Letter to Angels
Another quarter, another report, another opportunity to share the excitement that is this journey to becoming the Best VC fund in the country. They say when the root is strong, the fruit is sweet. With your continuous support and guidance, we continue to build stronger roots. In September 2016, Team YourNest got a big boost with the joining of Dr Vivek Mansingh as a General Partner. It now gets another fillip with Satish Mulugavalli adding his considerable expertise to YourNest and making the YourNest team the most unique and powerful team for any pre-series A fund anywhere!!! We now have strength in technology, business building and exits along with a strong presence in south and north India. And this benefits both Fund 1 and Fund 2.
It gives me a lot of pride to share that our Advisory Board has been strengthened with the joining of Mr Sharad Sharma, Ashish Gupta and Dr Rishikesha T Krishnan. You will find more details about them in the report.
In the recent past, the startup world has seen a number of delusions erased. It has been rocked by news of devaluations, closures, and of supposed fund paucity. And in all this, your invested companies have been steadily growing in value, with 9 of them having crossed annual revenue run rate of USD 2 million, 9 having received higher value up rounds, host of acclaimed VCs and investors like IDG, Kalaari, Venture Nursery, Mr K Gopalakrishnan, etc. co-investing in your companies, and the NAV continuing to grow. These small developments feed our hunger to work harder and better to deliver on the potential of these fantastic companies in our portfolio. Let me borrow a phrase from Bob Marley : Though the road’s rocky, it sure feels good to me.
The famous poet Kabirdas ji said:
Dheere dehire re mana, dheere sab kuchh hoye
maali seenche sau ghada, ritu aaye fal hoye.
Meaning: The gardner toils for years and keeps on watering (nourishing the plant). The fruit appears when the season is right.
The signs of the right season are on the horizon.
Sunil K Goyal
Even before the printer’s ink dries on this letter, the world, as we have known it, would have changed AGAIN. Recently there was the Brexit. Then Prime Minster, Mr Modi’s waving of the wand to make the high denomination notes disappear. And now the incredibly tight competition in the US presidential elections which would yet again bring forward a momentous change in American real-politic.
That the world changes continuously and rapidly is known to all. That change happens to us is experienced by all. That we are gainers from it, happens to very few. In fact, Dr Ken Robinson, in his famous Ted talk, points to the need of bringing children up with one critical faculty – to learn to deal with an unknown future. A future that is not just unpredictable, but a completely uncertain. Those that develop the ability, are the eventual winners.
Your company, YourNest, has been built around this very concept – of creating the change that is called the future. Every generation, every civilisation that has grown has been able to adapt to change, and meet changing expectations. The very best have led by defining the change.
Our 16 invested companies from the first fund – into which we started investing 4 years ago – are building businesses on the needs that seemed futuristic then but are already pressing demands. They will be showcasing their capabilities during the Investor meet on 12th November, 2016.
But change is so rapid in today’s technologically driven world that a new series of challenges await us as we move into the future. Our recently launched 2nd fund is aimed to help build the companies that will solve the problems of that fast approaching future.
Many of us have missed out on opportunities in the past. They say opportunity doesn’t knock, it sneaks it quietly. But we are announcing it loudly. This time in the form of YourNest India VC Fund II. I invite you to strengthen your hold over the future by participating in this fund. You will find the details of the fund on the next page.
With building excitement over the unfolding future.
Sunil K Goyal
A Zen saying goes : The value of a room lies not in its walls but in the space within.
While the walls provide protection and define the space what can happen within those walls is what really matters. And so it is with any Venture Fund. The fund size and investment thesis are the walls that provide the space within which the exciting play of nurturing great ideas into great companies takes place.
Our first fund of Rs 90 crores (USD 15 million) provided the space and security to 16 ideas – curated from 8000+ proposals – to be nurtured in their early growth. It has, in its 5 years of existence, endured zero-mortality, enabled by a high-touch engagement model of the 3 Fund managers, 4 advisors and multiple mentors and coaches. The fund is poised to deliver attractive returns – we see a clear opportunity for an over 40% IRR – as many of the invested companies get into the next growth rounds.
In these 5 years we have built together a strong foundation for early stage investing, validated our investment thesis and are now become convinced we have a winner on our hands. It gives me great pleasure to announce that we are ready for setting up a bigger sibling fund.
