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The Lightbox way: Why $100M in fewer than 10 startups?
February 05,2015
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One thing Sid Talwar does better today than he did yesterday is his homework. He never goes into a pitch blind, ensuring he’s read the material the entrepreneur has sent and researched the industry. Otherwise, “there is no way that you can give input to someone who has been studying something long enough to come and give you a pitch,” says this Lightbox VC partner. “You cannot expect to watch a pitch for 20 minutes and know how to respond to these guys. That is not fair, and what a waste!” Talwar admits he was guilty of this himself when he started out as a VC. “It was just meeting people after people. But not today. I will not meet you unless I have gone through your deck at least and made notes. The majority of the time, I would have done more homework than you sent me, so that we can actually have an intelligent conversation,” he tells Tech in Asia over coffee during a visit to Bangalore. This long form approach, if you like, ties in with the Lightbox way. Raising the ante It’s a VC firm of techies and entrepreneurs, based in India and the US, who want to get deeply involved with the startups they invest in. Unlike many other VCs who like to spread their investments around, keeping in mind the high failure rate of startups, Lightbox wants to be super picky and invest in very few companies. After launching last year, it backed six startups from its first fund, then raised a second fund of nearly US$100 million three months ago. Talwar says Lightbox Venture II, as the second fund is called, will add only eight or nine companies to the portfolio. What this investment philosophy does is to up the ante. “If I am going to invest in many, many companies, one company losing steam may not be the end of the world. But for us, it is not so,” explains Talwar. “We are so concentrated that we do not have the liberty of looking at a company and saying it is fine if it loses steam.” This entrepreneurial mindset stems from the bunch of partners at Lightbox. Sid Talwar founded vocational training company Evolv and sold it to NIIT, Sandeep Murthy was a GP in Sherpalo Ventures before it chose to exit India, Jeremy Wenokur sold his first company to Netscape in another era, Sunny Rao sold Half.com to eBay in 2001, and so on. “When we invest in a startup, we are investing as much in ourselves as we are investing in the entrepreneur. We are betting that together with the entrepreneur, we are going to make this work. We will go to the ends of the earth to make this company work,” says Talwar. Which is why he has to spend long hours on homework before deciding whether to invest in a company. “We probably spend more time looking at a company than most other funds globally,” he admits. Studying the vast market in India The first company Lightbox Venture II put money on is Embibe, an edtech startup focusing on test preps for engineering and medical college entrance exams, especially the JEE (Joint Entrance Examination) for the prestigious IITs (Indian Institutes of Technology). Talwar shares the thought process that went into picking this segment of the vast education market in India. “It’s a huge market of hundreds of billions of dollars in a broad sense. But when you start culling it, you will notice that a large portion is highly regulated by the government, and there is only a very small segment you can enter from a technology and scale point of view.” One thing about education in India is that people are mostly studying to get a job. “Tests are so important in our education system. It doesn’t matter how you do in your school final exams – it’s the entrance exam that gets you into a college of your choice. So our bet is that people will want to use a tech tool for test prep faster than they would in other lines of education,” says Talwar. “Engineering and medical entrance exams here are much more complex and application-based than anywhere in the west. And most people don’t have access to good tutoring. So it is a big black box and an ideal opportunity to scale with technology.” It’s a US$7 billion market, according to Talwar. “Every year, three million kids are studying for JEE. Every year new kids will come on. People in the ninth standard today are preparing for their IIT exams these days. That is crazy – four years of studying for an entrance exam!” Helping a startup score higher Embibe set out to play a supplemental role for students on the road to the entrance exams, with practice questions and their solutions. Then, with Lightbox on board, it pivoted. “We realized that anyone who puts money into a test prep company can put out lots of practice questions. It is not that difficult, and cannot be the differentiator. That is how we pivoted to the idea of marks improvement. From giving people access to information, we pivoted to improving people’s scores as a result of using our platform. Just think what a huge pivot that is – the first model is about organization of information; the other one is saying I am going to be using data and analytics to be able to actually improve your score,” explains Talwar. Here is one example of the data in action. Every question in the JEE is weighted the same. Let’s say you have 60 minutes to answer 60 questions, and every right answer will get you one point. No question will give you two points. No matter how difficult or easy the question, the marks are all equal. “So why would you spend more time on one question than on another?” asks Talwar, and answers it himself. “You shouldn’t. But almost everyone does spend more time on one question than another. They just get stuck on one question. What happens then is you rush through the subsequent questions to make up for the time lost.” The converse is equally common. “Some people see a question, think they know the answer, and instead of spending the entire minute on it, they spend 25 seconds. If you spend less than 40 seconds on a question you had one minute to answer, and you get it wrong, what a waste! You could have got it right if you had spent enough time on it,” points out Talwar. “We call it wasted attempt. Offline, we could never tell why you got it wrong, we could never figure out that you spent just 25 seconds on a question you had one minute to solve. Now I can tell you that if you had spent enough time on that question, you might have got it right.” Fixing that alone can improve a student’s score. And that is just one of the 15 different elements Embibe has now developed for marks improvement. Hands on from a very early stage It’s that kind of input possibility which makes Lightbox get in at a very early stage, sometimes pre-revenue, and get fully involved in building out a startup. And that also explains why it wants to maintain a small portfolio and be very choosy about who it takes aboard. It’s not just about the business potential of the startup. The founders should also want to collaborate with the VC. “Whether it is a great company or not, if they don’t want to spend time with us, we are not going to do the deal,” says Talwar. In the past, he believes, industries have been siloed in their development because they raised capital from debt. “But now, the technology industry and the venture capital industry couldn’t survive without each other. Banks still give debt capital to companies, but do not get involved in the operational aspects of the companies they lend money to. Here we have two industries – tech and venture capital – thinking of how to support each other as they grow.” Talwar likes to see an even bigger picture, which is the unique social role that tech and venture capital are playing in India. “From Flipkart and Snapdeal all the way to every seed-funded, accelerated company, they’re helping our country get less fragmented and offering people something they do not normally have access to. I don’t think very many industries can say that. Some can. But we’re doing it at a scale that is unprecedented.” So he’s quite happy to do the homework to make this happen. Read More

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