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It will get tougher for startups to pitch their plans to VCs
June 13,2016

Mumbai-based venture capital firm Lightbox Ventures is pacing out its investments with only two spots left in its $100 million-fund portfolio. With a comfortable over two years to deploy the fund, the tech-focussed fund, which takes around 4-5 months to decide on an investment, is focussing most of its energy into strengthening its existing portfolio.

In April 2014, the firm launched two funds to invest in start-ups in the consumer technology space in India. Lightbox Fund I acquired equity stakes in GreenDust, ZoomIn, MapmyIndia, Paymate, FutureBazaar and Kotak Solar. Lightbox Fund II was closed at $100 million in late 2014, as a fund for a concentrated investment portfolio of 7-8 companies with an investment horizon of 7–8 years. Since the launch of Fund II, it has already invested in around five companies including Embibe, tech-enabled fast food chain Faasos, furniture subscription business Furlenco, automobile marketplace Droom, and online jeweller Melorra.

In a freewheeling chat with DEALSTREETASIA, Sid Talwar, Partner at Lightbox Venture, talks about the firm’s investment strategy and the overall funding environment.

How do you view the current funding environment?

There is more money in India today than there has ever been. Over the last one year, the valuations went very high and people are re-looking at how to value companies and that’s causing a little bit of pause when evaluating a company. The other thing that is happening is that although there are billions of dollars, most funds that are based in India are doing rounds that are up to Series B.

Our problem isn’t that there is not enough money for A and B rounds, our problem is that we don’t have a venture ecosystem that can lead a Series C or D round.

Is it a good time for investors like you, as you are now getting companies that are more reasonably valued?

When you’re determining value in an early stage company, it’s as much of an art as it is a science. You have to look at so many different elements, how much equity you want to own in a company, how much equity will the owners have how much money are you putting in.

Also, how have other companies that are comparable, being evaluated outside. I think to a large extent, it not about how these companies are going to get valued, it’s about what kind of companies are going to get funded.

How do you 2016-17 for investments?

I think that it’s going to be tougher for startups to pitch their plans to venture capitals, which is good because it should be tough. We should have smart guys, with smart companies coming in the venture ecosystem. I don’t think it will be as frivolous as 2015. Having said that, I don’t think that you will see a massive drop in the quantum of funding.

Good companies are always going to be able to raise money.The environment in India hasn’t changed, the economy hasn’t changed, the consumer base hasn’t changed, the needs of the consumers hasn’t changed. It’s just that the funding environment has changed.

Has Lightbox’s approach towards investment changed?

Not at all. We are a very concentrated fund, we will only put money in seven companies of the $100 million that we have. We spend on an average 4-5 months on evaluating any company to make an investment. We are sticklers for execution and unit economics. The average company in our portfolio have 35 per cent gross margins.

We concentrate on building a portfolio where founders are very execution led. And, because we put money in only a few companies, we have financial leverage, we can support these companies over time as well. Also, we have bandwidth to give them operational support. When we put money in a company, our future is stuck to the future of that company.

Our philosophy hasn’t changed, we have dry powder, we will invest. We are not in any rush to invest but that’s not because of the environment, but only because we only have two investments left and we are just in the beginning of our funding cycle. There is no stopping us.

There are only two spots left of our $100 million, do you think those will be exhausted this year itself?

We take a very long time to take a decision. We are talking to companies all the time. New companies are always a very secondary part of our priority, our present companies are always a larger priority for us. Are they well funded? Are they growing? Are the founders well supported? Those are much more important for us. We are always continuously on the lookout for good companies, but 80 per cent of our life revolves around our portfolio.

You recently invested $5 million seed funding in Melorra, what do you look at while investing in a company?

Melorra was interesting. It was the first time that we invested in a business plan. We don’t see it as an initial funding. We see it as a fact, that if we’re in, we’re in all the way. We don’t see the point of giving someone $250,000. That might mean we might not give them money later. We would rather give them the money they need to prove their case, which means we need to find founders that can manage that.

So, what we look for is the founder or founding team which has sufficient amount of an understanding of the space that we are getting into.

Then there is the market itself, if it excites us. We look for large markets  that have significant bearing in India. Also, an understanding from a model standpoint how we will make a difference in that space in India. And finally, we look at how they use technology, because we are a technology-driven fund. So, how is technology effectively going to be used to scale business. In some businesses they don’t need technology, they have their own distribution, we will probably not invest in that business.

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