Anjali Sosale, partner at WaterBridge Ventures
It’s a no-brainer, and an endemic, question. ‘What is the pain point that you are trying to solve?’ is how venture capitalists start quizzing entrepreneurs in a funding pitch. Ironically, for the hapless spring chickens—who present business plans to countless funders—the pain points in getting the first seed cheque are many. The trouble starts from the pitching day. The biggest pain, though, is a cruel irony. Founders want speed, but VCs focus on seed. Most founders find the process of dealing with institutional VCs long-drawn, indecisive and unsettling. The lifeline of any fledgling startup—speed—is missing from Day One.
The pandemic year, interestingly, turned the tables. Last year, Anjali Sosale, partner at WaterBridge Ventures, discovered the pain points of the founders. At the peak of lockdown last year, the VC stresses, an early-stage fund was rolled out—Fast Forward—which aimed to accelerate funding into the hands of founders. Though a typical first cheque for WaterBridge is in the range of $1-3 million, Sosale noticed a strong need for smaller seed cheques (up to $500K). Fast Forward was meant to address such nagging, but crucial, issues.
The VC, for her part, tried to take a deep dive into the problem. Along with her team, Sosale studied global benchmarks of accelerator and incubator and seed programmes within larger funds, standalone seed funds and tried to gather best practices. She reached out to founders who had been through such programmes to understand their takeaways and expectations while pitching to institutional VCs. The insight was startling. Seed funds, she discovered, are unable to provide the network strength, follow-on capital, and seed-to-growth experience an institutional VC can, especially when the founders need it the most during the initial months.
Fast forward to 2021. A year into the pandemic, Sosale comes up a much loaded version of ‘Fast Forward’, which packs a punch as well as high-octane speed. Take a look at some of the one-of-its-kind features of the seed funding programme: All digital applications for seed funding will receive a response within a week, a term sheet within 14 days, funding within 30 days, and a transparent term sheet uploaded on the site. The icing on the cake, however, is the fact that ‘Fast Forward’ brings together 15 VCs from various funds such as Ankur Capital, Enzia, Eximius, Inflection Point, Multiply and Spiral Ventures. While WaterBridge Ventures will be the lead investor with up to $500k, other VCs will pool in more capital to enable the founders to raise larger and faster scale rounds. “This construct allows founders to apply via a single online application and raise a $1 million seed round with an ecosystem of VCs,” says Sosale in an exclusive interview with Forbes India. Edited excerpts: Q. What was the trigger for 15 VC funds to come together and roll out a unique seed funding programme?
The early-stage funding ecosystem in India was dispersed and fractured. We thought through actively collaborating with the best accelerators and seed/angel syndicates—and with us taking the lead—founders can cut the chase and get funded fast. Each of us has come together to address common founder pain points about seed funding and create a unified programme to address these issues and make seed funding a faster, more professional process in India. It also democratises the process for founders who find access to partner-level folks at early stage VCs difficult. Q. And you claim it’s not yet another seed funding programme…
The biggest differentiator is a single application that allows founders to pitch to up to 15 of our VC partners. This is like creating a GMAT entrance to seed funding with WaterBridge being the administrator. Once WaterBridge has received the application, and posts a first review, the deal then gets automatically shared among the partner network. Founder zoom pitch calls are then quickly scheduled. This gives the founders the ability to raise up to $500k from WaterBridge in the lead and an additional up to $500k from other VC funds. Totalling to nearly $1 million fund raise, faster, larger rounds earlier is the key ambition of the programme. ‘Fast Forward’ is a dedicated, unambiguous, fast and forward-looking seed programme for startups that are pre-revenue (most of the times) and sometimes even pre-product. Q. What was the insight gathered from the founders you interacted with before rolling out ‘Fast Forward’?
There were three key things. The first crucial thing to realise is that time is of the most essence to an entrepreneur. The message was clear: Respect founder time and run an efficient process. Rejecting an investment proposal is ok, but reject it fast. The second key input was about fair terms. Entrepreneurs want no surprises after signing exclusivity and while negotiating the definitive documents. Everything has to be transparent and upfront. The third is about value-add construct. The common question asked is what beyond seed capital? What is the value-add and how can the fund help early-stage ideas and founders move forward on their 0 to 1 journey? Q. It’s not easy to back entrepreneurs and startups at the seed stage as what one is betting on is nothing but idea…
At the seed stage, there often isn’t any revenue, a meaningful customer base, and business metrics that can be measured and analysed. We are ‘crystal-ball gazing’, and as we peruse the application, we aim to get convinced of the vision of an entrepreneur for building the company. We ask questions like: Why she is best suited to solve the founder-market fit? So we are fundamentally trying to form a view on three things.
First is the founding team: Their opportunity cost and learnability index. Then comes founder-market fit: How well does an entrepreneur understand the market? And third is the approach the startup is going to take. It fundamentally does carry a higher risk, but for a fund like WaterBridge, which is a seed, Series A entry fund, this is a way of achieving stage diversification while playing for the Alpha. We believe the first 12 to 18 months of a startup’s journey are the most critical and we see ourselves not just as investors, but also as partners in helping you grow from seed to scale. We define our value-add as five Cs: Community, competency, cap table, cross-border and compliance. Q. With the ecosystem flush with money and more coming over the next two years, what's the flip side? Will fiscal discipline go for a toss?
In seed stage funding in India, less than 25 percent of capital is institutionalised (contrast this to 75 percent in the US). While more capital is sparking valuation and other bubbles in later stages of the tech ecosystem in India, that’s not the case in earlier stage funding.
In seed stages, more institutionalisation of capital is needed to help the maturity of the ecosystem and to increase the chances of success of early stage startups. Around 95 percent of seed-funded startups in India can’t even make it to Series A! The earlier institutional capital comes into a startup, the faster is the rate of learning, iterativeness, failure and success cycles for those startups which is healthy for the economy and for helping grow the overall maturity in the ecosystem. Q. Why not a seed fund programme for women entrepreneurs?
We have no positive or negative biases for gender. We are striving for more, and we have seven women founders across 20 active portfolio companies. All female-founder-led teams get a face-to-face feedback session from WaterBridge as well as our VC partners’ women-founder-focussed teams. We have created an empathetic fabric to evaluate, give feedback and support women-founder-led companies but the supply side (women founders) ecosystem is not large enough to have a dedicated women entrepreneurs seed fund yet, possibly that’s in store for a couple of years down the line.