India Quotient fund invests in product and the entrepreneur. In conversation with the partners
India Quotient(IQ) is an early stage fund, that invests between Rs 50 lakh to Rs 1.5 crore in promising ventures. Launched in June 2012, the fund with a corpus of Rs 30 crore has many interesting startups in its kitty already, such as iimjobs, Red Quanta, Belita, Engrave, Dogspot, Mapmytalent, Vellvette, and The App Kiosk. Earlier this year, IQ held one of its first bootcamps, which was an accelerator to help accelerate ventures with interesting ideas. We have covered two of the ventures – Imly and Grabhouse - in YourStory. Recently, we caught up with Anand Lunia, founder and partner at IQ and his partner, Madhukar Sinha, to understand the fund and its investment strategy little better. Excerpts.
Anand’s background
As a young lad, Anand was introduced to running a venture by his father, who asked him to oversee things at a firm that made plastics -- an investment made by his father. “This is very typical to a Marwadi family,” explains Anand. He started going there when he was 15; and by the time he turned 18, he was pretty much calling the shots at the factory. After college, Anand took the routine path and joined IIM Lucknow, but says even as a fresher he could relate to many things that were being taught in B-school, because of his hands-on experience. From IIM, Anand joined Asian Paints and then ICICI, within a quick succession of two years. “I didn't like too much of what was being done there and couldn't visualize myself staying there for a long time,” says Anand. So he broke free from corporate life to ride the 1999-2000 dotcom boom, and started BrainVISA in 2000. Subsequently he sold his stake to Sequoia in 2003 and invested in a chain of service apartments and other real estate in Ahmedabad. However as real estate business became difficult, Anand sold off his investments and joined Seedfund in 2007. IQ is his second outing as a VC and the head of an investment fund.
IQ’s investment philosophy
Anand is among the handful of people in the VC community who has experience across the board – corporate, successful entrepreneur(BrainVISA), not so successful entrepreneur(service apartments stint) and a VC(Seedfund and IQ). This diverse range of experience helps him being empathetic towards entrepreneurs. “I have seen VCs not treating entrepreneurs as your customers, and my philosophy has always been that entrepreneurs are your customers. Whatever money I have made has been through ventures. And therefore I have a lot of mutual respect for entrepreneurs and I respect hardwork and efforts taken by them a lot. Not everybody is as smart or learned or educated, but every entrepreneur comes to you with a lot of dedication and sacrifice,” says Anand.From having a soft corner for the entrepreneur, to believing in young entrepreneurs, IQ places a lot of emphasis on getting the emotional quotient also right in their investments. Anand is a strong believer that dedication and hardwork can make up for lack of experience. “Maturity will only come after every successive business that you do. So the learning curve will be shorter for a 35 year old guy, compared to 30 year old. But if it the first venture for both of them, then the learning curve is same for both,” he says.
How they make their investment decisions
IQ says Madhukar is more focused on the product, than the ability of the venture to make revenues. “So we are ok with a venture not making money for the first two years, but we want to be sure, their product is very strong,” he says. IQ takes 10-20% stake in the investments they make and gives the entrepreneur all the room he needs to experiment. “When I invested in MyDentist, my first reaction was 'close all your clinics, we will redesign and then relaunch.' So a classical investor will say, ok you have 2 clinics, lets make it 5 – 7. But our approach is don’t worry about revenue, first work on a good product,” says Anand.
Investee companies have monthly meetings with the IQ team and discussions usually revolve around milestones set for the venture to achieve per month.
IQ stays invested in a company for 5-7 years and mostly prefers to invest in B2C companies. Food, healthcare, fashion & lifestyle and consumer finance are sectors they are bullish about. “It has to be a consumer company and be technology company, the focus is more on mass, than impact,” says Madhukar, when we asked him if he has leveraged his Aavishkaar experience at IQ yet.
IQ is a great believer in the India consumption story and most investments they have made has been in line with that. “The middle class consumption will continue to grow. Double income, nuclear families with a single child, want to invest in their health as well as the kid’s education. The current companies that are serving in this space are 10-20 years old, so we think new companies can come in and disrupt the space. So cultural shift is a big thing,” explains Anand.
They also prefer to not have multiple competing businesses in the same fund. "When we have multiple funds, then there will be overlap and you cannot avoid it. And when you say share-of-wallet, everybody is competing with everyone else in share-of-wallet,” explains Anand.
The most important aspect about IQ’s investment is their bet on entrepreneur. “The entrepreneur has to be 10/10, next we see what market he is in, we are not necessarily very choosy about the product, but the market opportunity has to be big and we see what kind of sweat gone into the business,” explains Madhukar. Being a small fund, IQ assessess the staying power of entrepreneur and how well he can manage with the available resources, including being frugal. “We meet the entrepreneur 3-4 times to just discuss the business. And once we are convinced about the entrepreneur and the market, we go ahead. So we take a few months before we are ready to invest, there is a reasonably long period of courtship, 3 months atleast,” says Anand.
Roadmap for the future
While the formal announcement is still to be made, IQ has recently picked up stake in an online sandwich company. They will also be launching a new fund next year. Currently they are a small team of 3 people, and Anand says they are looking for a technology person, with some B2B experience to join the team.
While their focus will continue to be the B2C space, IQ isn’t averse to B2B investments, especially in the SaaS space. “To be a successful company in B2B space, you need to have a lot of B2C companies in that space, and then to support them you need to have a B2B company. So unless you have very professionally run businesses, you won’t have a big B2B play,” say the partners.
One of the biggest challenges facing IQ today says Anand, is the slow growth rate of the Indian economy. “Inflation, no growth, are making things difficult. Another challenge, particular to Mumbai, is the prohibitively high cost of doing business here. Then there are not too many Series A, too many angel investment in the space; that is also a challenge. A lot of angel funding happening today is premature, and there is not enough traction in the business and investment is getting stuck. Regulatory issues are equally big -- import, export, sales tax, lack of infrastructure – all these are impediments to run a successful fund,” says Anand.