Welcome, dear Investors, to ‘YourNest India VC Fund II’ – Rs 300 crore, SEBI approved fund with a plan to invest in 25-30 startups, in technology and technology enabled opportunities, with focus on companies solving the needs of the digital ecosystem by leveraging Internet of Things, Electronic System Design, Artificial Intelligence, advanced Robotics, Mobile Internet, Cloud Technology, Digital Payments, verifiable digital identity, and automation of knowledge work.
Fund II will continue to focus on us leading the early stage (Pre-Series A) investment rounds in these hand picked companies. The Fund is open for subscription for you to continue to invest in disruptive technologies, with the cash outflow for the investment spanning over next 6 years.
It is with tremendous joy that I share with you the coming on board of Dr Vivek Mansingh, as a General Partner in YourNest. Dr Mansingh is currently the Chairman of AxisCades, and brings an enviable record of building and leading technology giants like Cisco and Dell in numerous capacities. He is also a researcher, with many patents to his name, a committed startup investor, and cherished mentor and brings with him decades of experience from the world of technology. On behalf of all of us, I take this opportunity to welcome Vivek aboard YourNest.
I also take this opportunity to express our deepest thanks to Religare and their entire team for having been the bedrock of dependability and support throughout their association with us and in helping raise our first fund. It is with regret that we bid adieu to them as they exit various asset management businesses, including YourNest, as part of their internal restructuring exercise and wish them success as they continue to lead in their chosen areas.
As a final word, I look forward to meeting you all at the Investors Day to be held on 12th November, 2016 in New Delhi for which you will soon be receiving invitations with details.
Best Best Wishes
Sunil K. Goyal
September 15, 2016
Spinoza said, ‘You must look at things in the aspect of eternity’ and Ben Graham made it a basic dictum for his tenet of value investing. And that, indeed, has made the difference in the way we have been selecting our investee companies – not ones that will blink fast and disappear, but ones that may survive the test of time.
What a year 2015-16 is turning out to be 3 years into its journey, YourNest began 2015 with 7 investments. In the course of first nine-months, there were external up-rounds and bridge funding in 5 and an equity swap in one.
There was more action in these 3 quarters with 5 new investments completed, and 3 more in the final stages of completion bringing the search for portfolio companies in the current fund to completion. And your fund now has presence in most ‘hot’ sectors – Consumer Internet, Online Market Place, Market Aggregation, B2B Marketplace, Software as a Service (SaaS), Platform as a Service (PaaS), Marketing-Tech, Heath-Tech and Analytics.
As the infant VC- space grows into a toddler, it is showing quick signs of maturing. To begin with, marquee VCs have raised large India focused rounds (USD 2.5 billion, at last count) for investing in the Indian growth story. This capital commitment promises that fund allocation for start-ups continues to be buoyant. There is, also, a clear change in approach from quick exits to nurturing businesses to their full potential. The Swedish investors AB Kinnevik recently stated ‘Many investors, not in a hurry to monetise’. There is also a visible shift from ‘scattering funds, to deeper commitments.
In another great sign for the industry, the government too has shown decisive, positive intent with its commitment for the sector, highlighted by a slew of initiatives. “Start-up India Stand-up India” is paving the way for ease of doing business, attracting domestic and foreign capital to the start-up ecosystem, incentivising entrepreneurship, and encouraging industry academia partnership. Further stimulus is expected as the government readies to act on an extensive report by the “Alternative Investment Policy Advisory Committee” headed by Shri N R Narayan Murthy.
The RBI too has stepped in to nourish the toddler industry, with Mr Raghuram Rajan making a commitment to ‘take steps to ease doing business and contribute to an ecosystem that is conducive for growth of startups. The RBI plans to help startups across sectors receive foreign venture capital investment and also enable transfer of shares from foreign venture capital investors (FVCIs) to other residents or non-residents.
YourNest has a young portfolio. The average investment holding period is only 15-months. Our focus is to nurture them speedily to their full potential, and we actively invite you to support these start-ups to leverage your areas of strength.
“And once you are awake, you shall remain awake eternally.” ? Friedrich Nietzsche
Sunil K. Goyal
January 31, 2016
With the new policy for Setting and Managing Venture Capital funds in India announced by RBI, manage in India is set to become a reality.
