ESV Update 2022

2022 was a watershed year for most founders and VCs in India. The snowball originating from the ‘funding winter’ in the beginning of the year had engulfed the entire economy by the end of 2022, and continues to impact jobs and valuations into 2023. As we plan for the coming year, it’s apt to share an update on our journey, observations, performance and strategy going forward.

(Long Post)

Our Take on ‘Funding Winter’:

In Feb 2022, I was chatting with a colleague visiting from the US who started his career a decade before me. During the conversation I said something to the effect, ‘in this world of innovation and technology, talent is supreme, startups will rule the world, and capital is just another commodity for exceptional founders‘.

He immediately corrected me, mentioning that everything is true except for calling capital ‘just’ a commodity. It’s a phrase only used by those with limited experience who haven’t gone through down-cycles / recessions.

I thought about it a bit, and not only agreed, but also realized that our own success as investors had come from ‘conservative optimism’ : having a sharp focus on financial performance in addition to our quest to find category leaders in innovative domains.

So, a quick summary of where we stand today:

  1. Made 18 investments in total, diversified across industries
  2. Every single one of them – by God’s grace, has so far sustained the challenging times in 2022 and are as likely to succeed today as when we invested in them
  3. Based on follow-on rounds, our returns are ~3.2x (multiple on invested capital)

How we spent the year:

  1. Largely, in helping our portfolio companies. Also building a multi-country network for helping in international expansion.
  2. Regrouping, strategizing and finding the right industries and types of founders to support in coming times
  3. Innovating on new investment structures that can protect investor interests, while providing timely support to startups in a fair manner

Some of the notable news wrt our investments:

  • GeoIQ raised a $2M pre Series-A from Lenskart / Peeyush Bansal (Shark Tank fame, but not in the show 🙂
  • StackBOX raised a bridge round of $1.5M; deal included a Philippines based strategic investor
  • Stage raised a $5M round from Blume & others, and also moved the nation on Shark Tank Stage by their incredible story of perseverance
  • Saarthi raised $3.5M from GVFL & others; another great story coming from Tier-2 city like Ahmedabad
  • Lo! Foods raised $2M from a bunch of micro-VCs, one of the rarer investments to close in an incredibly difficult time around Diwali.

We’re also continuing with reinforced faith in our conservative principles that allowed us to minimize risks, that include:

  1. Invest in mature and accomplished founders, typically with sufficient experience of ups and downs to able to handle tough situations and a learning & growth mindset.
  2. Never invest in FOMO, no matter how hard the sales pitch. (We stayed away from B2C ed-tech in 2020-21 when it was all the rage. And from ventures where DD was impossible – later we saw a few get into trouble for financial irregularities)
  3. Double-click on integrity of the founders and ‘informal’ market feedback.
  4. Valuations justified by actual money hitting the bank (and a thorough analysis of revenue models and contract structures. E.g., is the entire revenue reflective of SaaS model?)

Let me also recap a few points that have helped us in the past:

  • We’ve built a phenomenal ‘ecosystem’ of advisors, partners and reliable service providers across technology, digital marketing, international expansion, HR recruiting, finance and executive search. Most partners work-at-cost and trade margins with equity.
  • We invest a substantial quantum ourselves in every investment (~10-20%); it’s a significant skin-in-the-game; there’s also zero asset mgt fee for investors; only carried interest (sharing from returns generated, with a high hurdle rate).
  • Less is better. We’re staying low on deal-count, but heavy on analysis, deal structuring and risk-mitigation. 
  • ESV has built a deep expertise in M&A and exits (investing is easy, exits define the quality of a fund manager).

For those who are involved or are keen about startups, we encourage them to jump in : whether as founder, investor or mentor – doesn’t matter. Ping us, and we’ll find a way to engage 🙂

Featured pic : ESV / iLEAD team after celebrating Sankranti in our office.

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