100X.VC Came with a Mind-Set that Seed Stage Ecosystem Today is Starved of Capital: Sanjay Mehta, Founder & Partner 100X.VC

Tell us about your first entrepreneurial venture. How was that experience?
After my engineering I started a bespoke software company. Where we used to do customized software development for companies. Most of the applications that we built were business applications. Learning about various industries be it across garments, footwear. It was an enriching experience. Learning about accounting principles. What was trial balance, balance sheet etc. Got my basics right. Understanding of various businesses happened. What kind of opportunities existed in those kinds of businesses? We did software for a transport company, gas agency. Whatever came our way we did. I had the opportunity to go to US in early 1999. Saw the dotcom boom, came back and started two dotcom ventures. Failed miserably. Lost all my money. Then started a company called Udyog software. Which was into excise, taxation. It was out first product. It went on to have 12000 customers. We sold it to a US based company. The founder was based out of Hyderebad. Then there was a company called MAIA intelligence which was into analytics, business intelligence. The company got a lot of customers. Working with large customers CIOs, CTOs. While Udyog was all SMEs. We were competing against likes of Business Object, ClickView, Tableaus of the world which were all $100 million softwares. We were the only software company coming out of India. Worked well. Datamatics acquired us. That’s how the entrepreneurial journey has been. Advantage with all this experience is you get to know the customer very well. When you sell a software you have to understand the pain points. You have to understand what is being said and what is not being said and convert that into a software. Most of the users don’t know till they have received the software.

It seems you have invested in some very successful companies. How do you select companies to invest in?
First dependency is on the founders. Do you see a capability that these guys have an exponential thinking? Do they have the capability to read the market? You work with the founders. Second is market size. Is this a rapidly growing market? If it’s a shrinking market, there is no point in investing. Third is the business model. Assessment of the business model. Do they have enough margins to sustain? Will they ever make money? They can make losses initially but is there a possibility that they will make money in the future. Then comes any unfair advantage, any IP, MOAT so that has to be assessed. What is their secret sauce? Finally have a conviction that there is ability to generate minimum 20X growth.

Talk to us about your recent venture 100XVC.
100X came with a mind-set that seed stage ecosystem today is starved of capital. The early stage scenario is very broken, the deal closure time is 3-4 months. Founders are struggling to raise capital. If you look at the numbers the seed stage deals have reduced by 60-70%. We saw emergence of 6 unicorns in the first 6 months. Everyone wants to invest at a later stage. Seed stage is where we believe there is an opportunity. My vision is to fund 500- 700 start-ups by 2025. My belief is that currently India has 26 unicorns, by 2025 there will be 200 unicorns. In my portfolio I want at least 10-20% of that. We invest first. We write small cheques. Where the founders need the most where the idea is fragile, we nurture those ideas. Shape their product or idea into a proper business, help them make it investable. We will be doing this in classes. Every class will consist of 20-25 start-ups. Educate them. Final goal is to create a VC pitch day. On the VC Pitch day we would be getting 200 investors into a room and showcase these start-ups. At one go founder is able to display his idea. If there is an interest we’ll reach out to them. Time is reduced drastically to raise money. Today you are exposed to top names with the VC pitch day. The good start-ups who are able to showcase their idea well, there will be fear of missing out. As there will be competition to invest. Chances of founders getting funding is also high.

100X.VC is the first fund to invest using iSAFE. Kindly explain the procedure and the need for such a change.
This is my learning from my investments in US.  When I used to investments in India it was through share agreement. Closing time for each deal used to be 2 months. By the time we wire the money, legal compliances used to take a lot of time. It was a nightmare to raise money. When founder has got an interest from an investor the investor will issue a shareholder agreement. On a typical shareholder agreement at the seed stage there will be 4 or 5 investors who are getting small chunks of money. The founder has to get one document signed from all the investors. Whatever the lead investor dictates has to be followed. The whole process is so cumbersome and time consuming. Whereas in safe note. Money is given initially, the founders can start working and build the company. Whenever the price round happens that is the company grows and series A funding is happening that time the equity is issued. The note is issued by founder and not investor. “iSAFE” stands for India Simple Agreement for Future Equity. An investor makes cash investment in return for a convertible instrument. An iSAFE note is not a debt instrument, but is intended to be an alternative to a convertible note, that is beneficial for both start-ups and investors. To comply with applicable Indian law, iSAFE note takes the legal form of compulsorily convertible preference shares (CCPS) which is convertible on occurrence of specified events. Let’s say there are three other people participating in the round, the note is issued individually to each investor. The rights are curtailed the investor doesn’t get voting rights or board seat, the remuneration of the founders can’t be controlled. We’ve introduced this note with Indian laws. Also, we’ve uploaded the template on the website as an open source document which means it can be used by anyone. We want the industry to be standardized.

Tell us about Pitch Right.
Pitch right was an initiative where we wanted to train founders how to give an elevator pitch. We wanted to teach them how to generate interest and get the next round of meeting. This was a reality show, completely unscripted and I didn’t know who was going to pitch to me. Finally we added a finale it was like Shark Tank where founders were pitching and raising money. It was a good experience. We got million views.