1Mby1M Virtual Accelerator Investor Forum: With Sunil Bhargava of Tandem Capital (Part 3)

Sramana Mitra: The numbers that you quoted like $1 million to $2 million investment in a $5 million round, from the universe that we operate in, people are not ready to raise a $5 million round before a Series A usually. That’s what I find a bit confusing in how you position yourself as a fund.

Sunil Bhargava: $5 million is at the top end. We’ve invested in a company that ended up getting into YC. They raised $3 million when we put in some money. Now, they’re going to raise a $6 million round. The key thing is they didn’t have an operational system in place. They built some stuff. They got some prototype done, but they didn’t have a clear path to scale.

If you have scale, that’s when the A round guys get excited. It’s not so much about the money. The money, you may need less. You may need more if you’re predicting hardware. If you’re doing something outdoorsy, you need less money. How much have you proven in the business? Have you proven that there is a business? Have you proven scale?

Sramana Mitra: Let me see if I can parse this right because we are trying to understand the positioning of the funds who come here. Right now, we have all kinds of permutations and combinations from pre-seed, seed, post-seed. You’re positioning yourself as pre Series A. The difference that you are highlighting is that you are pre-Series A in that the company has shown traction but not acceleration.

Sunil Bhargava: Correct. We want to show that you can scale. You can sell a little bit of pretty much anything. If you own a company that’s not going to grow fast enough into a big market, you’re going to hit a wall at some point.

Sramana Mitra: Absolutely. Most companies are not suited for venture capital. Hyper growth is not a natural state. There are very rare companies that can achieve hyper growth.

Sunil Bhargava: Absolutely. That’s why we see a lot of companies and only invest in a few. In Silicon Valley, people feel that they have to raise venture money. I don’t think that that’s right at all. It’s not an indication that you have a good business. It’s just an indication that you potentially have something could be hyper growth. What’s going to happen if hyper growth doesn’t happen? The founders and investors are not going to be happy, which happens a lot.

Sramana Mitra: It happens to most of the venture portfolios. The few outliers end up successful and make the fund equation fail. What is your footprint? Where do you like to invest?

Sunil Bhargava: This is our third year of investing. In our first couple of years, we invested in companies in many geographies – Mexico, Canada, Portugal, Eastern Europe. Now we don’t have as much time luxury so we have pretty much focused on the US market and US companies. In investing, if there’s a really good company that comes up from anywhere, we definitely will listen.

Sramana Mitra: Even if they are in the US, I imagine they often have an offshore operation that is doing the bulk of the engineering.

Sunil Bhargava: At our stage, I would say about 25% of the companies have that. If they are from different countries, they definitely do. If they’re from the US, they tend to not to at our stage.

Sramana Mitra: What we see also is a huge number of companies that are starting elsewhere and then coming to Silicon Valley or some part of the United States to raise capital. They’re building products elsewhere. They’re selling from elsewhere for a couple of years and then coming here to raise money. That’s a very big trend.

Sunil Bhargava: We see a reasonable amount of that. We see a lot of companies coming out of India. We haven’t invested in too many of those. I think for a long time, India was focused on the B2C market. It’s just over the last year that there’s focus on the B2B market. We are seeing a little more of that, but you are absolutely right. There are a lot of people coming in. We are open to that. We just did a Canadian company. They still have their offices in Canada.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Sunil Bhargava of Tandem Capital
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