We invest in startups that are Indian at heart or origin, but are willing to conquer the world market if needed to build scale. About a third of our portfolio is of this nature – taking Indian engineering skills to build products for global markets. Unfortunately, We DO NOT invest in startups that are international and have NO strong Indian connection / founders. We are also strong believers that to invest as a ‘generalist tech VC’ as we are, we need to be more and more focussed on a particular geography. We need to see as much of the available annual pipeline to know that we’ve truly picked 10 great founders / startups to invest in. We have no such advantage when we are looking outside the country; which is why we stay away from the temptation of looking at pipeline from international markets.
With our new Fund, our third since inception, we are looking to invest about 60-65% of the new fund in domestic-heavy sectors such as healthcare, financial services, travel, commerce and brands, jobs and education, and digital media and entertainment. The other 35-40% of the fund will focus on software tech (Cloud, AI, analytics, SaaS, vertical software) and deep tech (agritech, security, robotics, IoT, blockchain) companies that can innovate and engineer with local talent pools, and yet scale globally.
We like both. India is a consumer market that is poised to explode, as people move to the digital economy to spend an increasingly larger share of their wallet’s purchasing power. That makes it attractive to build a strong consumer proposition in India. And thus our B2C portfolio. We are also now very good at taking our science and engineering skills in software and other areas, and building commercial applications at scale, often for the global market. These constitute the majority of B2B ideas in our portfolio and we like this space a lot. We dedicate 35-40% of the portfolio’s capital allocation to this segment at Blume.
Our core cheque is $500,000-700,000 (Rs 3.5 – 5 crs) with a reserve of $3-4m (Rs 21 – 28 crs). We have played opportunistically in companies that ran away to the path to Series A and beyond with $1 – 1.5 m (Rs 7 to 10 crs) cheques – that’s about 25 percent of the portfolio – and there too, we have reserves.
We recommend that all startup founders need to really know what they’re raising the money for and how far it can take them. All fundraise pitches should have that bottom-up clarity. If you can first raise a small amount of capital that you can afford to lose, then build a team that believes in you, build a product and test your conviction. If you’ve hit this mini milestone, it’s easier to build the mojo to go and pitch to institutional investors or even a larger group of angels.
If, for some reason, that can’t be done, you need to have believers in your network – either friends and family (and/or “fools”) who will give you the capital to get started or get connected by people who vouch for you to a seed fund or an angel network. These people are making an emotional decision to invest or recommend you basis their past connections with you. A lot of the time, that’s the only way for a first time founder to get started. Serial entrepreneurs who’ve returned some capital to themselves or their investors in the past have it incredibly easy relatively speaking, since this first bit of seed money is usually coming in from their past investors.
If you go in cold for seed funding to any group of angels or institutional investors, I would argue that your chances are close to nil on getting funded. It’s too competitive at this early stage now for you to get an audience without being filtered by someone they can trust.
We provide immense time and support to our portfolio companies. Beyond those, we don’t, as we just don’t have the time. We also do not try to matchmake mentors and founders. Founders also are very busy and often don’t respond, or given they are young, they don’t often see mentors in the right context. They end up treating them like consultants. Thus a lot of effort is needed to position mentors appropriately; time that we feel is better spend with our portfolio companies or evaluating our pipeline better.
The best way is to be introduced through a Blume portfolio founder who knows you personally and can vouch for you! Or you can come through a mutual contact. If you don’t know anyone who can introduce you to Blume, then just head to our pitch form, fill in your details and submit your pitch deck.
Blume prefers ventures that have achieved some degree customer validation (product already launched in market) and are showing at least some early signs of product-market fit. We do not fund business plans or ideas on excel or powerpoint. We fund ideas in action!
B2B firms should have reached an Annual Revenue Runrate of Rs 1 cr or should be crossing ARR of Rs 1 cr very soon, and have an equivalent order book.
B2C apps should have the following
Ideally the venture should have got at least 1 angel / incubator / accelerator etc (but not a VC) on board. We prefer to be the 1st institutional investor / VC in the company
We like ventures that have a strong tech spine. Pure brand plays and Blume have never gone well together:)
Please note that we are a seed to pre-series A fund. We are fairly flexible on the investment quantum but we do optimize for a stake of anywhere from 15 to 25%. These stake requirements reflect the depth and extent of support we provide to the startup – from fundraising and hiring to business development etc. We also anticipate the rounds of dilution that every successful startup will undergo, and the desired holding that we need to hold at the point of exit.
In our framework, we look at three criteria to evaluate startups – size of market or opportunity, team quality and finally, investibility or probability of the next round of capital. Our approximate weightage for Opportunity: Team : Investibility is 40: 40 : 20
Market size or opportunity: Pick too small a market and even the best team can’t build a large scalable business. The best founders know how to reshape a market opportunity and build solutions to fit the largest of the market opportunities. That said, one has to begin with the aggregate opportunity being very large. For example, are Ola and Uber a ride hailing app or a large scale urban transportation business? The market size expands 5-10x when the latter is applied. Conversely, we had some of our Fund I companies being too narrow in their definitions of market – one said we’ll build the best product for rich media collaboration by designers, architects, advertising professionals. That’s a tool business that will take very long to differentiate and charge a premium for and the base is narrow. It may turn out to be a great $10m revenue business that is highly profitable, resulting in a $100m exit value business over 10 years. With this model it is definitely not easy to build a VC-endearing $50-100m revenue business.
There are always examples of a Mailchimp and a Basecamp that plough away and be the world’s best in one category and get to such lofty revenues/value, but they are truly one in a thousand. We try to find a portfolio balance between founders who can chase a large market opportunity domestically or build a tech-led differentiated product for global markets (which increase the probability for large market sizes and large exit outcomes). We, for example, have very little appetite for narrowly defined SMB products or enterprise software catering only to an Indian market.
Very rarely, some startups end up creating an entirely new market; those take foresight of a different order from the best of founders and clearly are exceptions to the market rule – the legends of Musk, Jobs, Gates, Zuckerberg, Hoffman are written on this principle.
Founding teams: These are the most deterministic variable for us or most VCs. In every decision, once the other two factors are seen as a go, the clincher element in a yes/no decision boils down to the founding team – their integrity, mission, passion and persistence that one can gauge at this early stage of business.
Investibility or probability of next rounds of capital: The reality of how the later stage funding market is shaped to take risky bets in the ecosystem is important to consider while funding, especially in young and concentrated ecosystems like India, and that’s why we attribute 20% weightage to this element in India. We force ourselves to evaluate how much capital may be required to build to exitable scale and how challenging it is to raise that capital. As the funding ecosystem matures, we may shrink weightage of this in the future. Great founders overcome all of this but if we can select such that we have better odds at the starting point, why not?
The above framework helps us shortlist but finally, it is a (increasingly improving) trained gut call that ends up building out the portfolio.