Who are the “early adopter” Venture Capitalists in India

Like you, I assumed that all VC’s are risk takers. I mean as an asset class if you have to provide the highest returns over the long term, I would suspect you have to take big risks to get big returns. The average Indian bank has been giving around 8% annual returns on FD (source), real estate returns about 13%, and gold loan providers will give you close to 15% I am told. So, VC as an investment class should offer higher returns given how ill-liquid they are and how risky they tend to be.

So, how do you really measure if a VC is an early adopter versus a late adopter? (lets keep it simple and only put them into 2 categories).

My thinking is the only way you can do that is to look at their investments (portfolio companies) and find out the categories of companies they invested in. Then find out if any other VC’s invested in another company in that category after the “first” VC did. There are other ways to do that, like ask entrepreneurs who responded the fastest when they were looking for funds, but those dont evaluate who puts their money where their mouth is.

Why is this question useful to answer?

For entrepreneurs who are innovating in a new area, this list of early adopters will help you determine who you should go to first versus who should you expect will fund a possible competitor.

Lets define our methodology and assumptions:

1. We will look at all their websites and make a list of the Indian VC portfolio. Fortunately we have that list of over 50 VC’s in India.

Flaw: Many dont update their website as frequently so there may be a 20% (or higher) error, but I have tried to be comprehensive.

2. We will then categorize their investment into 5 buckets – Media and content, eCommerce, Business to Business, Mobile and other (Education, Healthcare, etc). This is important so we know not only which VC’s are early adopters but we can also try to find that out by sector.

3. Then we will look at the announcement dates of their funded companies from press releases, Unpluggd, YourStory, ET and VCCircle. We will give them 2 points for every investment done in a sector before any other VC did.

Flaw: Most (I suspect over 50%) of companies report their funding 3-6 months after they have raised the money, so this will be a large flaw, but lets do the analysis anyway.

4. Finally look at stage of investment. If a VC puts money in the series A, I would give them two points in the early adopter bucket. If, however they participated in series B or later, they get one point in the late adopter bucket.

First let me give you the results (not in any order other than early adopters vs. late adopters).

Early adopters VC’s.

  • Accel (eCommerce, B2B) – 78 points
  • Indo US Venture Partners (B2B) – 56 points
  • Saif partners (Mobile, eCommerce), but they are late adopters in B2B – 49 points
  • Venture East (B2B) – 45 points
  • Sequoia (Media) – 46 points
  • Seedfund (Scored enough, but dont have a clear winning category) 42 points

In the middle

  • Blume ventures – 40 points
  • Nexus Venture partners – 36 points
  • Helion – 36 points
  • Ojas ventures – 34 points

Later adopter VC’s – all scored less than 30

  • Bessemer Venture Partners
  • DFJ
  • Cannan partners
  • India Innovation fund
  • Inventus Capital
  • Footprint ventures
  • IDG ventures
  • India Internet Fund
  • Lightspeed partners (but have done well in Education)
  • Norwest
  • Sherpalo

What I hope this list will do?

1. Make Indian VC’s think about being innovation catalysts rather than ambulance chasers. I understand you have a responsibility to provide returns, but you also have a responsibility to grow the Indian startup ecosystem. Might I suggest a 5-10% of your portfolio towards risky, “first time this is going to happen” investments?

2. Make Indian company founders announce their funding. Unlike the US, here entrepreneurs are loathe to do so. I can understand the competitive pressures, but not doing any announcement is just lame.

3. Educate Indian entrepreneurs on their target VC list. Depending on the opportunity you are trying to pursue, please target the right VC firm. The only thing you have (and dont have) on your side is time. Use it judiciously.

P.S. I have confidence in the methodology but I would be the first to admit its neither comprehensive nor scientific. If you are an eager MBA / Engineer / analyst and would like to help make this methodology and analysis more robust, I’d love your help. You can take all the credit. In fact, I can convince many publications to give you credit for the work if you desire and if you keep it updated every 3-6 months.

P.P.S. If you are a VC and not in the early adopter list, or you are not happy with the analysis I’d also welcome your associate’s help in making this analysis robust.

