A Prudent Funder of Kerala Startups
Kochi: For Kerala-based startup entrepreneurs, Anil Joshi is a messiah of sorts. At a time when Kerala’s much-celebrated homegrown entrepreneurs remain hesitant to fund local startups, Anil Joshi’s United India Ventures (UIV) has earmarked a Kerala-focussed fund and so far invested Rs. 20 crore in seven Kerala companies. And, in an exclusive interview with Destination Kerala, the Co-founder & Managing Partner of UIV proudly says, “All investments in Kerala are doing well.”
Anil Joshi, a Mumbai-based Angel Investor, has helped many Kerala startups realise their valued goals when their accomplished and successful Malayali brethren were not so keen to lend them a helping hand
Taking a cue from the success of his first-round funding, Joshi’s UIV is now eying to pump Rs. 100 crore into Kerala-based startups in the next three to four years.
One of the pioneers of angel investments in India, Anil was at the helm of Mumbai Angels and Bengaluru Angels, leading Angel Investment forums in India, before he launched UIV in 2015 along with Bhaskar Majumdar, a seasoned media and technology entrepreneur. He has been instrumental in closing around 60 venture-financing deals, served on the Board of five companies and is involved with various incubation centers as a mentor in India as well as abroad. A passionate mentor to many budding entrepreneurs, Joshi also is a master strategist for helping government and industry bodies set up a prudent startup ecosystem.
Excerpts from the interview:
We generally report that Kerala’s HNWIs, successful entrepreneurs and wealthy family offices do not invest in startups. But we know that some of them have invested in your Kerala-centric Startup Fund. How easy is it to attract private investment into your fund from Kerala?
Kerala’s startup ecosystem is very unique and at the same time vibrant. I have witnessed the growth of Kerala startup ecosystem for the last 10 years and am very impressed by the way it has progressed. The startups are present almost in the entire State and this has been possible because of the able support and guidance provided by apex bodies like Kerala Startup Mission (KSUM). However, when it comes to raising local money, the ecosystem is almost non-existent or fractured. To some extent, it is indeed difficult to raise money for startups in Kerala. It is not that there is no money rather it is the lack of knowledge about investing in startups that pulls the potential investors back. However, the good part is that we are now witnessing some change on the investment front with angel groups like Konglo Ventures and Malabar Angel Network starting to invest in startups as angel investors.
Having spent over 10 years in Kerala startup ecosystem we are aware that HNWIs, successful entrepreneurs and family offices don’t invest in startups due to lack of knowledge about this as an asset class and hence, we started spending time in educating potential investors across the State and in the UAE. Alternative Investment Fund (AIF) being a new asset class, it will take some time before investors start participating wholeheartedly. I remember my early days with Mumbai Angels (2007-2008) when there were only a handful of angel investors and we continuously kept meeting potential investors to familiarise them with angel investment.
Fast-forward to the present day, and we get to see a full-fledged angel investment ecosystem that is growing YoY. Hence, I am pretty confident that Kerala-based potential investors will also respond taking note of this as an asset class and support startups from the State. I am glad to share we have on-boarded one investor from Kerala in our fund and very confident to have many more coming in before we go for closure. We are having active discussions with quite a few investors and some of them are at an advanced stage. With the success of our first fund and considering the contribution from Kerala-based investment, I am sure more investors would be encouraged to participate in our fund or others and benefit from growing startup activities in the State.
Our understanding is that many successful businesses and entrepreneurs in Kerala lack the investment team of professionals to evaluate investment memorandums and take decisions. Whereas they may be comfortable investing in a fund, on the lines of investing in a mutual fund, rather than going it alone. What do you think?
Investing in startups is an art that needs a lot of patience and considering the state of the startup investment scenario, I feel it will take some time before investors start investing as angels. The angel investment is more personal and doesn’t need a team of professionals to evaluate investment opportunities. However, one may require a supporting hand as the portfolio starts growing.
The investment in mutual funds or in listed space is much easier as there are a lot of data points that help the investor in taking decisions. However, in the case of startups, there are very limited reference points to evaluate investment opportunities and hence, I always suggest potential investors joining angel groups to learn from other matured angel investors or participating through venture capital funds like us.
The VC funds are SEBI-registered funds under the AIF category, which are managed by professional fund managers as being done in the case of Mutual Funds. It is advisable to seek exposure to this asset class through venture funds initially and as the investors gain confidence in the space they can also explore direct investment avenues. It is very clear that AIF as an asset class is fast gaining traction and one could ignore it only at one’s own risk.
