unit, so it records heart rate, respiration rate, and blood pressure, and it's really, really accurate. It's going through FDA approval right now but it's live in India and in a couple of other countries. The problem they're solving is there is a massive shortage of nursing, so the nurse to patient ratio, which should be three or four to one, in countries like India can be 40 to one. During COVID that got even worse because all the hospitals were running at 100% capacity. So, their device went under the mattress and doctors got real time information and visibility on their patients. COVID is a respiratory disease, but for any ailment you've got, heart rate, respiration rate, and blood pressure are the core requirements.
It's a fairly low cost device but we offer it as a SaaS product because the strength is in the AI and the data science that’s going on at the back. We are already seeing several cases, probably almost 1000 cases today, where hospitals have actually changed the treatment that they were giving a patient, and moved them to an ICU or something because of the alarms that the software was giving out. And here's an example of a truly global innovation and it started here in India. The founders have an amazing story themselves, but they're building this product not necessarily because they're chasing fame and wealth. They are just trying to solve a huge problem and it is going to be a hugely valuable company because it's a problem that the whole world needs to see solved.
I'll talk very briefly about a third one, which is a new joint investment with Union Square Ventures, in a company called REVOS. India is getting into the electric vehicle industry now, and it's fundamental because we had 20 to 30 million two wheelers in the country every year. So, India runs on two wheelers, there are hardly any four wheelers that are sold in a year. And, with two wheelers, once it becomes electric, they need a smart operating system, kind of like Android. And, secondly, we also need a charging network. REVOS has come up with an operating system they’re licensing to OEMs, so that their devices can be smart, can be controlled through a smartphone, etc. And they’ve also come up with an ultra low cost, like I'm talking about a $10 or $15 type of price point, that converts any electrical outlet to a networked EV charging station. It works very well for two and three wheelers and the idea is to turn this into an international peer-to-peer EV charging network, where we essentially can have several million charging outlets at every single store, at every single residential community, at every single house. And, as a user, I can put my house on the grid just by buying this device and plugging it in and registering it once. So, if I have an EV myself I can charge it for free but if somebody is visiting me and they're out of charge they can plug it in, and the system will charge them and settle the money in my account, so it's a peer-to-peer charging network. We're really excited to be working alongside USV on this company.
VN: What are some lessons you learned?
SS: Where do I start? The biggest thing is there will be false negatives. There will be deals that end up being monster companies and we just didn't see it. It happens. We couldn't convince ourselves that it would happen. There are several of these anti-portfolio companies. What we really have to look out for are false positives, and that's a missed opportunity for us. So, we will miss several opportunities but the ones that we choose to work with are where our money is made, and you have to be doubly sure about those. Now, given how early we come in, a lot of this is based on making decisions with imperfect data, because we're making judgments here. So, the big lesson now is really that there’s a macro change that we're imagining is going to happen. Some of that is timing, and we may never get the timing right, but the thing that won't change are the founders, so we have to really, really get to understand them and see if we work together. Because more things will go wrong than right in building a startup, and you will have more bad days and good days, but during those bad days, when the founder calls you, are you excited to take the call or will you be like, ‘oh my god, this guy's calling me again?’ Or if I call the founder are they going, ‘oh my god, why is this guy calling me? I'm having a bad day at work.’ So, can we work well together is actually one of the most important things that I look for. And, in fact, I don't even look at financial projections because I always tell them that whatever they’ve put in this slide, the only guarantee is that that's not going to happen; you don't know what is going to happen but we know that that's not going to happen, so don't waste my time with these projections. What I'm interested in is the thought process. Do they understand where the costs are going to be? Do they have a good sense for the type of team that we're going to build? And so on.
The other big thing is, a good part of building the company is storytelling and convincing people about your story. This has to do with convincing yourself and your family that it's worth slogging on a Saturday night. It's convincing your team members that it's worth giving up that night out at the pub and coming back and solving some real hard problems. It's important to be able to convince your customers that you're showing them the future and not somebody else. It's important to convince investors. So, storytelling plays into everything, and companies are going to have tough times; you're going to have to hold the team together, there's going to be a competitor who’s raised $100 million from Softbank and your team is wondering, ‘are we going to be around? Are we going to be relevant?’ And entrepreneurs are going to have to be charismatic, as well as down to earth. So, they have to be able to dream and, at the same time, they have to have the execution skills, so that's another big takeaway for us. That it's not just the ability to build a great product, but you need to be able to tell the story as well. and sometimes telling the story is more important than building the product.
VN: What excites you the most about your position as VC?
SS: As soon as I get off this call, I'm going to check my messages and check my email and my WhatsApp, because what I look forward to is some entrepreneur in some corner of the country who’s claiming that he's going to transform lives. It is just so exciting when you hear somebody who at least believes that they want to do something really spectacular. Now, I might not agree with them that what they're solving is really the right thing, and I may not agree that they’re going to be capable of doing it, and shame on me in that case, or I may not agree that it's the right thing for us to get engaged with. But, whatever it is, the excitement that a young entrepreneur has got, and I mean young as a figure of speech, at my age everybody's young, but it's more an issue of the company being young. They really think they're going to make somebody's life so much better, that people are going to pay them $100 million over a few years, and that is what I look forward to every day.
Of course, amongst the ones that we decide to work with, it's a combination of emotions. As a VC in over 35 companies in our portfolio, every day there’s one company that’s having a great day and five companies that are having a horrible day. Literally we have WhatsApp groups with each of our founders and partners and we’ll say, ‘congratulations, great staff and awesome to hear,’ and then it's be, 'don’t worry about it. No, it's not the end of the world, we'll figure out a way out,’ with another company. It’s like being the coach of a football team, where some player is having a bad day, and that's when they need your support, yet the team is winning and you need to celebrate that. As a VC, you have to look forward to it; you can't whine about it, you really have to look forward or don't get into this profession. Oh, by the way, there might be LPs who also are saying, ‘Hey, how are things going and when we see some progress happening,’ but there we’ve been more fortunate as the ones we picked have been very good long term supporters of ours. We see LPs also being involved a lot; we pick up the phone and call them whenever we have a question that comes up, because they’re LPs in 300 funds around the world and they have seen probably everything that we are experiencing for the first time. I've talked to GPs who say, ‘we never want to talk to our LPS,’ but in our case we love talking to them because we learn a lot and it's ultimately their money, so they'll definitely be well wishers of ours. Just the excitement of working with new things is fascinating.
The other thing is tech is making so many incredible things possible which were never possible. Look at something like Dozee, for example. Imagine lying down on your bed and it shows you a graph of your blood pressure over the last two weeks. Now, you may not like to see it, but hopefully things are fine and you're happy to see it, but this is transforming healthcare and making it accessible for millions. India has 4,000 cardiologists in the country, and we add 250 a year. We're never going to have enough cardiologists to serve 1.3 billion people. So, technology is the only way we're going to be able to close the gap. So, to see entrepreneurs attempting to solve these problems is really fascinating.
VN: Is there anything else that you think I should know about you or the firm or your thoughts about the venture industry in general?
SS: We’re also growing the firm. We're going to be expanding at the partnership level and, of course, in all positions. And so if somebody knows people who might be a good candidate, we'd love to speak to them.
Ultimately, we're probably the most hardworking VC here with our entrepreneurs and people who know entrepreneurs or entrepreneurs who read this, we'd love to talk to them. We may not back them but we'd love to interact with them and we're really happy to share our honest opinions as to where we think the company could go, what we see as some of the pitfalls now. It's just an opinion, but we love meeting entrepreneurs. So, anybody who reads this, you're most welcome to reach out to us.
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