RBI last week has allowed FDI on automatic route in Venture Capital Funds (VCF) and Private Equity (AIF). With this, the long standing demand of the India VC industry for unshackling has been fulfilled by the Government and augurs well for local fund managers like YourNest. It will ease access of risk capital for startups and unlisted companies and investment by a India managed Fund like YourNest shall be treated as domestic capital, even if significant corpus of the underlying fund is raised overseas.
The Reserve Bank of India (‘RBI’) in order to further boost the entire investment environment and to bring in foreign investments in the country has recently permitted foreign investment (by Persons Resident Outside India including NRIs) in Investment Vehicles [defined to include SEBI registered Alternative Investment Fund (‘AIF’), Real Estate Investment Trust (‘REIT’) and Infrastructure Investment Trust (‘InvIT’)] under Automatic Route.
A link to the press coverage received by the announcement is embedded here.
This week, Washington Post also did a story on Risk-averse India embraces Silicon Valley-style start-ups“. It covered YourNest and MyCity4Kids to showcase how India start-up scene is gaining traction and new age angel investors are getting attracted to this asset class.
Sunil K. Goyal
November 30, 2015
The quarter gone by has been quite mixed in terms of the way the ecosystem has evolved.
On the brighter side, there were things like more and more companies getting into the USD 100mn valuation window (63 in October 2015 vs. 39 companies in May 2015), and new initiatives by the government in the form of Start up India – Stand Up India.
On the flip side, valuation expectation hit a new high, and your Fund chose to walk away from a few start-up deals due to expectation mismatch with the entrepreneurs. There is even news of some high profile startups shrinking operations due to lack of follow-on investments. While this looks like a downtrend, the softening of valuation – post market over-exuberance – is good in the overall interest of the eco-system and can be viewed as a market correction. And in-spite of the very large number of engineers graduating from Indian Universities, talent availability for tech-teams continues to be a challenge. We hope the situation may start to ease given softening of quick up-rounds in cash burn business models.
Another interesting development is that YourNest’s investment thesis – which is focused on revenue earning business models – is gaining more relevance with every passing phase in the evolution of the VC industry internationally impacting on the selection criteria for investing in businesses. Even as we go to the printers, we continue to pursue due-diligence in Arya (deep learning platform), Momark (customer engagement platform for offline retailers), Aahaa Stores (B2B supplies platform) & OpKey (testing automation platform) in keeping with our investment thesis.
In another development, Oct’15 saw fresh up-rounds in –
- MyCity4Kids (2x of our entry price)
- Simpli5d (3x of our entry price)
- Betaout (1.12x of an accelerator round)
All this will continue to impact positively on the overall NAV of the fund. You may have come across an announcement made on Bookmycab’s merger with Jugnoo, however, the fund raise did not go as envisaged for the merged entity. Since then, we have identified another opportunity and are in an advanced stage for closing the deal with another existing market player.
You may recall that we had on-boarded two institutional investors in June’2015 namely, IIFL Seed Ventures and Northgate Capital. They shall be playing an important role at the Advisory Board level, particularly with a focus on recommending and approving changes in the interest of fund and the investors. In a meeting held on Nov 9th 2015, the advisory board has recommended some changes in PPM. We shall be sending these for your comments and approval shortly.
We at YourNest wish you and your families a happy and prosperous Samvat 2072.
Sunil K. Goyal
November 20, 2015
This report comes to you after a gap of 7 months. While we have been sending you updates in various ways, the closing of YourNest Angel Fund – Scheme 1 and its related activities – have led to the missing of an interim report. Thank you for bearing with us.
We take this opportunity of thanking all our investors whose vision has enabled us to close our First Fund with a commitment of INR 83.40 crores (INR 834 million). YourNest is a tale in the making – a tale of the commitment of 145 visionaries, the support of 3 institutions, and of the dreams of India’s future.
‘From little acorns grow big oaks.’
And they grow at their pace – nourished by nature’s bounty. So too will our little startups grow into mighty corporations – with the nurturance, support, guidance, energy and effort of all the stakeholders. Each of them treads a path unknown. These entrepreneurs chucked up cushy jobs and opportunities in the forefront of creating a better future. They are our true heroes. They are the ones we bet on.
