ESV Update 2023

By Abhishek Sanghvi   |   Reading Time – 9 mins

‘When the going gets tough, the tough gets going’.

This is what comes to mind when thinking about 2023. It was a year marked by a large number of shutdowns / markdowns in the startup world, and stories like Byju’s implosion took center-stage.

How about our ‘Ecosystem’ ? Here’s an update on what’s kept us busy during the year, how we’ve fared, and what’s our plan for 2024.

(Long Post)

Only when the tide recedes… {rest is obvious}

By God’s grace, we were adequately covered. Here’s how we fared during the year:

• Made 3 new investments only: one in AI-based RPA SaaS venture, a second one in a D2C fashion-tech company; and the last in a social-impact ed-tech venture; other investments were extension of our investments in current portfolio companies
• Made 1 partial-exit with a 2-4x return; declined 2 exit offers as companies were doing quite well.
• Spent 3/4th of the time working closely with our portfolio companies
• Continued to ensure that all – 100% of our startups stay afloat – zero write-offs have gone a long way in ensuring our high IRRs, currently at 60%+ at a portfolio-level

Some specific updates on our Portfolio, focused more on revenue growth / P&L than just valuations:

(All revenues are taken from quarter ending Dec ’23; comparison is from last year with some approximations)

A. Logistics-tech venture grew from ~15 Cr. ARR to ~28 Cr. ARR without any new capital raise and that too after completely eliminating non-tech (ops/services revenue). The largest Direct to Retail project in India – Samadhan by HUL – was completely designed, implemented and is running on this platform. The company’s solutions are deployed in more than 10 countries, and in the next 12 months should be able to touch 50 Cr. ARR.

B. B2B school focused ed-tech venture grew 2.5x in rev from 12 Cr. ARR in Dec ’22 to 30 Cr. ARR by Dec ’23 – quite a commendable achievement in an environment that’s been brutal for ed-tech. Currently working with 2500+ schools and seems to be on track to onboard a total of 4500 schools by the end of the ongoing sales cycle.

C. Our health-tech venture went through a hard-pivot to win some govt contracts; from doing <₹10 Cr ARR, they won a ₹75 Cr. order. We had invested at ₹50 & 100/sh 2-3 yrs back; we took a partial exit at ₹ 200/sh; they recently raised ~$1.5M at ₹ 500/Sh. They also became the first diagnostic company in India to get ICMR approval for multiple-testing using a single dry sample, and are now a vendor of choice for mass-scale testing at low price-points.

D. Another ed-tech company showed impressive growth, with a 4x surge in revenue from Mar 22 when we invested to an ARR of ₹26 Cr till Dec’23, though this included some hardware revenue. The company has been EBITDA positive and should be PBT positive by March; the overall progress without any capital infusion has been quite commendable.

E. Analytics-SaaS company with significant exposure to fin-tech went through a major revenue churn, and built new use-cases for retail, to hold their revenue steady at ~$1M ARR

F. Our fin-tech venture witnessed a remarkable 10x revenue increase from FY22 to FY23 , achieving an ARR of $12M till Dec’23. The company continues to scale business in FY 24 and is already the 3rd largest player in India in their domain. All this happened in spite of one of the company’s largest clients exiting business, impacting revenues for 6 months. A real example of an anti-fragile organization . The company is now launching its consumer product vertical, building on the success of business built and expanding its revenue opportunities.

G. An additional ed-tech and career counseling venture experienced a 40% revenue growth from FY22 to FY23, with an ARR of ₹10 Cr. till Dec ’23.

H. India’s popular healthy FMCG brand (including keto products) grew 40%+, reaching an ARR of ₹20 Cr. till Dec’23.

I. A fashion-tech innovator reconfigured its business model, reduced its dependency on online shopping portals by expanding offline, and held its revenue steady at ~Rs. 20 Cr.; with integration of AI in its design-stack, and a large retail expansion planned, it should double its revenue by next year. (No new fund-raise)

J. Next-gen executive education venture achieved a remarkable revenue growth from FY22 to FY23, with an ARR of ~₹40 Cr. till Dec ‘23 at positive EBITDA without any capital-raise

K. Logistics venture specializing in tracking goods-carriers at scale, expanded by 57% in revenue from FY22 to FY23, with current ARR of ₹20 Cr till Dec ‘23.

L. The OTT platform for local dialects achieved a 200% revenue growth from FY22 to FY23, with current ARR ₹42Cr. It was also featured in Shark Tank last year and raised capital at ₹300 Cr. valuation. They have launched ~60 new shows in the last 12 months.

M. The revenue of India’s leading society management platform grew by 25% from FY22 to FY23, reaching ARR of ₹12 Cr. as of Dec ’23; we had upped our bet on this venture, and our deal structure allowed us to capture an IRR of 35%+ so far based on follow-on round.

N. Our last story is about an ed-tech venture that had to completely reinvent itself; its primary rev model proved to be unprofitable in the short term (it will happen, but will require much more patience and capital support). So it pivoted to become an expert in hybrid tech-enabled delivery. The company sustained a very harsh business & funding situation, but was able to raise ₹6-8 Cr. in fresh capital, allowing it to turn profitable by Mar ‘24 at an ARR of ₹12 Cr. and clearer line-of-sight to ARR of ₹25 Cr. by FY ‘25.

Key learnings / what could we have done differently:

• Have greater conviction, take larger bets; several times we perhaps became too conservative, and haven’t tapped the full upside potential of our investments
• Our deal-sourcing has largely remained in-bound, and through founder & investor referrals; we recognized that we need to be ‘out in the market’ much more than we have

So what’s next for 2024?

1. We start by welcoming Nikhil Kaushik as an Advising Partner at Ecosystem Ventures. Nikhil, based in Delhi, comes with excellent pedigree (ISB, Citi PE) and entrepreneurial experience (recently exited his manufacturing venture). We’ve already made two investments together.

2. With 3+ years of continuous validation of our investment thesis, we intend to double-down on our low-risk startup investment thesis:

• Invest in post-seed / post-PMF and pre-Series A, where we find the best risk-reward situation for ourselves
• Build deeper relationships with VCs as more of our ventures are maturing and getting ready for their next rounds
• Extend our ecosystem to a larger startup audience; go beyond the current word-of-mouth that brings us the best founders/opportunities.

3. Current pipeline looks quite strong. A few companies that we’re looking to invest in:

• India’s category leader in a specialized sub-segment of solar industry; IIT-KGP grads with 10+ yrs of relevant experience; ₹30 Cr. rev for ‘24, order book of ₹60 Cr. & expected revenue of ₹120-150 Cr. for FY ‘25
• Enterprise AI company with proprietary voice & language models built over 6 years; focused on BFSI with 2 paying customers & pipeline of 8 active conversations; ARR of ₹4-6 Cr; visibility of 3x for next year; IIM-C grads.
• Enterprise SaaS product for compliance / GRC; founders with years of relevant experience; ARR of ₹4-6 Cr.; highly relevant product for global expansion
• B2B ed-tech SaaS bootstrapped company with ₹16-20 Cr. ARR and exceptional engineering moat; BITS grads with 20+ yrs of exp across the globe.

4. Have more people join the ecosystem – either as investors, founders, mentors, partners or well-wishers. Send us a hi if you feel enthused by what we do.

5. Continue to enjoy our work as a team 😃

Featured pic: ESV team in our primary office. Missing in the pic are Abhijeet & Ravi from Mumbai, Vinay from A’bad & Nikhil from Delhi.