As an investor in startups what has been your success rate? Can you talk about some of the investments that did not work out the way you envisioned it?
I am one of the old hands in this space, now almost over 15 years. I was lucky to get exposed in early 2000 and have gone through several cycles in this space. I started investing in startups much before formal angel platforms got started. However, my real exposure to angel investments happened along with Mumbai Angels. It is very difficult to measure the success of angel investments but I believe I should make around 6X from my angel investment portfolio. As far as Unicorn India Fund is concerned, it’s too early to give numbers but we are trending at 65 per cent IRR and in absolute terms 3X+ while we are in the fourth year of our fund. By the time we complete our fund tenure we are confident of crossing 4X+.
Regarding failure, in the space where we operate, the failure rate goes as high as 50 per cent. This asset class is known for high returns but at the same time it is quite risky also. At Unicorn India Ventures, so far we have one failure. But personally I have seen quite a few failures in angel investments. There are several learnings and I would like to highlight a few learnings on why some of the startups have failed:
• Not able to raise investment
• Not able to manage cash flow
• Products ahead of time
• Not able to attract the right kind of talent
• Not able to price their products and services correctly
When we talk about startups, the onus seems to be only on tech startups. What about brick and mortar/offline startups? Is there any support available from your side for such enterprises?
Normally, early-stage investment happens in asset-light models, which is the case in India as well. Hence, we get to see most of the investment happening in tech startups space. However, the trend is changing and investors are exploring investment avenues beyond tech startups or we can say in the brick-and-mortar type.
At Unicorn we have a couple of investments in firms that have manufacturing as their core activity and one such investment is in a Thiruvananthapuram-based company Genrobotic Innovations which developed robotic arms that help do away with manual cleaning of manholes and they have successfully scaled.
Another investment is in NeuroEquilibrium which is in the field of diagnostics helping diagnose vertigo and yet another one is in smart appliances and the company is SectorQube. All the above investments are in the brick-and-mortar kind of businesses.
Kindly share the details of startups in which UIV has invested since its inception?
Though UIV was set up in 2015, we started investing in 2016 and till date we have invested in 17 companies, of which seven are based in Kerala. The first fund was Rs. 100 crore and we have fully invested in the 17 companies. They include:
Boxx.ai – Their first product is in the vertical of customer analytics, which helps solve problems of recommendation and personalisation for consumer internet companies
Clootrack – Clootrack’s proprietary NLP engine scrapes various data sources with customer/user comments to compile informative reports in an IP-driven process
Finsall – Insutech focusing on financing premium for non-life insurance products
Genrobotic Innovations – Designs and manufactures automatic robotic systems for different uses. They have developed ‘Bandicoot’, a robotic system used for servicing sewage infrastructure
GrabOnRent – It is an on-demand product rental marketplace
Inc42 – It is India’s leading media platform on the thriving Indian startup ecosystem producing data-backed news and analysis
Inntot Technologies – It is an IP-driven wireless communication startup. Its flagship products are hardware-agnostic software-defined digital radio solutions
NeuroEquilibrium – The company designs new-age medical diagnostics hardware and evolves testing protocols. It currently has innovative testing systems for patients suffering from vertigo
Openapp – The firm provides smart locks for various uses that can be controlled digitally via an App
Openbank – It is the leading neo-bank currently operating in India
Perfit – It is a 3D scanning solutions provider. It has multiple products using IP-driven process and algorithms
Pharmarack – The firm is a pharmaceutical supply chain management and digitisation startup that provides SaaS platforms to pharma retailers, wholesalers and manufacturers
SectorQube – It designs IoT-enabled smart appliances for the modern day kitchen and also provides IoT platform and engineering services
Sequretek – Provider of cybersecurity solutions
SmartCoin Financials – It is in micro-lending space.
VanityCube – Providing online beauty and wellness service at your doorstep
Vecto – Intercity cab
In July 2019, we launched a Rs. 400-crore fund, our second venture fund. While we are speaking, we are in the process of doing our first close. It will be a technology-focussed fund and our plan is to invest in 20 to 25 companies.
UIV’s UK-India cross border fund with UK-based early-stage VC Ascension Ventures is up and running. We have already invested in seven firms.
What makes a startup eligible for your funding?
