We will make only 2 more fresh investments in 2016: Lightbox

Plastered across the walls of Lightbox VC are three rules on posters: Don't run out of money, don't ever stop running your business and if you don't know, ask. It is not too much to demand, especially for entrepreneurs but the way Lightbox conducts its business is slightly unusual.

The fund had a size of $100 million in 2014. It decided to invest in only seven companies, which is a departure from the usual dart board investment routine other funds employ. It will make only two more fresh investments in 2016 and refuses to discuss plans for its next fund.

Lightbox takes six months to finalise an investment compared with the month-long turnaround time, which companies enjoyed in the start-up funding headrush that was in 2015. Its vetting process, surprisingly, mirrors dating.

"We meet the entrepreneur for coffee, then dinner and then a drink. We meet their families, they meet our families, we work in their offices, they work in ours," says Sid Talwar, partner, Lightbox. After establishing chemistry, the deal is consummated, in a manner of speaking. This chemistry is extremely important in the way Lightbox assists its portfolio companies.

"We want to be operationally involved," says Talwar, a sentence almost repeated verbatim by Sandeep Murthy, also a partner at Lightbox at a different time. Almost all entrepreneurs hate the term. It is corporate speak for "I'll show you how to run the business". "That is not what we mean at all," smiles Talwar. Lightbox asks entrepreneur to let them handle the tasks they would typically outsource.

"Finance is something entrepreneurs often don't pay attention to. They will have a superb product team and a tech team but nothing concrete when it comes to finance," says Talwar. Usually, these tasks are outsourced to consultants, who advise the company on maintaining balance. "We use the same model as those (outsourced companies). We report to the chief executive as well, but not as investors," adds Talwar. Lightbox uses the same model for hiring, essentially becoming a chief financial officer (CFO)-chief experience officer (CXO) hybrid. Exactly, what entrepreneurs fear.

"That's where the chemistry comes into play. They know we are not questioning their decisions. We now know what the on-ground challenges are and we want to be part of the solution," says Talwar. The hand-holding stops once the company starts to grow and can hire its own CFOs and CXOs. And unlike a fling, Lightbox wants to stay associated with the companies for 10 years; as compared with the six-year cycle other venture firms follow.

Talwar and Murthy have a penchant for early stage companies, which they refuse to identify on the basis of rounds of funding. Lightbox has invested in companies across rounds and phase of development.

The company's brightest spot is Faasos, a food tech company based out of Mumbai. The 10-year-old firm is targeting a zero store front policy as over 90 per cent of their orders comes through the app. The fund invested into the company only last year or in the "brand phase".

Droom, another rising star, recently announced it would expand to 100 cities and was the country's first transaction-based used-car marketplace. "In India, we have crossed the tipping point where used car sales are higher than new cars' and that's why Droom is going to be a major player in the market," says Talwar. He said the auto classified players such as CarDekho and CarTrade would find it difficult to switch to a transaction-based model and his portfolio company already had a headstart. That's why Lightbox had infused, along with other investors, up to Rs 100 crore last year in the "pre-revenue stage". Its latest venture Melorra, a jewelry tech startup, received funding worth $5 million - the highest for early stage investments in January.

"We have a rule," says Talwar not referring to the ones plastered across the office, "only invest in companies that have positive gross margins."

In 2014, Lightbox acquired two VC firms, Sherpalo Ventures and KPCB, who were looking to make an exit from India. The deal meant Lightbox took control of portfolio companies such as MapMyIndia, Greendust and Kotak Urja among others. MapMyIndia was eventually bought out by Flipkart. In the others, the fund has decided to play its cards close to its chest and says its sees no interest in making a hasty exit.