It's the spark in the founder that makes us tip over: Titan Capital's Kunal Bahl and Rohit Bansal

Rohit Bansal and Kunal Bahl (sitting), co-founders of early-stage venture capital firm Titan Capital. Image: Madhu Kapparath

Early-stage investing is a high-risk game. The odds of a business not being able to scale-up are much more than it becoming a market leader. There is no factual evidence to guide investors. Then what makes them bet on a new founder?

“There is no business most of the times when you meet the team, but to be successful at anything in life requires a certain degree of grit,” say Kunal Bahl and Rohit Bansal, co-founders of early-stage venture capital firm Titan Capital, who are also entrepreneurs and were among the first to enter the ecommerce industry when they founded Snapdeal in 2010.

In part two of an interview on Forbes India Pathbreakers in October, the long-time friends and co-founders of AceVector Group talk about why they donned the hat of investors. “We got into investing primarily to help founders,” they say. “We met some of the earliest founders [such as Ola’s Bhavish Aggarwal] very serendipitously.”

Titan Capital’s portfolio companies that delivered 100x returns include Ola, Mamaearth, Urban Company, and Credgenics. They share what makes them back founders and pick winners. “It's the spark in the founder that makes us tip over because there can be many academic reasons to say yes or no. But the biggest reason to have conviction in whether to pull the trigger or not is some quality that you've seen in the founder.”

Titan Capital does not raise funds from the market for investments. Since Bahl and Bansal invest their own capital, they do not have a fixed holding period or the pressure of earning high returns for their investors. “We are not running a classic fund so we can stay invested for 25 years if we want,” they explain. “I think our mindset when we invest in a business is closer to that of an owner of the business than that of a person who is trading in the stock of a business.” Edited excerpts:

Titan Capital: ‘We got into investing primarily to help founders’

Bahl: We got into investing primarily to only help founders. That was our starting point. We met some of the earliest founders [of our portfolio companies] very serendipitously. I remember Bhavish, who is the founder of Ola. I was at a travel conference pitching travel providers to list coupons on Snapdeal and on the way out, you know, this young guy wearing a backpack approached me saying, hey, Kunal, I want to talk to you about my business. He showed me this app that he was building, and I was like we don’t have much money, but whatever we have we have to give you… then I set up a call between Bhavish and Rohit.

Bansal: I spoke with Bhavish. There were no VCs back then. I spoke to Kunal and said look, whatever we can, we should invest because it does seem like he'll do something really nice.

Listen: Small-town founders: Fearless entrepreneurs building new empires

Bahl: It's just so exhilarating, so amazing to see these journeys from the point where it's just like two guys or two girls and a PowerPoint and some idea to eventually being a nationwide phenomenon where millions upon millions of people are using those products or services every single day. It's the ability to believe that that can happen, that that magic can happen with this person that you're meeting, where there is no factual evidence to say that it will happen with them.

Picking winners: ‘Spark in the founder’

Bahl: We are empathetic. We are good listeners, we are attentive. We are giving them the opportunity to just say everything they want to say about their business and then ask them once more, is there anything else left for you to say because a founder has so much bubbling inside of them, they want to let everything out. But in the earlier stages, it's largely the three things that we focus on, which is the quality of the team. Have they demonstrated some amount of success in anything that they have done.

Bansal: I think that's very important. We've seen that, because there is no business most of the times when you meet the team. To be successful at anything in life requires a certain degree of grit.

Also read: The most important thing for founders is to keep your head in the game: Kunal Bahl and Rohit Bansal

Bahl: I would say the second thing which is very important is just the size of opportunity. It should be a very narrow, focussed part of the market that you're going after. However, if you are successful in that narrow sliver, it should present you the opportunity of expanding your addressable market. So today it has to be narrow, but needs to have the flexibility of becoming bigger in the future.

Bansal: And third I would say, which is very critical and unique to us, is a business's ability to generate unit economics because we are strongly of the view that if you are in business… changing the unit economics of a business very dramatically at a later point in time is extremely challenging and we see very few instances of companies’ ability to be able to do that. And as a result, from very early on we both assess as well as guide founders to have not only a product-market fit, but a product-market-economic fit in their business.

Bahl: When we say unit economics, it basically means the margin that you make post all the variable expenses you incur to deliver that product or service. It is not easy to do. It's the spark in the founder that makes us tip over because there can be many academic reasons to say yes or no. But there's usually one, like the biggest reason to have conviction in whether to pull the trigger or not, and whether to say yes or not is really some quality that you've seen in the founder: The grit, the passion. Some amount of adversity in their lives, despite which they have pursued this, and are seeing some early signs of progress, and you can just feel it in your bones that this person is committed for the rest of their lives probably to make this business work.

Also read: Riders of the next ark: Inside Arkam's plan for Middle India's limitless founders

Bansal: And I think our mindset when we invest in a business is closer to that of an owner of the business than that of a person who is trading in the stock of a business. So, because we come in very early in a business, all our actions and sort of mindset is what would we do if we own the business, how would we build value rather than trying to optimise for what looks good short term, what pushes the stock price up. Over a long enough period of time, as long as you build value, valuation will take care of itself.

Governance: ‘Try to share our learnings’

Bahl: Well, our job is not to go and institute or change the culture in a company or, you know, babysit the founders. That's not our role. Our role is to guide and share our experiences. And the moment we see some red flags or which may be inadvertent… it's not like the founder is intending to do something wrong, but they are absolutely overburdened with work, typically, in the early days and they may be losing track of some part of their company. That's when we have to provide that external oversight and say, hey, look, you need to start doing monthly town halls with your team because it seems your team is getting a bit disenchanted or disconnected from the overall purpose because you are so engrossed in the day-to-day that you are unable to impart a broader vision for what the business is building, and that is your job as the founder. Nobody else will do it if you don't do it, an investor won't do it if you don't do it.

Listen: What can startup founders learn from legacy entrepreneurs who built India?

Similarly, from a governance standpoint, for all the companies we invest in, we institute a mechanism of monthly income statements where they have to send their monthly profit and loss statements to our team to make sure that we know how the business is progressing and we can highlight to the founder that hey, seems like you're veering in the wrong direction and need to course correct quickly. But the most important thing is actually culture. I would say the thing that we really pride ourselves on in terms of what we've been able to build in our businesses, the average tenure of a team member at our company is more than five years. That's an eternity in the startup ecosystem, and we try and impart some of our learnings of how to build a good culture through better communication, transparency, trust with team members and founders.

Being friends and co-founders: ‘We are two bodies and one soul’

Bansal: At the foundation, we have an immense amount of trust and respect for each other. The other thing which we have done, which has worked very well for us in some ways is, you sort of let go of our personal egos and convert it into a joint ego of sorts, then successful will be successful together. If you're not successful, we will not be successful together, and personal victories don't matter. The only victories that matter are the joint ones.

Being co-founders and friends actually pushes us to work even hard. Because when we are trying to do something, it's not only if we don't do a good job… it's not only letting ourselves down, it's letting the both of us down. So, I think that subtle additional pressure actually helps you to perform even better.

Bahl: In addition to all the things Rohit said, I would echo all of that, but you know, at some level we don't try and prove to each other who's smarter, who's more intelligent or who's harder working, we're not in that game. We're not trying to prove anything to each other. Both of us are immensely proven to each other. There is no question or paranoia. We just say things without worrying too much about, hey, will the other person mind? Will the person take it personally, etc, because the other person knows it's never going to be meant that way. So, it's sort of like someone described it nicely. It's like, you guys are two bodies, one soul.