Last week we were joined by founder turned VC, Nikhil Kapur, Partner at STRIVE to discuss investing in early-stage startups across Japan/ SEA and India.
Tell us how you went from a founder to VC and whether your experience as a founder has shaped the way you look at investments now?
Kapur explained that the most important tools you can have as a VC is founder empathy, which is difficult to get if you didn’t come from a founder background. Pre-empting problems in different lifecycle stages of the company, and helping the founder weave along these hurdles is extremely useful for both the VC and the investors.
The other thing that you can pick up on coming from a founder background is knowing when founders are ‘bullshitting’ VCs. If you’ve been on the other side of the table, selling to customers and investors, you understand when a founder isn’t being truthful to you, which helps with the analysis before working with them and along the product roadmap.
What are the things you find out during the initial conversations with founders that you find out that makes you not want to invest anymore?
He explained that it isn’t specifically about finding things out that makes it a no deal but more about finding things out about founders that make me want to work with them.
Investment structure and strategies
How many companies do you plan on investing in this year and what are the ticket size?
STRIVE is a $130 million dollar fund. Broken down into 3 markets, thats a $40 million fund in each market. They invest in about 10-20 companies in each market (SEA for example), 20% goes to the management fee, which leaves $20 million to invest.
STRIVE splits that into half for first checks then follow on from there. That leaves them 15 million for capital for first checks, so around $1 million to each company. The average is between $.5 and $1 million dollars for 15-20 companies. The first checks they give are all even, and from there, they figure out which companies are doing the best and add more to that. They invest more in the companies that are doing better to reduce market risk in their portfolio.
What are the main sectors STRIVE are focused on?
STRIVE is extremely B2B focused. This is driven by the market dynamics the people are seeing, and the companies Kapur enjoys working with, also due to his background and previous experience.
Back in 2012 at their inception, they were doing a lot of consumer internet companies that were just starting with e-commerce. STRIVE were early investors in early adopting companies like Luxola pre series A, which ended up selling to Sephora. Most of the investments at that time were consumers, and they were doing 30% in the B2B sector. The next fund launched in 2016 was a 70/30 split between B2B and consumer internet.
How can startups who don’t have the money or big brand hire people with certain skills?
Kapur explained very frankly - learn yourself. The reason for this is that founders need to realise what is their true strength - whether that's product, tech, deep science. And the only way they will find that out is if they try them all. His recommendation is to ‘play through your strengths and investor will come to you - build a company and a team around what you’re really good at and creatively passionate about, and that caters to that strength.’
The top 3 things you look at before you decide that yes, you want to invest in this company are:
Exceptional capabilities with the right team, drive and hustle
Firstly, exceptional capabilities. They're looking for founders with exceptional capabilities in 1 or a few aspects leading 'the right team'. Though, he reiterated, STRIVE isn’t looking for a fully formed team with every capability; just a great leader with the knowhow and understanding in one or more areas to an exceptional area.
Secondly, Drive: Drive is based on hard work - how passionate they are about changing whatever they’re changing in the market. He explained, usually, investors can tell in the initial conversations. They can also tell by how long is the team working, how long do they take to reply to emails, are they working on the weekends? Kapur works 24/7 - sending emails at 2am and again at 6am. If he is working with a company he expects them to do the same.
And lastly, Hustle: This you can only tell based on what the startup has managed to achieve so far like traction without many resources in a very short amount of time, meaning the team has taken some round about ways to get to that outcome.
Further explanation of ‘the right team’:
A good team is led by and made up of people and founders who are extremely driven, very hurley and set on figuring out how to get to outcomes with little resources like financial prudence.
As mentioned previously, they’re not looking for complete teams as complete teams end up raising at $10 million at seed rounds or getting $100 million evaluations and usually that doesn't mean they’ll be developing with a seed state investor. STRIVE wouldn’t invest in that, because it doesn’t matter how big that company gets, they don't make the returns they require. STRIVE needs these founders either in early stage or in an incomplete team, and who need help to become a complete team. At the start, usually these founders have exceptional capabilities on 1 or 2 things, but might be quite weak on a few things. They're here to plug the gaps in skills.
For your investments, have you invested in companies with an offshore tech team and if so, how are they typically structured. Is it with an internal CTO but with the tech team based overseas. Or outsourced development. How does it affect your investment decision?
STRIVE has experience in this area as they have 2 or 3 companies that are working with teams in India. It’s not an outsourcing solution, but simply team members happening to be in another country. They do need to see good chemistry with the founders and their international teams if they were to work with a company that has this dynamic.
What type of synergies do you hope to develop within your portfolio?
STRIVE often cross-pollinates all these companies via slack channels and whatsapp.
How active is STRIVE and yourself personally in a company post-investment? E.g. advisory, next fundraising, follow-on investment
With over 20 people involved in the portfolio, they’re constantly having strategic sessions about the next step of their portfolio companies. For follow-on investment, when they see founders looking for this next step, or if they think they’re ready, they prime their product and work through their list of connections as to who they think would be the right fit. Throughout this whole process, they help strategy, hiring and fundraising.
Speaking about exits, let’s talk about how startups should look at exits.
Kapur explained that it’s almost impossible to plan an exit, and it shouldn’t be the focus of young companies. They should be first and foremost focused on building scale, surviving, and keeping on the right track. If the business fundamentals isn’t there then you can plan as much as you want but it’s not going to come.
Sometimes, an investment does not perform well, they don’t hit the necessary milestones to be able to do a proper fundraise and they come to you for a bridge. How likely are you to provide that funding and you know you have to balance losing your initial investment and putting in more funds to try to help the company. So how do you decide?
STRIVE evaluates a company based on their KPIs, and from there they decide whether or not the allowance of extra money help the company hit those numbers and break out. A few questions are explored during bridging round decisions such as: Has there been a change in the business model? Can we see you’ve been experimenting? Are there signs of progress there?
This has happened to a few companies they have worked with, and it’s worked very well, but at the same time they’ve said no to some requests due to risk forecasting on the portfolio management. STRIVE usually says yes to 70/80% of the companies that request bridging rounds.
As an early stage investor, I’m sure you have seen companies with different sorts of capital structure and investment terms. What structures will make you find the company “uninvestable”?
First and foremost, STRIVE evaluates the company, idea, product and team. If it’s a positive assessment, then it is a matter of going back to the angel investors and working with them to clean it up. They don’t don’t shy away from companies that have this issue, but in saying that, they can’t be beyond repair e.g. $20 thousand for 25% of a company.
Additionally, from the VC perspective, it is a bad sign if the founder has already agreed to give away 70 - 80% of their company because 2-3 years down the line they will likely become uncommitted. A company in that situation would be defined as uninvestable from STRIVE.
Taking a step back to look at the regions in which you invest in. How do you think the India startup and investment landscape compares to Singapore or SEA?
“India is a beast.”
STRIVE explained India’s extreme competitiveness from the company side and investor side, relating it to something similar to China 5-10 years ago. The government has also helped this blooming startup culture by building infrastructure to support this type of industry growth.
STRIVE is a Venture Capital Seed fund investing in tech startups across Asia - India, Singapore, Tokyo, Indonesia, Thailand, and Vietnam.
STRIVE recently rebranded from GREE and announced $130M first close of new fund.
You may find out more about STRIVE here https://strive.vc/en.
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