The Blume Day tee shirt tradition is well and alive. Celebrating our 8th Blume Day and the 5th year of tees now, the message is not simply a catch phrase every year but one that underlines a strong belief at the Blume partnership level. The hand that we are playing reads I N D I A and whatever the chips we can place on the table, we are recommending that every stakeholder goes ALL IN on the India startup opportunity.
Blume Day 2019 [Feb 28th] fell right in the middle of our fundraise window for Fund III. While we are close to 60% done with the raise and the first cheques have been written, the work that goes into planning a new cycle started almost a year ago.
As we’ve said before, we think, as Fund entrepreneurs who have built one of India’s leading early stage venture firms ground-up, the journey of raising a Fund is even more complex and as challenging as early venture rounds for a startup. To simplify, we think Fund I, Fund II and Fund III mimic a seed/angel round, Series A and Series B respectively. Post that, things change a bit – a fund house needs to create an equivalence of profitability – cashflows back to our investors i.e. cash exits, and at meaningful scale. Without that, growth can’t be marketed any more in isolation.
Blume is at that cusp today. And much like a company’s idea of product-market fit and scale, a ground-up fund house like ours has to rethink all the variables every few years and reassess product-market fit and scale. The market in India is dramatically different from when we conceived of Blume in 2010 and raised Fund I in 2011, and surprisingly, drastically different along many variables in the startup ecosystem since even 2015, a mere 3.5 years ago when our Fund II was raised.
Blume Fund III will signal what we are telling all our stakeholders – team, LPs, founders, co-investors – it is time, like never before, to KEEP CALM AND GO ALL IN!
What inspires this confidence and what does that translate to for Blume?
A. The local market: There’s been no better a set of raw ingredients to work with on the customer side – a prevalence of computing power + 500 million smartphone-wielding Indians clubbed with the lowest data costs in the world, exponentially increasing data consumption (if not revenues, as yet). This is also leveling the playing field for larger and larger swathes of the population – youth, women, rural, agri, low-income urban – to participate in the economy in ways never seen before.
B. Global markets for Indian product companies: This trend, from our perspective, is predominantly centered around world-class B2B companies that are beginning to emerge, at scale, from India. We are able to show that from robotics to data analytics, from productivity SAAS tools, from developer tools to security, and a host of vertical and enterprise software, India is now a factory of stellar companies that can compete with the best. It also means that we are beginning to encode the playbook for hundreds more to come – in terms of capital, sales forces across the world, product thinking for multiple geographies from India etc.
C. Even great founders need great teams and support from all corners to build great, lasting and eventually profitable and IPO’able companies. Capital alone, especially at the stage where we play, is a commodity, especially when seeking outstanding founders. This means building a platform effort as an integral part of our investment firm, one that can solve for similar problems across multiple portfolio companies. Whether that’s a smaller sub-fund idea from some of the larger funds or a Constellation Blu type services platform idea from Blume, we are doubling down further on this thesis. We added as many platform team members for Fund III as investment analysts / associates. That’s how much we want to GO ALL IN on building our platform efforts. Our conviction comes from seeing evidence of this across our best portfolio companies, whose initial momentum was supported by the efforts put in by members of Constellation and platform members. We are doubling down our platform focus for Fund III – dedicated team members for capital raising, market development, community and events, shared services on Finance and Legal, talent acquisition, and more to come in the future, all of whom work in step with the investment team.
D. Lastly, Blume is getting even more concentrated in portfolio construction. We dropped portfolio size by about 35% even as fund size grew 3x between Fund I and Fund III. We are growing fund size more gradually by 35% this time but no of portfolio companies are expected to come down further by 40%! So, what gives? Essentially, the learning phase is largely done – 2 funds and 8 years – mistakes, hits, losses, sectors, sub-sectors – all taken in in good measure. The ecosystem has grown in terms of co-investors, specialized investors, overseas investors, strategics – and all this means, the risks of the next cheque not coming in a great co / great team reduce. It is time to double down! Just as we have done in terms of fund size twice over – from $20 mill or so in Fund I to $80 mill in Fund III (the target we plan to achieve by mid year)! The simplified mantra to the team is simply – 2x the quality of diligence, 2x the emphasis on founders and market size, 2x in average entry cheques, 2x the reserves, 2x the ownership all through and 2x the absolute $ outcomes for Blume, from even Fund II levels. So, counterintuitively, while the noise around early stage peaks, suffice to say, BLUME is KEEPING CALM and GOING ALL IN.
Watch this space, for a multi-part series, detailing more of the above segments of Keep Calm And Go All In as Blume Fund III rolls out its first vintage of investments this year and Blume raises the bar on many counts for itself and its portfolio companies.