1Mby1M Virtual Accelerator Investor Forum: With Suman Talukdar, Founder and Managing Partner at AiSprouts.VC (Part 4)

Sramana Mitra: You have a relatively small fund at the moment. What are your thoughts about chasing unicorns versus chasing the 2x to 5x companies?

Suman Talukdar: I’m relatively new on the investing side, but I have had experience working with venture-backed companies. All the work and effort pays off when things work. When they work, they tend to work amazingly well.

Less than four percent of venture capital deals give you more than 10x. When those things happen, the returns more than make up for all the investment. To be effective in this area, you have to look for the companies that are going to have the outsized outcome even if the probability of that is low.

That said, if your fund strategy is amicable to having exits that are less ambitious, the better it is for the entrepreneur. A lot of funds push companies to go beyond what they necessarily have to. Some of the outcomes for the entrepreneurs aren’t necessarily aligned with what they thought was best for the business. A larger fund may prefer that a company goes to zero rather than have a small exit just because they want to push that multi-billion dollar outcome.

I am trying to get the next unicorn. One would more than enough pay for the entire fund. A hundred-million-dollar exit for my fund still will be acceptable. I am open to that, and I think that it positions me in a unique way with founders. I can be super founder-friendly. The industry also puts me in a friendly position because I am only playing the early rounds. If my ability to track capital from brands like Sequoia and others in the later stage, it’s only going to increase the likelihood of success for me in having a big exit. That’s the strategy that I have taken.

Sramana Mitra: Every week we have an investor talking about their investor thesis here. This has been going for a long time. We have hundreds of investors and their investment theses that have come together on this platform.

If I synthesize what I see, there is one category of investors who are chasing unicorns; and they don’t want to hear anything else. They will play the all-or-nothing game.

Then there is a relatively later development. There are thousands of micro VCs out there right now. A lot of entrepreneurs have made good money in the technology business and many of them have founded micro VCs. They have good hands-on expertise, so this is smart money.

From an entrepreneur’s point of view, this is an attractive capital. There is a recognition of the fact that most strategic exits happen in the sub-$50 million range. To play in that exit potential, you have to keep your capital expense efficient.

If you do capital-efficient business and get to enough validation and enough credibility, you can find strategic exits. That is a nice opportunity for small funds. That is one conclusion that I am seeing. This is what is driving a lot of funds’ investment theses.

The second one is that some of these smaller funds are also exiting in series A or B when larger amounts of money comes in. They have already taken you five years in a capital-efficient mode to get to the inflection point.

When the inflection point comes and the large amounts of money come in, it may make sense for you to exit. This is the synthesis of the space. 

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Suman Talukdar, Founder and Managing Partner at AiSprouts.VC
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