In 2015, after working for close to two years as an investment banker at Spark Capital, where he analyzed public companies in the auto sector, Mumbai-based Rohit Krishna decided to explore the private investment market. At the time, Indian startups, particularly in the consumer tech space, were attracting a lot of attention from Indian and global VCs such as Tiger Global, Sequoia Capital, and others.
Krishna wasn’t knowledgeable about how investments in startups worked, and he didn’t know how to gauge their potential. Serendipitously, he met Deepak Gupta, who was then setting up Equity Crest, a funding platform to assist curated startups in raising seed stage capital. He helped Gupta set up the firm, which turned out to be a stepping stone for the duo to launch their own early-stage fund, WEH Ventures, in 2017.
“At Equity Crest, I got connected with many VCs and learned how these companies are evaluated. Deepak and I must have interacted with 1,000 companies, and out of that, we helped six companies raise their first round of capital,” Krishna, general partner of WEH Ventures, told KrASIA.
So far, the fund has backed a dozen startups in sectors such as fintech, consumer technology, and local language content platforms. Krishna spoke in detail with KrASIA about his investment thesis, how he determines which companies have potential, and the current investment spree taking place in India.
The following interview has been edited for clarity and brevity.
KrASIA (Kr): Can you explain the investment thesis of WEH Ventures and what led you to start an early-stage fund?
Rohit Krishna (RK): Before working with my co-founder Deepak Gupta at Equity Crest, I wasn’t aware of the opportunities that the private market could offer. Since Deepak [Gupta] was working with Intel Capital earlier and had experience investing in consumer internet and fintech companies, it was a good learning experience for me.
Eventually, we both wanted to start our own fund. We started the process of getting regulatory approval and raising money for the fund by late 2016.
In 2017, we got the license and raised INR 20 crore (USD 2.7 million) from our LPs (limited partners), which largely comprised high-net-worth individuals, CXOs of big Indian corporates, and investment bankers.
Simply put, we are a sector agnostic seed stage fund that invests USD 100,000 to 400,000 in startups looking to raise pre-seed, seed, and pre-Series A rounds. Since we are a small fund, we are happy with closing five to eight deals in a year.
Our thesis is to invest in seed stage startups and help them raise Series A funding. Our handholding and guidance last until this stage, after which we don’t play a very active role. We might be active on the board, but we move on and let the larger investors take it ahead from there. More than 60% of our portfolio companies have raised Series B or C rounds.
Kr: A lot of funds tell us they are sector-agnostic. Can that be construed as lacking focus?
RK: The reason we are sector-agnostic is because if you restrict yourself to a particular sector, it becomes harder to find great opportunities. Once you do that, you will be stuck and won’t be able to invest in companies you admire because they don’t fall in your focus area. That’s why we wanted to keep it fairly broad.
I am not saying being focused is not good; I am sure you will find funds that look at specific sectors like agritech, fintech, and deep tech.
Since we are a small fund, we decided only to do seed stage as we can’t do Series B. But if you restrict yourself in both the stage and sector, it becomes very limited.
Kr: Can you talk about your portfolio companies and why you backed them?
RK: Our first investment was in local language content platform Pratilipi, which publishes short stories in different Indian languages. It was one of the companies we helped raise their first round at Equity Crest in 2016. Then, it was one of the few startups that was building a content platform for users looking to read content in their local language.
Another content company we invested in was Trell, which let users post travel videos. It has now turned into a video-led social commerce platform. Subsequently, we bet on another local language content startup called Gifskey that creates GIFs out of regional movies.
We believe that Indian language content platforms are going to become big as internet usage increases in smaller Indian cities.
Apart from vernacular content companies, we tend to lean towards fintech firms because many of our LPs are investment bankers who could help these companies connect with the right people and figure out their expansion opportunities.
In the fintech space, our first investment was in Smallcase, a platform that curates sector-specific investment portfolios for users to choose and invest. Then we invested in an insurance company called Clinikk. We also took a bet on a payment company called Infino, which is in stealth mode now and will soon launch its product.
Other than these, we have invested in a couple of direct-to-consumer brands. Our latest investment in Animall is very interesting. It is a marketplace that helps farmers find cattle that are for sale.
Kr: You have invested quite a bit in startups that are building products for rural and semi-urban Indian users. How has their experience with monetization in these markets been like?
RK: Tier-2 and tier-3 markets are easier to monetize. Since many of our portfolio companies have a large user base in these cities, it’s not an issue for them.
Then there is another set of users who hail from very small and remote cities, which is a tough market to crack in terms of revenue generation. This is the market Animall caters to. But we think if you provide enough value and solve their core problems, they wouldn’t mind paying.
Read this: Are users from lower tier cities ready to pay for content? | Tales from India’s Towns
Kr: You invest in companies that don’t even have a product yet. How do you gauge their potential?
RK: We look at the uniqueness of the product and if it has direct competition from a bigger player. For example, there is absolutely no product like Animall. In that case, our decision was quite easy. The only thing we had to figure out was if the team is capable of solving the problem.
But if you look at crowded sectors like fintech and consumer tech, it’s not easy to decide which is a better product among so many options. In that case, we wait until the team actually launches the product. Smallcase is a good example. Before investing in them, we looked at 20–30 startups. At that time, Smallcase didn’t have much traction. But the product was unique and wasn’t directly comparable to anything else on the market.
Kr: If we talk about early-stage deals in India, we have seen fewer such deals this year compared to 2020. What is your read on this?
RK: Yes, the number of early-stage deals has slowed down compared to the fourth quarter of 2020, but I think it’s too soon to judge. The number of seed-stage startups that were funded in 2020 was unprecedented. In that aspect, it was a unique year.
This year, with the second wave [of COVID-19] affecting the country, discussions among founders and VCs have also reduced. Almost 80% of our founders have contracted COVID-19. I am sure it will pick up once the country is healthy, and we will start seeing an uptick in deals.
We have not been impacted because our deals are thinly spread across the year as we don’t write too many checks in a year.
Kr: A large number of unicorns that were minted in India last month saw their valuation triple. It’s similar to the valuation bubble that India’s startup ecosystem went through in 2015 and 2016. Do you think it’s something investors should worry about?
RK: I would say there are still many companies in India that are undervalued. There is definitely a lot of capital coming to India from the US. VCs who stayed invested in high-growth companies have made a lot of money in the last 18 months from different exits. That profit is being re-invested.
Overall, with the number of unicorns that we gained this year and last year, it was bound to happen. Because all this is happening together, it seems like this might lead to a bubble. But if you look at each of these companies individually, many of them are doing really well, and they deserve this rise in valuation. I think private companies will get even higher valuations.