And this is a serious bet. In Q1 FY16 the number of deals received were 760 as compared to 260 a year ago. Of these very few passed muster and won our confidence. Since inception we have committed funds and support to only 7- and are in advance stage of investment assessment in another 5 – OpKey, InvenZone, BestDealFinance, Aahaa and MoMark in these 2 quarters bringing the portfolio companies to 12 within this calendar year –
- Opkey – Software testing automation platform that allows non-technical people to write effective automated tests while making testing 50% faster and 50% efficient from its current avatar.
- BestDealFinance – Company runs an online marketplace for financial products through which individuals & SMEs can find the best product for loan/credit requirements based on the matchmaking algorithm & integration with financial institutions.
- InvenZone – Building Artificial General Intelligence – ‘Arya’ to make information retrieval simple and easy.
- Aahaa – Online Office Superstore for all Indirect Product Purchases. Company offers corporate customers an easy and information-rich online ordering portal that features a catalogue of all indirect products they need on a yearly rate contract.
- MoMark – Company transforms offline merchants by capturing customer transactions, perform analysis, offer engagement and enrichment to consumers, without any IT at their end, while enabling them to compete with e-commerce like intelligence.
Going forward, there are some very exciting opportunities we are addressing at the moment in spaces such as Mobile Internet, Market Aggregation, and Internet-of-Things (IoT). These brilliant ideas with strong business plan and supported by strong teams are our likely future investments.
Out of the total Corpus of Rs.83.40 crores, we have committed nearly 60% to these 12 start-ups. We are well positioned to make additional commitments and achieving a strong portfolio of companies within the Capital Commitment period ending on March 31st, 2016.
Sunil K. Goyal
September 22, 2015
Interest in early stage investing in India is seeing an unforeseen frenzy. More and more eminent personalities – be it Mr Ratan Tata, or Mr Azim Premji – are getting on the bandwagon as are large corporations. The leading consumer Internet players such as Flipkart, Snapdeal and even the established technology player like Infosys have set-up internal Mergers & Acquisition teams with a firm eye on this market. Clearly, early stage investing is here to stay.
We, in India, often see the value a business creates for the investors during exits. Exits are the primary source of value realisation for early stage investors. Recently, Twitter acquired ZipDial, a start-up where the angel round was led by one of the founding members of YourNest.
YourNest entered a new phase in this quarter with Religare Global Asset Management (RGAM) becoming our partner in the Asset Management Company (AMC) along with committing capital as Co-sponsor in the Fund. RGAM, as many of you might already know, has a stated policy of partnering with best of breed asset managers in various alternative asset classes and has established itself as a multi-boutique asset management platform. RGAM’s affiliate Northgate has USD 4.2 billion Assets Under Management (AUM) as a Fund of Funds and direct venture capital with strong relations within VC industry in US. Through this alliance with Religare, YourNest gets access to the hotbed of new ventures and venture capital – the Silicon Valley.
On the portfolio front, we are glad to inform you that YourNest has invested recently in our 6th Portfolio Company – www.golflan.com. Golflan is in the pioneer in online aggregation in the explosive growing international golf market bringing easy access of Golf courses for golf enthusiasts around the world. It has a unique gold tee-time booking mechanism for its members and golf-concierge facilitation for banking customers of leading credit card providers. Its business model allows it to create values in multiple ways and is YourNest’s first investment in the lucrative sports market. With this funding Golflan will be able to strengthen its technology product platform allowing it to offer more services and the develop the network of golf courses.
The opportunities pipeline continues to grow and the quality of deals has also shown a marked improvement, indicating more exciting times ahead. And with the pace of contributions to the fund picking up we are very excited at the prospect of having great companies to invest in and enough money to see them succeed. And make you, dear investors, very happy.
With best wishes for a great Budget
Thank You and Best Regards
Sunil K. Goyal
February 25, 2015
In my earlier letter, I had stated that we have never seen such “across the board” optimism in the country. I had not imagined that it will morph into the kind of snowball that it has for YourNest in particular, and the start-up ecosystem in general. We have seen enhanced activity in our deal-flow, wherein we received more than 460 investments proposals this quarter, almost 3 times more than last year. This results in YourNest having a very healthy pipeline of investible start-ups for the next quarter.
I am glad to inform you that we have signed to invest in our 5th portfolio company – www.nlpcaptcha.com. NLP Captcha offers brand engagement with “guaranteed customer attention” & “better recall”. It is about to change the evaluation criteria in digital advertising. While we signed the SHA, they made their first international sale in Spain with Bridgestone as a client.
