OK people, Quiz Time! In 1977, a postgraduate scholar walked into the computer lab of Indian Institute of Technology (IIT) Madras, but had trouble finding a User ID. 'Gopal' was taken. 'Gopi' was taken. 'Krishnan' was taken. His name has 'S' as an initial, which stands for his father's name, Senapathy. Who are we talking about? And what was the user ID that has stuck ever since?
Clue: the gentleman is an Infosys co-founder. Answer at the end of this column.
A couple of weeks ago, the said person's seed-stage investment company, Axilor Ventures, sprang up on my radar. Venture Intelligence data shows that three early-stage funds have been very active in India's nascent internet industry since 2013: Accel (six-year average of 29 investments), Sequoia (24) and Blume (18). But a Tracxn dataset brought Axilor in the active-investors mix in a stunning fashion. It showed the Bengaluru-headquartered fund to top the chart two years in a row!
Last month, Axilor had also won the Venture Intelligence APEX 2019 award for 'Accelerator of the Year'. So I had to check out the good folks, who have a charming and taut facility for startups in Bengaluru's JP Nagar. It turned out that startups analytics firm Tracxn had probably counted every seed-stage deal that Axilor has participated in with other VC funds' investments! Still, it doesn't take away anything from what Axilor wants to do: improve the odds of success for early-stage startups.
Axilor became active in November 2014, and is a Category 1 Alternative Investment Fund (AIF) that is Rs 200 crore in size. It is also an accelerator run by a nine-member team, which has co-invested in 42 deals in just over four years.
Priming for Market
“At the bottom of the pyramid, startups aren't unknown anymore,” says Ganapathy Venugopal, CEO of Axilor. “At the top, VCs have raised between $10 billion and $12 billion to invest in startups. We felt that the institutional capacity to support startups in the first 12-24 months wasn't there.”
The nurturing element is as much a question of 'how' startups are supported, as 'how many'. According to Nasscom's Tech Start-up Ecosystem 2018 report, at least 7,200 start-ups have been incepted since 2013. But there are only around 210 active accelerators and incubators, which is one for every 35 start-ups. If you include bootstrapped ventures, that ratio can worsen to one for every 150 start-ups, says Venugopal.
Thankfully, the problem is not one of money being available, as was the case until 2013. I looked up Grant Thornton's latest report 'The Fourth Wheel 2019' on the private equity landscape (See Figure 1). Average deal size for start-ups has risen from $3.6 million in 2016, to nearly $5 million in 2017—and $11.4 million last year. “Investors’ ability to mentor and nurture a start-up idea rather than just provide financial investment will be key to finding the right early-stage opportunities,” the Grant Thornton report had stated in early 2016.
The quality of startups is also improving in the early stages. And the number of startups getting funded has optimised to 466 in 2018, from the high of 680 startups in 2015. Venture capital investors have been focussed on fundamentals, with justification around valuations and scalability being key. The lesson from 2015 for the ecosystem has been to find startups, which are ready to run in the market it wants to make a mark in. Find
manythat have validated their business ideas.
Axilor's aim is to create that strong Pre Series A pipeline. So far, at least 10 of the 42 startups it has put money in since 2015 have seen Series A funding. So, what does this accelerator do?
Typically, Axilor picks companies in the first two years of its existence, which can go through three programmes. First, a 100-day programme as accelerator (idea to prototype) based on a grant for “growth experiments”. There are two batches each year. Each batch has a selection of 20-23 startups.
In 2016, each of the startups that qualified in the 100-day programme got Rs 25 lakh, in return for 10-12 percent of equity. The second programme was geared to take them from prototype to launch. Those that made the cut from this lot entered the third stage (launch to scale), where VC investors entered the picture, and where Axilor invested between Rs 1 crore and Rs 3 crore.
According to Axilor, selected startups now get a token of Rs 10 lakh. The seed fund, being an independent AIF, chooses among the best that the accelerator produces and even those outside its incubation programme. It invests an average of $0.5 million (up to Rs 3.5 crore) in such startups that are ready to scale.
In effect, there are three ways in which Axilor seeks to nurture the startup cohort. One, as a platform of corporates that startups can be connected to as potential customers or go-to-market partners, VC funds, academic and research institutions. Two, as a seed fund. And three, helping with the market networks to test and scale the product or tech-enabled service.
For example, healthcare startups work with or at the Mazumdar Shaw Medical Foundation, situated at Narayana Hrudayalaya Health City in Bengaluru. “Startups actually work out of there, and get clinical validation. We have also built networks with other hospitals like Cloud Nine and HCG, medical device companies, and so,” Venugopal says.
The past three or four years have helped Axilor build knowhow thanks to the startups they are raising in areas like industrial IoT (internet of things), healthcare tech, and content platforms. 70% of its portfolio ventures are B2B startups, which aspire to compete in global markets.
Venugopal calls the Axilor method 'programmatic'. His co-founder Kris Gopalakrishnan calls it 'modular'. “Take any task, break it down to sub-tasks, and look at: how can you eliminate that task, automate that task, and outsource that task by leveraging technology? Simplify, make it user friendly,” Gopalakrishnan once told me. Or, the Infosys Playbook. Four of Axilor's five co-founders are alumni of the IT services company. Prof Tarun Khanna of Harvard Business School is the fifth co-founder.
And yes, 'Kris' was the answer to my question. That was Senapathy Gopalakrishnan's user ID in IIT Madras' computer science labs. And he took the first name 'Kris' to Boston after he joined Patni Computer Systems. It stuck, didn't it?
Tech Trail is a column that delves on technology in the Indian realm. Kunal Talgeri is a freelance journalist in Bengaluru. The views in this column are those of the author.