1Mby1M Virtual Accelerator Investor Forum: With Swati Chaturvedi of Propel(x) Ventures (Part 3)

Sramana Mitra: Tell us about the types of ideas your investors are looking for.

Swati Chaturvedi: There is a big trend of combining hardware with software. Robotics is another trend. What is specific to Propel(x) is, we do need some specific innovation.

Sramana Mitra: When it comes to IT and specific innovation, there are niche opportunities that are not as easily open right now given where we are in the history of technology. Let’s say there’s a particular sector of cloud computing.

Within that, there are specific niche markets that are open where there is a certain amount of innovation where people apply to that. Is that considered innovation in your terminology or are you looking for something far more extensive when it comes to original innovation?

Swati Chaturvedi: It will depend on that particular instance, but yes, we’ve had companies that are innovating in cloud computing. For example, we have this company where it’s really a containerization of migration of data in the cloud. They have some particular innovations around that particular idea. We did get them on board.

We’ve had other companies that look at security in the cloud. Security, by the way, is another important trend. We have companies that use artificial intelligence that monitors performance. If we look at a company like AppDynamics, they’ll tell you what’s currently going on and then you manually have to take action. The next step is, can you automatically correct the system? We’ve had those companies as well. Absolutely, we consider that to be innovation.

Sramana Mitra: One of the observations that I had about AI trends is that the basic AI technology, whether it’s machine learning or natural language processing, is going to become commoditized. There are large companies that are working on trying to commoditize and make these platforms very easily available and usable by people who have domain knowledge in specific domains, so you can apply AI to solve problems within those specific domains.

People who are heavily investing in AI right now are looking for people who are domain experts who are applying that domain knowledge using some of these AI technologies and creating new solutions. The reason I bring this up is that the nature of innovation is changing and the point at which innovation kicks in gear is evolving.

That brings questions for your investor base. How would they view domain knowledge as the key unfair advantage in an AI venture? Those are the companies that are going to be valuable companies as opposed to people who reinvent the wheel every time.

Swati Chaturvedi: Absolutely. One of our screening criteria is, what is the application and do you have expertise in that particular industry? Investors do look for that kind of expertise. It’s not okay to be just a programmer. You need to have expertise in that kind of industry. You need to understand that business. You need to have a team that knows the industry well enough to sell the solution to the relevant people.

Sramana Mitra: What about stage? Are you looking for idea, customers, paying customers? What stage is the most comfortable stage for you?

Swati Chaturvedi: This is a very important question, especially for information technology companies. With other companies, it’s okay if you haven’t done customer development, but with information technology, they don’t need as much capital to get started. Therefore, it’s imperative that you should have done customer development in information technology.

What we are seeing is that the companies that are successful on Propel(x) have customers. For example, the company that I was telling you about that embeds software into chips that are then manufactured and sold by OEMs, they had some of the biggest names of paying customers. They have bootstrapped so far.

Sramana Mitra: This is the state of the union right now. You have to bootstrap for 12 months to 3 years to actually get to paying customers before angel investors are going to invest in you. That’s just how the industry is today. There’s no going around that fact.

Swati Chaturvedi: Just one more example, even companies that get venture-funded, VCs are also looking for paying customers. We had a company that does video analytics. Their innovation is that they’re able to recognize faces in the crowd which I think is very important. They have $3 million in sales and they’re looking for the first angel funding. They raised the angel round and also raised Series A fairly rapidly. They have been bootstrapping for a while.

Sramana Mitra: In our program, the philosophy is bootstrap first, raise money later. We have tons of companies, both case studies and portfolio companies, that have bootstrapped to $3 million to $4 million. We encourage that because that puts the negotiating power in their hands.

Nonetheless, because there is this myth in the industry where entrepreneurs think that they immediately need to raise funding, they ignore the signals that that is no longer the case. They’re just going to waste their time going to VCs and angels, and they still don’t get it and they still don’t listen. They eventually go out of business. If you waste your time chasing investors at the cost of chasing customers, you’re going to go out of business. That is just the reality that you have to come to terms with.

It was great to have you. Thank you for your time.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Swati Chaturvedi of Propel(x) Ventures
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