Global micro-VC firm Momentum Capital looks to invest in 35-40 Indian startups in next few yrs

Despite ongoing funding winter, a lot of fund houses are sitting on loads of cash, that are ready to be deployed in coming quarters. Once the sentiment improves, fund managers are of the opinion that inflow will improve massively. Especially, many India-focussed funds have been raised, which put the country in a good stead as far as inflows are concerned. In a conversation with Bizz Buzz, Founder & Managing Partner of Momentum Capital, Ankur Shrivastava said themes like climate, healthcare and SaaS remain interesting in the Indian startup space. Momentum Capital is a global micro-VC firm with presence in Canada, US and India, and invests in Indian technology startups at pre-seed and seed stage in climate, SaaS, health and consumer spaces. Shrivastava is also the co-founder of Globevestor, a pioneering cross-border startup investment platform. He has earlier led Globevestor's investments in over 40 startups, including Zoomcar, Springboard, Agnikul and others. From his vast experience, he said the current funding winter is likely to continue for next 3-4 quarters owing to the macroeconomic uncertainty. As a seed stage fund house, he said risks can be mitigated through proper due diligence and right valuation measures. Momentum Capital is currently deploying funds in several startups across India and the US. The fund house eyes to invest in 35-40 startups in the next years in its desired themes

What are your views on the current funding winter? When do you see any funding recovery?

Three-four factors are driving the current funding winter. Firstly, there is an uncertain economic environment. Secondly, there is interest rate hike across the globe. How it is impacting the startup ecosystem is cost of capital increases and then, it impacts the late state funding which are usually big in nature. As the late stage funding dries up, it also has an impact on the early stage funding as well. There are questions raised around the valuation and other metrics once funding dries up. Moreover, edtech and fintech like firms have been impacted with physical channels coming back to normal. So, they face the pressure from offline channels. So, it is a mix of three or four factors that are responsible for present state of affairs.

Now, we see banking crisis in the US and Europe. These are the second order impact of high interest rate. So, I think, we are still three or four quarters away from recovery given the banking sector coming under pressure, late stage funding not picking and other factors.

What are the key learnings for all stakeholders of startup ecosystem including founders, investors, fund houses and others from the current crisis?

One thing that comes out of the whole crisis is that it is a cyclical process. Economies go through upcycle and downcycles. It is similar in case of startup funding. There are positive sides to this event. Firstly, it brings sanctity and the other is India remains a market of interest in global stage. There has been a large amount of capital raised, which is waiting to be invested in India. That has not been deployed yet. There is a lot of dry powder and that capital has to be deployed. So, India remains in a strong position to see a strong inflow once the recovery happens. The first learning is the strength of business fundamentals is important. The second thing is that there was a bit of exuberance in terms of valuation, that leads to all sort of excesses. Therefore, current funding winter teaches that founders have to keep their teams lean, focus on business fundamentals, and hire very judiciously.

If you look at the IPOs that happened in previous years, that was one good thing that happened in Indian ecosystem. The listings showed that eventually, there is an exit available. Now, the question arises about the valuation. These questions are not limited to India. Rather, these are global. If you look at the RHPs that are withdrawn, then you can see that there are concerns about the valuation of these companies in the public market. So, it is a maturity phase. India has not seen many startup listing in the public markets. Earlier, there was no benchmark prices (with regard to IPOs). Now, these are slowly maturing and we can say that the trend is towards that.

How old is the Momentum Capital and how many funds are operating under its fold? Which sectors are under the focus of the fund house?

This is our first fund and the idea of this fund is to invest in early stage ventures in India and the US. In our earlier fund- Globevestor-, we have invested in founders in both India and the US. We invest in seed-stage businesses and continue in that journey. We are pretty excited about India as a market. We are a sector-agnostic fund house. As far sectoral focus is concerned, we are excited about climate. We think, it is high time that technology solves the problem of climate-related problems. Second space, we are excited about is healthtech. We are of the opinion that a large untapped potential is there in the healthcare segment in India. Therefore, healthcare is a big opportunity. The third thing, we are excited about is SaaS (Software as a Service). We think not only India as a market is growing, there is a big enough opportunity for building SaaS firms from India serving the world. There are a lot of good companies that have come up in SaaS space but I think, we have just scratched the surface. So, we are pretty excited about India and we are very optimistic about Indian founders’ ability to build products and services for global markets.

Usually, fund houses focussed on early stage funding have to deal with a lot of risks owing to the initial uncertainty attached with a venture. How do you mitigate those kinds of risks?

I think, that is the deal in the venture capital game. We are a very high risk, high return fund. The thumb rule is that we expect 10-15 per cent of our portfolio doing extremely good. We don’t expect all the companies to do good. In our kind of funds, we have to identify those founders and invest early. Another aspect of minimising risk is to invest at the right price. As you must have seen, the entry price was inflated in past years. Now, it is much more sensible. Secondly, there are many serial entrepreneurs setting up ventures. Also, there are many employees of big startups setting up their own businesses. This was not the case 10-year back. So, this has helped in knowing the founders better. In a way, this has helped in mitigating the risk to an extent. When we invest, we do our due diligence. We also leverage our network. We have eminent people as advisors in our fund house. We take advice from that panel.

As far as deployment of fund is concerned, we are very actively deploying. We are actively investing in startups working in the climate, health and SaaS spaces. Typical investment size is in the range of $150K to 200K. We are looking at investing 35-40 companies in the next few years.