1Mby1M Virtual Accelerator Investor Forum: With Naganand Doraswamy, Managing Partner and Founder at Ideaspring Capital (Part 4)

Naganand Doraswamy: The fourth one is, we want to ensure that we have visibility for $10 million to $15 million. One of the thesis we have in the fund is to enable sub-$100 million exits for product innovation companies in India. If you want to get a $70 million to $100 million exit, you should have $10 million to $15 million in revenue.

Unlike large funds, our goal is, can you become a $10 million to $15 million company. You have an option when you get to that point. We stay with our companies until that point. Our fund can’t participate in Series B. Then we’ll make a call on whether we should exit or stay partially. If we decide to exit, that’s when we help the founders exit.

Sramana Mitra: I’m very much with you in this thesis. I observe that the vast majority of exits are sub-$50 million. For small funds, it’s a very good opportunity to do what you’re doing. What is the maximum amount of capital that you want to raise to support that thesis? Let’s say you exit after that Series A point. You’re putting in somewhere between $500,000 to $1.5 million. Then another $3 million round. Are we talking $5 million to $7 million capital?

Naganand Doraswamy: $5 million to $8 million. Four to seven years takes them to $8 million to $10 million in revenue.

Sramana Mitra: The traditional venture window is $100 million in five to seven years and a lot of capital. You’re saying you want to go to $10 million to $15 million in five to seven years.

Naganand Doraswamy: I find it very hard how somebody can get to $100 million starting from zero. There might be outliers. If you take a real case, 3-3-3 is considered extremely good in SaaS. Even in that case, you get to $10 million in five years. $100 million in five years are outliers.

Sramana Mitra: Unicorns are supposed to be outliers. Nowadays, unicorns are becoming an everyday feature. People are just pumping money and getting a billion-dollar valuation and calling them unicorns. My definition of a unicorn is this hyper-pace of going to $100 million in five to seven years. Then you get a revenue-based valuation. These other guys are all fake unicorns.

Naganand Doraswamy: I tend to agree with you to a certain extent. It’s hard to predict, but there will be some corrections I would assume. I look at revenue more than anything else. If you’re dependent on raising capital to survive, it’s a dangerous game to play.

Sramana Mitra: Have you seen exits already?

Naganand Doraswamy: We exited three companies. Five are doing $4.5 million. It takes time and patience to take them to $10 million. There’s another exit that’s happening which we’ll announce next month where we are getting a 10x return in two years. We are seeing that happen. We are patient capital. Building startups in India trying to sell to the US is not an easy game.

If you look at what the entrepreneurs were doing five years ago in India and what they’re doing today, there’s a phenomenal difference in their ability to sell and their ability to market, and the ability to build products with great user experience. We are very good technically but not too great at user experience and the ability to sell. It’s promising. The next decade will be fun to watch.

Sramana Mitra: It’s great hearing from you. Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Naganand Doraswamy, Managing Partner and Founder at Ideaspring Capital
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