1Mby1M Virtual Accelerator Investor Forum: With Rahul Chandra, Managing Director at Arkam Ventures (Part 4)

Rahul Chandra: I very strong selection criteria that have a lot to do with growth. Growth is a big factor. Let’s say I’m part of a micro-finance investment cap table. My response is, in India, if you’re not doing things with the right scale, it’s not going to mean anything.

It’s a lot like how impacted investors invest which is not expecting the same financial metrics to come too soon. You give companies time to grow. In that interim, things look crazy.

In our portfolio, we have two sets of companies. One is the market creators who are doing new markets. The other set are market enablers. Both have an equal chance of high outcomes, but we feel that the creators need to make sense to millions and millions. That growth is one million to ten million, ten million to fifteen million.

I’m seeing enough evidence that once you have enough critical mass, companies are able to ramp in hockey stick fashion. You look like you have very non-commensurate revenue to your valuation. Suddenly, there is a big hockey stick of revenue growth.

Sramana Mitra: That was my observation when we did the 20 Indian unicorns. The investment thesis is growth and large TAM. Basically figuring out the customer acquisition path and then flushing that path with capital.

There are two constraints on whether we can build these large-scale companies rapidly. One is on the investment side. There are not ttat many players who can play this game. On the other side, there are not many companies that can play this game either.

We have 45 unicorns in one year. Is this a sustainable pace? What is your read?

Rahul Chandra: The excitement is about how many large, deep problems India has. At the end of the day, it’s a private valuation with an estimate of future growth which is humongous. India has consumer demand. Now here are people who are delivering on this delayed monetization of growth. 45 was a pent-up number that happened in a high-growth year. Is there enough pipeline to keep doing this at 50% to 70% a year? There are plenty of companies that have that potential.

Sramana Mitra: What is your prognosis of the other forms of building businesses which is the more fundamentals-focused. Relatively speaking, more conservative. Build businesses with limited amounts of capital. There are lot more investors who can play that game. Are you seeing entrepreneurs getting confused by the trend? Do they have their heads straight that there is another way of succeeding as well?

Rahul Chandra: The kind of markets where growth is necessary are winner-takes-all markets and have a strong network effect. Those, clearly, need big checks. Building it slow there is tougher. It’s also the kind of entrepreneur. There are plenty of solutions where capital is not going to make a difference.

Sramana Mitra: The other comment that you made about winner-takes-all companies, there are sectors where winner-takes-all is dynamic. FinTech and health tech are not necessarily winner-takes-all markets. Look at banks. EdTech is definitely not winner-takes-all. HealthTech has so many different kinds of hospitals. I was looking at one of the unicorns that’s creating surgery infrastructure. That’s fantastic, but that doesn’t mean that all the existing surgery infrastructure is going away.

Rahul Chandra: Winner-takes-all means winner takes all the cash. There is a massive concentration of capital that happens to a potential winner. Now this company can afford to just offer better terms and run in a much more non-sustainable way than the others. Then you need to have that mindset of stamina and marathon. Keep the FOMO out. It’s very stressful to keep hearing this chatter about funding.

Sramana Mitra: I’m a big fan of bootstrapped companies. In some ways, it’s easier for a bootstrapped company to deal with that situation than a midscale-funded company. If you’re on the funding track and you’re not getting the funding, somebody else is. That’s very distracting. If you’re a bootstrapped company, you’ve decided that you’re not going to go for that mode of growth. The chatter is less distracting.

Rahul Chandra: The decision has to be made upfront. You get cornered into a certain business model. Now you start building a low-margin and high-burn business because you think you got to compete. Then that somebody gets the much bigger check. You have this high burn business.

Sramana Mitra: Wonderful conversation. Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Rahul Chandra, Managing Director at Arkam Ventures
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