1Mby1M Virtual Accelerator Investor Forum: With Sunil Bhargava of Tandem Capital (Part 4)

Sramana Mitra: There’s a lot going on in Vancouver, especially because the Visa situation is a much easier one in Canada. What are some of your notable companies? You’ve mentioned a few along the way. Have you had exits, for instance, that you want to discuss?

Sunil Bhargava: It’s too early for big exits. In fund two, Outdoorsy is going to go out and raise its Series B. They’re doing phenomenally well. One of the things exits and acquisitions are coming at much bigger valuations. Some of our companies are getting to the Series B level. A lot of them are getting to the Series A level.

In fund two, we had a company that was based out of India. Most of the team was in Bangalore. It’s in the gaming space. They own the largest bingo franchise in the world on mobile. They were doing about $8 million a month in revenue. They exited to a game show network for about $160 million with only a couple of million in investment. That was a good exit.

Sramana Mitra: What is your most promising company in the portfolio currently?

Sunil Bhargava: From a revenue perspective, it’s Outdoorsy.

Sramana Mitra: That’s the RV rental.

Sunil Bhargava: Yes. These marketplace companies, the interesting part about them is they have an exponential growth curve. They start out slow and once they hit the formula, they grow rapidly. Their margins are not as high as SaaS companies.

Sramana Mitra: How do you process the current investment climate where capital is moving further and further upstream? As I’ve said earlier, we have all these different blends of pre-seed, seed, post-seed, pre-Series A, Series A. How does a pre-seed investor or an entrepreneur mitigate the Series A gap? You go through so many rounds of financing. You already lost so much equity in the process. How do you view all this?

Sunil Bhargava: The first thing entrepreneurs should realize is that investors do not invest in products. They invest in businesses. I have so many people come and talk to me and spend the first 20 minutes of the conversation about the product.

Sramana Mitra: I agree with you. We teach all our entrepreneurs to focus on the business.

Sunil Bhargava: If you’re focused on the business, you have to raise capital to get rid of some business risk. You have to validate your thesis and raise the least amount of money to validate that. Irrespective of what investors say, if you tell them this is what you’ll do. In our case, we say, “We’re willing to take risk on scale. We’re not willing to take the risk of proving a business.”

We used to be willing to say, “If you have a good space and a good team, we are willing to find a business along with you.” If you go down that path, the investment community will listen to your story. If they like you, they will write you a check. It’s up to you to not raise too much money and reach the next milestone. If you don’t reach the next milestone, that’s when you take the hit with significant dilution.

Sramana Mitra: There’s a mindset problem that we constantly struggle with. Our work is very early stage work. There’s this obsession with raising capital. We constantly make them unlearn that obsession and focus on customers. They’re more interested in chasing investors than in chasing customers. That is the surest way of losing control of the company.

Sunil Bhargava: I agree with you 100%. You got to be very maniacally focused on what it is the customer wants to buy. Most people are focused on what they want to build. It’s a subtle distinction, but it’s a very important distinction.

Sramana Mitra: How do you parse the unicorn mania?

Sunil Bhargava: I can’t say I’ve done a lot of time thinking about it. On the one hand, there’s a lot of disruption both in terms of technology and in terms of how you can get your product or service to people. We see tons and tons of new things that are disrupting the world but at the same time, there are new monopolistic companies like Google, Amazon, and Apple that are emerging. The environment is getting tougher and tougher.

There is a possibility of having some very large companies emerge. On the other hand, these companies like Google and Amazon have extremely deep pockets and extremely strong execution capabilities. The number of unicorns seem to be a bit nutty. But rich people can spend their money the best way they want to.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Sunil Bhargava of Tandem Capital
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