Sunil K Goyal has a passion for early-stage ventures which led him to invest in nine start-ups on his own before he set up YourNest as an early-stage venture capital fund. In this interview, he talks to us about YourNest’s investment journey so far and his thoughts on the future of India’s venture capital sector.
Founded in April 2011 by Sunil K Goyal, Sanjay Pande and Girish Shivani, YourNest is an early-stage venture capital fund that invests in the new connected economy that includes Internet of Things, Electronic System Design, Artificial Intelligence, Advanced Robotics and several other sectors. The team chose to focus on this sector because of the changes the Internet has brought in the last decade and believes that the connected economy can do things that are mega-fold.
The company is a lead investor in investment rounds of upto US $1 million and has 16 companies in its portfolio including Uniphore Software, mycity4kids, Rubique, Arya.ai, Smart Software Testing Solutions Inc etc. Its first fund, launched in 2012, was subscribed by 144 individual investors as well as three institutional investors – SIDBI’s India Opportunity Fund, IIFL Seed Ventures and Northgate Capital (a Silicon Valley based Fund of Funds) with a corpus of Rs. 90 crore. In October 2016, YourNest raised Rs. 300 crore for its second fund – ‘YourNest India VC Fund II’ – with the goal of investing in 25-30 start-ups over the next 4 years.
Goyal, who is also a part of TiE, Indian Angel Network and Mumbai Angels, has a passion for early stage ventures which led him to invest in nine start-ups on his own before he set-up YourNest. In this interview he takes us through YourNest’s investment journey and talks about the future of the VC industry in India.
Take us through your professional journey and what made you set up YourNest in 2011 as an early-stage fund?
I worked for two companies in my career, Dabur India and Bharti Airtel before I started my own venture. But before I did this, I took a sabbatical from my professional journey in March 2010 to reflect on the finest period of the 19 years of my career. And I realised the best phase was when Airtel was growing at the rate of 10 per cent to 20 per cent month-on-month between 2001 and 2008 and I wanted to relive those days. I understood that I can get this kind of engagement in the start-up world. Airtel was a start-up in 2001 despite having received billions of dollars in capital and serving over half a million customers. There were several challenges at the sectoral level and the moment they overcame those, they were growing at a rapid pace. I was clear that a startup was the only place where I could get a front row seat to such excitement, and that is how YourNest was born.
Are there any lessons that you learnt during your professional journey that you think is important to pass on to your portfolio companies?
Speed vs. perfection for an entrepreneur. This was a debate even while I was with Airtel. For an early stage entrepreneur in a highly competitive market, it is essential to have speed on your side. You have to be quick to act on any business opportunities that come your way. So when there is a choice between speed and perfection, speed should be your first choice. Companies are fragile during their early stage and they need to be winning more customers without delay. Do not delay decision making with some analysis. Go with your gut. Normally, it is the founder who takes decisions in the early stage of a business and hence he/she should be ready to speed up at any point in time. Yes, there will be a few mistakes but one has to move quickly and lead the company towards its vision. It doesn’t have to be a perfect decision at the beginning and it is alright to go with speed initially, perfection can come later.
In October you have announced your second fund. Talk to us about your fund raising journey?
Despite the fund size growing, 40 per cent of the contribution for this fund came from the existing investors. What this also conveys is that if the existing investors are standing by us, then the first fund is doing well and 11 out of our 16 companies have got the next round of funding. This apart, nine out those companies have a revenue of US $2 to 4 million a year and so these are sustainable businesses.
Apart from a great team, big market and strong founding team, what are the other factors that make you say yes to a deal? And, when do you say no?
We definitely look for a great team and market size. We have long meetings with each founder to understand their inherent need and get a deeper connect. But many times, we have found that there is a disconnect between the founders themselves and they do not have clarity on their vision.
There were two instances where we had to take away the term sheet after issuing it to the founders. The founders took weeks and tried to renegotiate with us knowing well that India is starved for capital. We want entrepreneurs to look at the bigger picture and not get caught in the current moment.
Tell me about your first exit as an investor. What happened behind the scenes between the investor and the entrepreneur?
My first exit in my personal portfolio was in a company called Zipdial, a company which offers services by giving a missed call. I invested in the company in my personal capacity in 2011 when I was learning the ropes of investing. I was on their board for the first two years and nurtured them in their initial days. We started working with social media platforms like Facebook and Twitter and eventually wanted to take it global. In the process of doing that, we went to San Francisco for a meeting, when we got a message that Twitter wanted to buy us out. So let your customers who could be potential buyers engage with you and have the product experience. We looked for a strategic exit as it gives you a higher value and when its led by an international company, the value is higher.
What is it about your role that excites you?
I like being a part of the founding team and to be connected with them at an emotional level as you are living the same pace as the entrepreneur is. I have a regular engagement with the founder and get the feeling of co-creation while working around the uncertainties. For me, it is like doing a sky jump!
Tell me about a time you got lucky as a VC/PE investor and also, please tell me about a time you got unlucky? Maybe, a deal you missed out on
In June 2013, we wanted to invest in a Chennai-based company called Uniphore. But we didn’t want to lead the round till we got a local partner. Almost 6 to 9 months later, when we thought we had missed out investing in the company, I met someone at a TiE conference who asked me if we wanted to be a part of the investment and we readily agreed. Today, it is the largest portfolio company as far as investment and contribution is concerned.
The time we got unlucky is when we had a chance to mentor Ritesh of Oyo Rooms but it didn’t happen. I never got an opportunity to validate their business model in Mumbai and didn’t stay in touch with Ritesh. As soon as he pivoted his business model, things turned around for him but we were not in touch and hence, we could not be a part of the Oyo story.
A pitch from an entrepreneur you’ll remember forever. Please narrate it for me.
Of all the pitches I have heard so far, there was one where I went and hugged the entrepreneur who made the pitch. It was by the founder of Clove Wearable. This was in December 2014 when he quit his job and started a technology solution to safeguard people in distress situations. He was very affected by the Nirbhaya incident and he quit his job and said that he didn’t want anyone to go through this pain and, hence, conceptualised this technology solution. We invested in him 18 months later.
Where do you see the PE/VC ecosystem in India 10 years from now?
By 2020, companies like us who started their journey in 2012-13, would have seen the complete cycle of investing, nurturing, co-creating and exiting an investment. Today there is support for Indian entrepreneurs to take their ideas global as people can see that we have experienced professionals who have seen this cycle and get capital that is scarce today.
YourNest sees around 7000 startups every year and we end up investing only in 4 to 6 in a year.
The number of start-ups will mature and quality will improve based on the mentoring ecosystem. Currently, an entrepreneur has professionals and executives as their mentor. But a right mentor is one who has built a business and has gone through the pain and they are limited in India currently. In the next 5 years, they will be in plenty. New set of entrepreneurs will be coming and pitching towards this. Our jobs will be easier as we will have less number of start-ups to look at and more mature people coming in with start-ups. We will have access to global capital at larger scale. Hence, the Indian VC system which is supported by Rs.10,000 crore fund of funds or electronic development fund will be able to stand on its feet.
What entrepreneurship trends are you seeing today?
We have invested in 16 companies out of which two entrepreneurs are in their 60s and two in their mid 20s. Most of them are in their mid 30s and we are seeing the trend where enterprise businesses are being promoted by experienced professionals in their 30s and 40s. They come with mature plans and conviction of understanding enterprise requirements, having developed products. I believe we’ll more experienced professionals turning founders in the future.