We get deals through several sources. However, most of our investments are in proprietary deals sourced directly or through reference within the network. On an average, we receive over 400 deals every month for evaluation. Once a deal is referred to us, it goes through a selection process and the following criteria are followed for short-listing:
• Addressing a definite need with a clear value proposition
• Targeting a large addressable market
• Having low capital intensity and high margins
• Having comparatively high barriers to entry and good pricing power
• Having sustainable long-term growth with clear competitive advantage
All qualified deals are referred to the Investment Committee for discussion and selection. Post deliberation, the committee decides to approve or reject.
Which are the sectors that your firm is currently looking at and why?
The fund will focus on the following sectors that will benefit directly from domestic consumption growth – Consumer, Mobile & Internet, and Fintech; Software & IT; Life Sciences, Healthcare & Pharma; Energy & Sustainability, and Hardware
In your view, how robust is India’s startup ecosystem?
India is ranked third in the world in startup space and with the given focus of the Prime Minister, the country is poised to occupy second spot soon. Overall, the Indian startup ecosystem is growing fast and is spreading to Tier 2 and Tier 3 cities as well. India being a developing country has a lot of problems to be solved and hence, there is a unique opportunity for startups. The current trend is on Fintech, Edutech, Meditech, Healthcare, IoT etc.
How is Kerala doing?
Kerala is uniquely positioned and way ahead of other states if we exclude Bengaluru/NCR /Mumbai. Some of the policies of Kerala make the startup ecosystem here very supportive of the entrepreneur and hence, we are seeing more and more startups gaining traction compared to their peers in other parts of the country.
What are the biggest challenges/roadblocks you face in Kerala?
Kerala is a small State and lacks free landmass as available in other states. Still, the government has been able to carve out specific areas for startups to flourish. The biggest issue with the Kerala startup ecosystem is the lack of local investors, which often forces good startups to move away from the State. This proves to be a big loss as some of them go on to become big players. Apart from the lack of local investors, the ecosystem also faces a shortage of good mentors. Due to the absence of good mentors startups often face challenges in closing deals.
How is your association with Kerala Startup Mission going?
The association with KSUM is very special because of their approach to ecosystem building and management. The uniqueness of KSUM is its ability to keep innovating in the interest of startups. We enjoy working with KSUM and are quite confident that over time this association will only grow stronger.
Of late, many experts quote Israel as a model for how a startup ecosystem should be. Kindly share your thoughts on this.
Israel has been known for solving real-life problems around them. They were the first to innovate drip irrigation which helped change the way farming is done. Similarly, in my view, Kerala is also known for solving real problems. We have a good example of Genrobotic, which is getting recognition across the value chain as they help solve a real-life issue. I see the trend continuing.
Kindly share with us your story, your transition from a mechanical engineer to a venture capitalist.
My foray into VC space was accidental but it took a good decade-plus grind before I could get into this domain. After a short stint with a firm post my engineering, I realised my true calling and moved out to pursue management studies. Post MBA, I got a placement with Birla Group and was groomed to take up profit centre head position and after spending three years, I moved to consultancy, helping Scandinavian companies set up base in India.
In 2005, I got a break with Artheon Venture where I got exposed to early-stage investment even before angel investment started. Being an active investor, we were early investment members of Mumbai Angels. With growing involvement, I joined Mumbai Angels full-time in 2010 as President and ran the organisation for four years. During my stint, I helped close over 50 deals amounting to Rs. 100 crore-plus and in 2014 I moved out to start my own venture fund. In partnership with Bhaskar Majumdar, a two-time successful entrepreneur, I set up Unicorn India Ventures in 2015. Our first fund was Rs. 100 crore and we started investing in 2016.
Kerala has a unique relationship with our fund. As I said earlier, I have been involved with the Kerala startup ecosystem for the last 10 years and it gave me good exposure to the opportunities. In 2016, the Kerala Government floated Fund of Fund scheme. As someone who knows the ecosystem, it was not difficult for us to apply and we got shortlisted for investment in our fund under the Fund of Fund scheme.
As on date, we have invested in 17 companies from the first fund of which seven are from Kerala. Till date, we have invested over Rs. 20 crore in Kerala-based companies and all our investments are doing fine.
The experience of first fund gave us the confidence to take larger exposure from our second fund and we feel we would be able to invest approximately Rs. 100 crore in Kerala-based startups from our second fund within the next four years.