Sateesh Andra, MD, Endiya (left) and Ramesh Byrapaneni, MD, Endiya
Image: Vikas Chandra Pureti for Forbes India
The interview starts with a hypothetical question. Much like electricity that either flows in alternating current (AC) or direct current (DC), if there are two types of entrepreneurs—the ones who are wired to play the game of high valuation whenever it’s on offer, and the ones who know the difference between real and reel but are hyper-possessive in nature—which trait would be more damaging for a founder?
Sateesh Andra, a seasoned entrepreneur and investor for over two decades, doesn’t take a nano-second to reply. “The latter,” reckons the managing director of Endiya, an early-stage venture capital firm with a focus on healthcare, technology, deeptech and fintech sectors. “But is not hyper valuation more dangerous,” is the natural follow-on question. “Nope,” he reckons.
Andra explains his point. “Froth is something you should take advantage of,” he smiles. In a connected world, a smart entrepreneur, contends the electrical engineer, will ideate and build a product wherever she gets the talent, will raise capital from the one offering highest valuation, will sell to somebody who gives highest margin, and will take the startup public or exit when she gets highest multiple. “Why not,” he adds. “A founder must take advantage of froth,” he maintains, alluding to unrealistic valuations on the table due to the glut of capital in the market. He, though, adds a caveat. A smart founder, Andra reckons, would know that the sky-rocketing valuation is an aberration. “It’s not real. So the founder knows how to use the capital to protect her turf,” he adds.Also read: Niren Shah, Norwest India, and the art of slow and meaningful VC investing
The problem with the second kind of entrepreneurs is unique, and potentially dangerous for a startup. “Such founders are good at building a car but they can’t build a car company,” says Andra. Reason: The lack of detachment. “An entrepreneur must exit the role of the CEO at the right time,” he says, adding that the problem starts when the founder-cum-CEO doesn’t hit the exit button. “You need someone else to build a company,” he reckons. The car is just one component; the founder now needs to build a brand, financing, distribution and customer support.
At a certain stage in a startup’s life, the founder has to stop playing the actor and start behaving like a director. “This is where brain comes into the picture,” smiles Ramesh Byrapaneni, managing director at Endiya. The cardiologist-turned-entrepreneur-turned investor co-founded Endiya with Andra in 2015. “I am the heart, and Sateesh (Andra) is the brain of Endiya,” he says, explaining the chemistry between the co-founders. “And both are in sync,” laughs Byrapaneni, who started Medwin Hospital, one of the earliest private hospitals in India in the late 1980s, and pursued clinical work for almost three decades before he moved into the world of startups and venture investments.
The chemistry, interestingly, started on a weird note. Andra, who lived in the US for 18 years during his investing and entrepreneur days, used to regularly visit India to attend startup events. At one of the events he spotted a familiar face. “Dr Ramesh Byrapaneni used to be present at these conferences,” he says. “I thought he didn't have a business and that's why he was wasting his time in entrepreneurship,” he laughs. Seven years into Endiya and working closely with Byrapaneni, Andra tells us the nuts and bolts of his chemistry with the doctor. “In tennis doubles, it’s not the two best singles players who win,” he says. The winners are the ones who have complementary skills and anticipate each other's moves. “You can disagree, but one must not be disagreeable,” he says.
Byrapaneni and Andra, for sure, agree on the core DNA of Endiya. “Its impact over everything else,” says Andra, adding that the mission of the fund is to back startups who can create a lasting impact. That's why, he lets on, Endiya is selective and anal about the whole process in terms of the kind of investors getting into the fund, the types of entrepreneurs who are picked and the amount of money deployed.
An early-stage venture capital firm with $100 million in AUM (assets under management), Endiya typically cuts an initial cheque size of $1 million to $2 million in seed or pre-Series A round, and 95 percent of its cheques are the first institutional cheque for a startup. The follow-on rounds can have an investment up to $5 million per startup. Over 75 percent of the portfolio companies, claims Andra, have raised subsequent funding rounds vis-à-vis 30 percent of an industry average.
Take, for instance, Darwinbox. The SaaS platform provides workforce, talent and employee engagement, compensation and benefits, people analytics and HR service delivery suites. When Endiya made a seed investment in 2016, Darwinbox had 20 clients, and commanded a valuation of about $5 million. Cut to 2022. It’s a unicorn, has had an overall fund raise of Rs 888 crore ($111 million), revenue has grown at a CAGR of over 225 percent, valuation has jumped over 200 times, and client base has grown over 30 times. Back in 2016, Andra underlines, there was not much SaaS in the Indian startup ecosystem. “Either by design or intuition or luck, we've been way ahead of the trend or others,” he says.
Another area where Endiya stands out from the clutter is its specialist approach in investing in a few sectors. Take, for instance, the bets on a bunch of healthcare startups. There is Cure.fit, a digital fitness and wellness platform; SigTuple, an AI/ML/robotics-driven medical diagnostics which focuses on digital pathology; Synapsica, an AI-driven radiology spine, workflow automation platform; eKincare, a health benefits platform for corporates and Sugar.fit, a digital platform for diabetes management. “We are not generalist VCs,” says Andra, adding that any MBA or an investor can ask intelligent questions. “But what founders need is the solution,” he says, explaining the investing philosophy of his fund. Endiya, he stresses, has a conservative portfolio, a limited set of investors and works closely with entrepreneurs to solve the problems.
Another interesting bet happens to be Kissht, a digital lending platform. When Endiya invested in the fintech startup in 2017, it had disbursements of just Rs 14 crore (around $2 million). Five years later, there has been an over-120x growth in disbursals, claims Andra. “The startup has been profitable since FY20,” he contends. The co-founders of the fund, he adds, are fixated with three core questions: “Are we relevant? Are we enjoying our journey? Are we making progress?” The fund also takes pride in its selective approach of investment. There are a certain set of people who want to get invited to all the parties happening in the town, points out Andra, alluding to a style of investment. Another style is where you want to host parties that everyone wants to attend. “We're always taking the latter approach,” he adds.
There are, though, high risks in taking the road less taken. For early-stage investors, interestingly, the risk gets magnified. Andra explains three types of risks: Product, team and market. For a growth-stage investor, the first two risks are non-existent. The product is functional, the team has worked for a couple of years, and there are a few million in revenue. “Market risk is what a growth-stage investor needs to take,” he avers. Now contrast it with an early-stage investor. For the ones writing seed cheque, all the three risks are humongous.
Over the last few years, the risk got magnified multiple times. Reason: A glut of capital. “I keep joking that there are more angels on earth than on heaven. And all are investing,” smiles Andra. The flip side of ‘anybody-can-invest’ is that too many me-too companies got funded. The game changed. The ones raising the maximum capital had a great chance of staying alive. The funding and valuation noise became deafening. “It was less about building the right product and right IP,” rues Andra, adding that companies becoming unicorns with no revenue, and raising rounds every three months is not healthy for the ecosystem. “That noise sometimes engulfed us as well,” he confesses.
What, though, helped the doctor and engineer was going back to the roots. The duo went back to the drawing board and reminded themselves of the purpose of their investment. “Staying loyal to the purpose takes a lot of character, commitment and belief,” says Byrapaneni. Healthcare and deep tech companies take time to show result. “We need to be patient,” he says. “If you focus on what you're doing, results will happen over a period of time,” adds the doctor, who is trying to rewrite the investment thesis with his electrical engineering partner.
Sparks are bound to fly. What is likely to help the duo, and the fund, is their expertise and focus.