Last quarter, post Facebook’s acquisition of Little Eye Labs, Yahoo announced its first ever acquisition in India, that of Bookpad. We see this trend only increasing as large global corporates eye innovation led Indian start-ups as they build scale on the back of 600 million plus internet connected Indians in the coming 3-4 years. At YourNest, we are already building businesses for acquisition by such global giants.
We have planned for a meeting of all our investors this quarter and are bringing the founding teams of our portfolio companies together to interact with you. The first “YourNest Investor Day” is planned in Delhi for Sunday, November 30th, 2014. Please do block your calendars and look forward to a detailed agenda before the end of this month.
Seasons Greetings & Happy Diwali
Sunil K. Goyal
October 20, 2014
The mood in the economy is definitely on the upswing. The outcome of the largest electoral exercise conducted on this earth, and the subsequent policy actions of the new government has filled each one of us with hope and expectations of prosperity. Some of the lead macro-economic indicators are being seen as harbinger of good times.
In my career, I have never seen such “across the board” optimism. This is despite the fact that I was fortunate to start my career in an economically independent India of the 90s. Hopefully, effective governance and prudent fiscal management will now support our economic freedom. Going forward, each incremental effort of our nascent start-up ecosystem and entrepreneurs should yield exponential rewards.
These are still early days, and words have to be followed up with concrete policy action when it comes to good governance.
At YourNest, we too are experiencing the exuberance that is being felt in the general economy and are moving forward with confidence and conviction. This is reflective of the rising investor trust and confidence in start-ups through fresh capital commitments into the fund starting April’14.
At the portfolio level, MyCityKids is consistently improving its engagement with the parent, as is evident in the ever rising global alexa-ranking that it enjoys, with non-paid (organic) traffic close to 90%. Bookmycab continues to grow at 10-15% month-on-month with soft launch in Kolkata & plan for Delhi in the coming months. Uniphore is on-boarding an investor with deep pockets and international exposure. PoP is democratizing its analytics to win the confidence of industry players.
Sunil K. Goyal
July 11, 2014
In keeping with our philosophy of investing in cutting edge ideas with sound teams, we are happy to announce our 4th investment in Chennai based Uniphore Software Systems. The startup was incubated at Indian Institute of Technology, Madras (IITM) and operates in the speech recognition and voice biometrics area. Uniphore has already built sizable recognition and is serving 3 million customers and 30 clients in the fields of agriculture, banking and insurance. The company is the first to offer voice solutions in 14 Indian languages and is building an impressive client list that includes global MNCs like Amex & Airbus.
It was with a sense of elation that we received the news of ZipDial being ranked 8th amongst the “World’s Most Innovative Companies 2014”. This Indian company’s innovation of “engaging customers on a missed-call” competed with established players like Google, Dropbox, Airbnb, Nike, Apple, Amazon and so on. It was a big fillip to our belief in the ability to identify bright ideas as I had led the angel investment in ZipDial.
Innovation, and not revenue, defines the value of a company has been brought into the spotlight with facebook’s declared valuation of USD 19 billion for WhatsApp. It is a resounding affirmation of YourNest’s investing philosophy and once again highlights the opportunities that tech and mobile spaces offer for value creation.
While worldwide the economies and polities, and even the weather have been disrupting daily life and creating setbacks due to tumultuous changes, the angel investors and innovators are a tribe that thrive on it. The best times are yet to be, and as the poet said:
“Grow old along with me
The Best is yet to be.”
Sunil K. Goyal
February 26, 2014
YourNest’s entrepreneurial journey, that started 20-months ago, has helped us gain perspective on various parameters of success for an early stage fund. We believe smart investors demonstrate capability to invest in the right idea, early. They are not only supportive, collaborative and friendly but also back the venture & stay invested. This helps build successful, performance centric teams and creates powerful brands. Most importantly, they know when to exit.
Our belief that “people – their vision, beliefs, values, individual initiative, creativity and experimentation – rather than the technology or the business models, drive the start-ups”, is strengthening. It is all about execution, for us, to enjoy a healthy strategic exit. Execution for a start-up does require entrepreneurial freedom and a talent pool.
In the last few months, we saw our start-up creating value through their initiative and experimentation –
- Bookmycab smoothly transitioned to a proprietary technology solution that is enabling its “booking revenues” to grow at the rate of 20% month on month.
