Betting early on multi-baggers: How Unicorn Ventures profit off start-ups

Deena Jacob, co-founder of Open, a neo bank, believes that the support from their early investors is what made the bank sustain its growth trajectory in the initial days even when virtual banking was still just a concept in India.

“I certainly agree that our early investor support was extremely crucial for us, especially when some of them backed us when the idea was still on paper. The inbound interest that we have seen from the institutional investors was largely driven by our early investors,” said Jacob.

This was one of the earliest bets that the early-stage in­vestor Unicorn India Ventures (UIV) took in 2017.

UIV is headed by two industry veterans, Bhaskar Majumdar, who is based out of London and has been an entrepreneur himself, and Anil Joshi, who has been working in the Indian start-up ecosystem for more than two decades.

The first fund of UIV had a corpus of Rs 100 crore. Apart from Open, there are multi-baggers in the fund like Sequretek, Genrobotics, Smartcoin and Clootrack. The second fund that Unicorn raised in 2020 has a corpus of Rs 300 crore and it has currently raised Rs 250 crore. It has started investing and already created a portfolio of 15 companies.

The UIV team bet on Open because it had seen the success of neo banks in other regions of the world. “When we invested in Open, the concept of neo banking was new in India. I had seen the success of neo banking in the UK and had also invested in Tide. So when we met the founder through some angel investors who had invested in them, I knew the potential, and we went in as first institutional investors,” recalled Majumdar, who is managing partner, UIV.

What was exceptional about UIV putting in money in Open was that it was going against one of the investment rules laid down by the VC firm — investing in a company where founders are related. “We liked the complementarity of the team; we liked the fact that they had an earlier experience of mobile banking,” said Majumdar. “They were also an exception for us as we do not invest in companies that are started by family members. We are happy to have made that exception.”

Open’s recent fund raise of $100 million from Temasek, Google and Japan’s SBI Investment has allowed UIV to make 3.5x returns. Open was an investment that UIV did from its first fund in 2017. And even after this equity infusion, UIV continues to be among the top investors in Open. The VC firm states that the majority of its investments have successfully raised funds from larger institutional investors.

Despite the return the firm has managed to make, Majumdar said the focus for UIV will be to be an early-stage investor that will bring patient capital along with all the hand-holding that such an investment requires.

This is important in today’s scenario where capital is rushing behind early-stage start-ups like never before. According to a PwC report, the Indian start-up ecosystem saw investments of over $10 billion in the third quarter of calendar 2021 from VCs, one of the highest-ever funds raised in a quarter.

One of the effects of the pandemic has been that growth investors are also ready to sign cheques for early-stage start-ups as digital adoption has meant a huge opportunity for tech-enabled businesses. Even then UIV has chosen to be rather conservative and continued its focus on early-stage funding and working closely with founders.

“Early-stage investment is more an art than a science. We have invested in companies even when their products were either at a prototype stage or still on paper. In the early stage what matters is the founding team and the passion they have to create a start-up,” said Majumdar.

One such example is Kochi-based Genrobotics, which was scouted by the UIV team when it was a college project for the founders. The bet also shows how UIV is truly looking for ideas away from the hotspots such as Bengaluru and the other metro cities.

Joshi is the person who has been travelling extensively and working with local educational and regional start-up missions (wherever there is a body) to scout for promising entrepreneurs across India. He is well positioned to make these judgements because he has seen the evolution of the startup and VC ecosystem in India, but also because he has invested in over 125 start-ups in a personal capacity.

“In hindsight, all these investments have meant that I have managed to build an entrepreneurial network that comprises founders in the metros and smaller cities,” he said. “This network and knowledge-sharing route gives me a ringside view of how our ecosystem is shaping up. I personally work with state governments that are looking to build a thriving startup ecosystem in their states.”

Joshi said he travels 100 days a year scouting the next big opportunity. “Innovation and disruption is not limited to the three hubs — Delhi, Mumbai and Bengaluru. Helping start-ups in tier 2 and 3 cities, working with state governments actively and travelling to new emerging start-up hubs gives me a chance to get a first-hand look at the new technology and products being built in Bharat for India and the world,” said Joshi.

Majumdar also pointed out that the entrepreneurs from smaller towns, unlike their city peers, are not in this just because it’s a trend. “For them,” he said, “starting up is a real issue and failing is not an option. At the early stage, writing a cheque is very easy, but to grow the company is difficult and needs a different and involved approach.”