28 thoughts on “Who are the “early adopter” Venture Capitalists in India”

  1. Mukund, nice post.

    One question – what do you call a Series A here. Should it be a certain amount invested, or a certain amount of equity diluted, or should be at a certain stage of maturity of the company.

  2. Great post, Mukund. If early adoption equal higher risk appetite, the post’s title could well read ‘Who are the risk taking VC’s in India’, which would be an anomaly considering VC’s in theory are supposed to take risky bets. That apart, I feel it would be worthwhile to also study the track-record of these VC’s post their investments, particularly on some of the key qualitative measures such as the level of engagement with the portfolio co; mentor-ship; contribution to the growth and development of the idea, and the business; time and commitment post investment etc. This may not be an easy task, considering you may have to interview portfolio company CXO’s, however, these are important factors for entrepreneurs to consider before choosing a VC. Nevertheless, we do have the angels, and people like you, for entrepreneurs seeking early adopter investors, anyways.

    1. The track-record part will be highly subjective Ravi and also very prone to “gamification”. To get higher on the list I am sure folks with offer incentives to others.

      1. Good point Mukund, but isn’t it a good thing to have the entrepreneurs incentivised, even if it ends up gaming the rankings? I mean, what could be those incentives – increased focus and attention? better engagement?

  3. Hi Mukund, great and helpful analysis!

    I guess one criteria to consider is number of early adopter investments as a percentage of total investments (the present analysis will give more points to an older VC firm than a newer VC firm that has done less investments but all of which fall in the early adopter category).

    Also, this analysis has not considered any Angel funds (IAN, Mumbai Angels, etc), which by definition are supposed to be ‘earlier’ adopters (and thus early stage ventures should probably approach them rather than the VCs)!

    The inferences that we are trying to make could actually be wrong due to the following reason – many times when funds have already made early stage investments in a particular category / sector, they are probably not that keen on making further investments in similar sector / similar stage. So the logic that if a fund seems to be an early adopter in say eCommerce, then it is more likely to fund an early stage ECommerce company may not be correct.

    I would love to help you out in case you are looking at further analysis of this!

    1. Thanks Mandar. Replied to your email as well. In terms of further investments point, that’s taken care of in the analysis with the categorization.

  4. I just did this for Seedfund’s portfolio. And I ended up at a score of well over 80 points whichever way I looked at it. so we should be #1 on that list.. Not sure what data you’re using. And what your comment “no clear winning category” means. If one is investing in blue sky sectors then sector cannot be a strategy.

    1. Mahesh
      Will provide the spreadsheet with the details so you can check the numbers or have your analysts check by themselves. Manan Shah and Mandhar (both have commented above) are working on a more comprehensive methodology so there will be more robustness in the evaluation.

  5. Great post Mukund. Holistically speaking, I guess there are certain VC’s that are bullish about certain sectors, while certain are sector agnostic. Multiple investments in the same sector doesn’t really put a VC in the ‘early adopter’ category, investments across varied sector certainly does. Early adoption refers more to an industry rather than a company.

  6. Very simple. At Seedfund, we’ve announced 23 investments and made a few others. In each of these we were Series A. That alone will give us 46 points. Further, to our knowledge, in at least 20 of these we were the first investors in the space. That should give us 40 more points. That alone should start us at 86 points. Not counting the un-announced investments that should give us some 5 – 10 more points 🙂

  7. Mukund, I am presuming that the term “Early Adopter” might be a tad bit confusing. If you define it as “First mover” of a burgeoning sector and who are VCs who are taking the risks, then you’ll probably have folks aligned better.

    1. Vijay, sorry if I sound nitpicky, but VC’s typically invest in management (people) and business models, and not necessarily on industry sectors (momentum trading) – thats for PE’s and other asset managers. Mukund is right to focus on early investors in entrepreneurs and companies, as a proxy for early adopters, as opposed to early investors in a novel sector. Besides, are any of these novel sectors anymore? Media and content, eCommerce, Business to Business, Mobile and other (Education, Healthcare, etc)!

  8. I agree with Deepak that its the early investment in ‘newer’ industry or segment which makes them early adopters. One more way to study just this one aspect of VCs is to see how actively & to what extent they have invested in ‘new & different ideas’ in the past 5-10 yrs. This would be like a video clip than a snap shot… Great post as usual !! This post will immensely help lot of entrepreneurs.