- MyCity4Kids has conceptualised and launched a new product offering branded as mycity4kidsCAN that helps brands engage on India’s largest online platform for Parents/Mothers. The unique mycity4kidsCAN proposition is based on 3 pillars: Unique, curated and parent-sourced CONTENT; Sharply segmented AUDIENCE of Parents; and Specialized NETWORKS to engage Parents.
- Proof of Performance (PoP) has attracted a CTO who is enabling them to improve the effectiveness of product offering and delivery. The search for COO/CEO is still on-going at PoP, even as they bag initial orders from Lintas (for Hindustan Unilever), LG, Star TV, ITC, Dabur, Wave Infrastructure to name a few.
We stay committed – to our investments and participation in subsequent rounds of funding in our portfolio companies.
Sunil K. Goyal
November 15, 2013
‘India has the youngest growing population in the world. And that population is as innovative as its counterparts in the ‘developed’ countries’ – says Dr. Nirmalya Kumar, Professor of Marketing at London Business School. Over 750 R&D centers have been set up by MNCs in India employing an astounding 400,000 professionals, he points.
Schumpeter, one of the most influential economists of the 20th century, said innovation is critical to economic change. This economic change revolves around innovation, entrepreneurial activities, and market power. The drivers of innovation or technological change of a nation comes from entrepreneurs or ‘wild spirits’. He argues that technological innovation often creates temporary monopolies, allowing abnormal profits. And this is what any angel fund aspires to sow and reap.
In the last 12 months we have witnessed a vibrant brand of innovation unfolding in the lesser-known early stage entrepreneurial market. We received a slew of new ideas – an average of 75 new proposals every month – across industries, and across domains. They are a mix of product and process ideas, complex and simple constructs, audacious visions and opportunistic responses. The brains behind them are brimming with energy and optimism and represent the DNA of an ambitious, confident, risk taking, entrepreneurial India.
In his TED talk in 2005, Richard St. John revealed the 8 secrets of success – Passion, Hard Work, Being the Best, Being Focused, Pushing Oneself physically and mentally, Serving Something of Value, Having a great Idea and Persistence. These have been the hallmark of the 3 companies we have invested in viz. Proof of Performance, MyCity4Kids and BookmyCab. Their journey has just started, but each of them demonstrates a strong belief in their ideas, astonishing energy, dogged perseverance and indefatigable spirit. All they want is the chance to prove themselves – and your best wishes.
We at YourNest feel the exhilaration – as well as the anxieties – of a one-year old entity as we complete our first year of operation. Your trust and confidence in us has made this a memorable and eventful year. The challenges of FY13 have been educational and the developments have reinforced our belief in our business and business-model.
Sunil K Goyal
June 27, 2013
Startups need continuous nurturing and lots of nourishment – emotional, intellectual and financial. As with children, the initial phase puts into place the organisational values, strengthens entrepreneurial belief and lays down the DNA of a process driven organisation with objective decision making capabilities. And so it is with the first 3 startups your fund has invested in. Plans are detailed, checklists prepared, projects activated and monitored, the best teams identified and put through the paces to build synergies -victories celebrated.
In the coming quarter, each of the 3 portfolio companies will have crossed the 300 day landmark post investment, allowing us to assess growth and development, hits and misses objectively.
MyCity4Kids demonstrated true entrepreneurial instinct capturing an opportunity during Diwali. It tested a new entry pack that received tremendous response. Having now got its top team in place and a fully manned organisation, there is palpable excitement about potential growth in the coming quarter.
Proof of Performance (PoP) has won a prestigious contract from DAVP, the advertising arm for the Government of India. During last quarter, the product offering has been customized for media industry & advertisers by a team of three industry veterans working with PoP as consultants. The solutions are being recognised as ‘need of the hour’ by the Industry and we expect this to convert into substantial revenues in the near future.
Bookmycab has already made its presence felt in Mumbai and we are very pleased with the way the brand has become visible in the city. There have been some niggles in the technology platform but those are getting resolved even as I pen these lines. With some key senior team members likely to join in the next few weeks, and technology stabilising, there is an expectation of large scale ramp up in business. There is a positive trend in connected cabs coming for recharge. The advertising space is also showing progress with the first advertiser renewing the contract post a 30 day trial. