1Mby1M Virtual Accelerator Investor Forum: With Brij Bhasin of Rebright Partners (Part 4)

Brij Bhasin: When it comes to Series A and B and further, the bar tends to be set up really high. We’re starting to see that in 2017. We’re seeing more of that in 2018 and 2019. As these new domestic funds start to deploy and their portfolio companies start to hit the Series A wall, we will see more cleaning up or consolidation of the early-stage startups.

There is a lot of money available at A or B. It’s just that VCs at that stage are also being very selective, having burnt their hands a little bit during the boom years of 2015 and 2016. A lot of those companies didn’t take off. Now those are being consolidated in the market.

Sramana Mitra: This is true both in India as well as in the US. There’s going to be two different categories of 

investors who are going to be playing very differently. There is the early stage which includes pre-seed, all the way until pre-Series A or small Series A. It’s going to be one class of investors.

The microVCs who help an entrepreneur go all the way to a real Series A could be three or four rounds of financing before you are ready for a full Series A. At that point, some of the early investors will need to exit. If it takes a while to be ready for a full Series A, you’re effectively helping these companies traverse their bootstrapping phase with small amounts of financing.

The logical way would be for these funds to exit either in Series A or B. Otherwise, the venture timelines are not going to line up.

Brij Bhasin: Getting an exit isn’t really always in their hands. It depends on the capital needs of their portfolio. If the companies have had to go through two or three rounds to really prove it out and go for a larger growth, the next round of investors may not be willing to give second re-exits.

Sramana Mitra: This is very true.

Brij Bhasin: If they’re not hitting the good price, then they have no choice but to stick around for a little bit longer. At least from a foreign VC fund standpoint, a large part of the portfolio will take a little bit longer because the market itself is going through a market-building phase. Some of these experiments take longer.

At the same time, there has to be some sort of a balancing between the portfolio where you tend to pick your bets on which of the companies you want to go and back multiple times over and which are the ones that you definitely want to bring outside money in. Otherwise, it’s not viable to run that company anymore.

Sramana Mitra: One of my observations along these lines, just to take this thought process further, is that we are in January 2018. Lots of stuff have already been built. Especially in B2B, there aren’t so many wide open opportunities out there.

You cannot really build a Salesforce out there, but there are many niche opportunities. Some of these businesses need to be built for very small amounts of capital – $1 million sold for $10 million. Maybe even smaller – $250,000 and sell for $5 million. I think India can have a real sweet spot in this category.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Brij Bhasin of Rebright Partners
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