India’s Startup ecosystem is a scorching battlefield. The country is riddled with companies seeking capital to scale their operations. Out of the thousands, only a few actually have the potential to survive the demanding Indian market. In such a competitive domain, how can investors get the best out of their money?
Solving such a dilemma is Microsoft’s Venture Capital fund M12. From providing the capital to taking decisions to maximise revenue while providing a service to the people, M12 takes care of whatever a thriving business requires. In a candid interview with WireX, Abhi Kumar, India Lead, M12 revealed how M12 scouts for B2B startups providing solutions for enterprises. Excerpts from the Interview:
Q: What is M12’s vision behind the investments you make?
A: M12 is a pure financially focused fund and we invest in startups for their success and to help them grow in scale. Like any other typical VC, we identify strong entrepreneurs by backing companies through Series A- Series C rounds.
Q: M12 was active in the Indian startup ecosystem even before having a physical presence in India. How do things change/accelerate with the setting up of physical presence in India?
A: So, you know, M12 has been remotely investing in India for the past about one or two years. So setting up was a logical step forward for our journey and commitment to the Indian ecosystem. And having the team on the ground makes the value we add more accessible and tangible for the fact that we have a growing portfolio here and we can help the companies on the ground. We can work with the co-founders in giving them all the help they need- from a code perspective to talent courses, you name it. Being here helps us demonstrate our commitment to the region as well. So being here in person makes the commitment much more real. So we accelerate the times in India with entrepreneurs who are solving global problems and we partner with them more efficiently now.
Q: What is your assessment of the current scenario of the Indian startup ecosystem amidst the COVID-19 pandemic?
A: COVID-19 has impacted how businesses operate globally and it has delayed both headwinds and tailwind. The one positive for the Indian startup system is that they’ve levelled the playing field for Enterprise Solution Providers. You do not have to meet a customer or be in Silicon Valley, New York to disrupt an entire industry or function. For most parts, we all use video conferences now. And there are teams and entrepreneurs all across India, small and large towns innovating and changing the way they operate around the world, Tokyo to New York. And that’s where Indian entrepreneurs can really build solutions that are targeted for the globe to disrupt enterprises by being in India. So I think this COVID situation actually helps them level the playfield a bit.
Q: What is the key area of focus for M12 in India? Is there a special plan for the Indian startups, especially the smaller ones located in tier – 2 cities?
A: M12 scouts for startups that solve problems for enterprises, which means they basically sell B2B and could be much larger, much better enterprises; that’s regardless of the geographical region. So we target startups through series A-C stages, as I mentioned. Our first check typically into a company is- it should be in the range of $5 million to $10 million with meaningful ownership. In terms of sector focus, we basically feel we can add a lot of value to B2B. So we can really leverage our co-strengths to bring them all the motions from an MS perspective, such as co-sell, co-market, co-build, etc. So that’s the intent of reverse engineering our value that adds to enterprises in b2b. In this broad category, though, we can range from applied AI, business applications, infrastructure, security, and you name it. Basically, all the areas where we have a good sense of the market, and we can play an active role in helping the company. We do not believe in just being a passive investor and want to be more active in helping that’s why we take the calls for whatever we do, anywhere in the globe.
Q: How do you assess a startup? What are the parameters considered in the investment process?
A: I think the parameters for us are the same globally, which means that we don’t have any India-specific parameters. What we look for is- do this company fit in the market? Have they figured out the product and figured out where they fit from a sales motion perspective. In eliminating a step back, I’m going to explain to you the way I see the initial journey of a startup. Typically there are three pivot points they go through. They go from 0 to $1 million in revenue. At that point, they are evaluating and getting the model fit right. From figuring out the type of customers, to who to sell and how to sell, to what the user personas are, etc. Once they have hit the 1 million mark, all they’re doing is making this same motion repeatable till the $10 million mark. Generally in the early days of a company, sales are led by the co-founders. And after that when they have to make the motion repeatable, they hire sales teams to make sure that the model can be repeatable and cost-effective. That’s the $1-$10 million journey. And then the $10-$15 to $100 million journey is really how do you scale that out globally? How do you make it into a category leader? So we typically come into play at inflection points two and three, which is $1-$10 million or $10-$100 million. Typically, we stay out of 0-$1million because we don’t think that’s our core strength. So we come in after you are market fit, after you have figured out who you’re selling to and what you’re selling. And then we can really help you scale from $1-$10 million and then $10-$100 million.
Q: After funding how does M12 help the startups in other aspects?
A: We think of it as smart money, but with the vision and scale to empower startups in India and the world. We not only just give them the capital, we also get them resources to scale and the experience of the M12 team and the platform power of Microsoft. What does that mean? So as a part of our investment, we have a portal development team that works very actively with our startup companies to really help them to explore product integration with Microsoft and co-sell programs that we have set globally alongside our world class sales teams. So we will bring to you the Platinum power of MS for enterprise startups that we invest in. And this is the value that adds power, nobody else can really match that. So we function, alongside all our peers, typically like any other VC firm but what we give extra is- we help them grow in scale, which is hard for anybody else to beat. Right?
Q: How does M12 fit in the current Venture Capitalism market in India? Is M12 well connected with other VC firms as well?
A: Basically, we are the active partner. In fact, we work actively with all the VC firms, we respect them and partner with them closely. So, typically about half of them we lead and other half we partner with other firms to co-lead or participate in different rounds. In fact, for the last company we invested in- a company called Fareye, we partnered with Fundamentum, we partnered with Eight Roads Ventures, SAIF ventures and Honeywell ventures. We actively partner with the companies that we work with. The investment we did prior to that-Innovaccer-it was a company that was being invested by lightspeed Venture Partners. So we worked with them on their investments. We actively partner with our peers in the ecosystem and we are always open to collaborating.
Q: How do you see the Government’s latest Atmanirbhar push help Indian startups?
A: I think it’s a very valuable decision that comes at the right time. The Government’s bid to be Atmanirbhar will help India in the longer term. This is a crucial time for Indian businesses as the next inflection point for India will come from innovation and entrepreneurship. We can’t create jobs for demographic that are going mainly online. So, it becomes important to figure out industries which are both- organised and integration driven. So the Atmanirbhar push will be really good for expanding businesses. This will help businesses deliver value in a timely manner, I am ready to put my money on that. Policies like these go a long way but proper monitoring and implementing the policy is required as well, then it will be more tangible.