  9. I’m ok with the title being finding out which VCs are the early adopters but I think you are trying to bring to light the data around which VCs invest at various stages of the companies. Just like Private Equity has different stages of capital infusion based on EBITDA or EBIAT values of the companies they invest in; e.g Growth capital, Middle-market, Small Cap, Mezzanine etc. Venture Capital asset-class often have similar parallel depending on the structure of the fund. With very little that I know about the Indian VC industry, I often point out to entrepreneurs who complain that ‘VCs’ don’t take enough risk. The problem with that statement is that, we tend to club all VCs in one category but by design they are not. That is why venture funds often like to call themselves out on their “Investments Criteria’ page about what they like to see as an attractive investment target for their fund. So they are basically signaling the stage they like to invest in..such as Seed, Early, Growth or Fund of funds for example. Back in the days of 1980s/90s, this used to be very clear but I think this problem that you allude to now arises because there’s little distinction left between capital requirements for what constitutes Seed & Early stage and for Growth stage, the gray area lies between what the PE investor does vs. what the VC investor does for such companies. And with the surge in Angels and Super-Angels here in the US atleast, these demarcation have become even grayer as some funds are forced to come down the value chain in an effort to protect the deal pipeline and securing their place early on a home run deal.

    The answer to your question may lie in how the fund is structured and what the LP base for that VC fund is. For an early stage fund with HNIs and Family Offices, you will see those VC firms taking more risky bets Vs. an early stage fund that has raised capital commitments from mostly institutional LPs. With the latter, there are more stricter rules governing fiduciary responsibilities and act of judgement which debars the GPs from astraying and most likely they will stick to the ground rules laid out in their placement memorandum such as ‘thou shalt not touch social media’ as much as we like Mark Zuckerberg 🙂

    I’m hesitant to say this but it is possible that the fund size may also have something to do with it and I can cite a close example of an Early Stage fund I work with. For the fund size we have, it is hard to go after companies that have pre-money valuation beyond the $10MM range and while we may make co-investments for slightly larger than our appetite , we wouldn’t see ourselves dragging along for a deal even if it is attractive enough for others.

    Just my thoughts…

    1. Those are some great thoughts nilesh. A few VC’s also called me on the fund size issue. The trouble I have is most VC’s in India claim to be sector agnostic and stage neutral. Everyone wants to “get in early” and be the “first institutional investor in the company”.

  10. Well, they are not. They do it here so I don’t know why, atleast the one’s who’ve setup their offshore operations as FDI in India would not want to distinguish themselves that way. It’s common sense that if you have a $1bln fund, you are not going to run around chasing $2MM deals and end up with having to sit on the board of 200-300 companies. So why not lay it out there and as you are trying to do, it helps the entrepreneurs clearly understand what class of investors they should be pitching to and which ones they should not..atleast, they won’t get disappointed going after the wrong ones and then the entire VC community gets blamed for not taking enough risk.

  11. Dear Mukund:
    You have classified Indian VCs into 5 buckets: Media and content, eCommerce, Business to Business, Mobile and Other (Education, Healthcare, etc). Where would you classify a wireless infrastructure company which makes wireless equipment and devices for broadband? Some of the US based VCs have buckets called Technology, Systems or Semiconductors. Which of the VCs in India deal with these buckets?

    1. Sujai
      It was a first cut at the VC’s and I am sure there are more categories we can evaluate. Manan and Mandar are taking this forward to keep this database and initiative going.

  12. Good discussion, Mukund. The key take-away here is for entrepreneurs is not to ‘spray and pray’ but be more analytical and methodical in evaluating which VCs to approach,, and with further refinements to this research – one can create a benchmark of sorts for the VCs and also incentivise them to be more articuate with their investment preferences. This will cut the cycle time for both sides – VCs and Entrepreneurs as they can better target their efforts. Win-win. Kudos on this initiative

  13. Great initiative Mukund, and some awesome discussion on the same. From an entrepreneur’s perspective, I think it’s data points and analysis like this which would help add some level of transparency in the ecosystem and make this a two way conversation between the entrepreneurs and the investors.

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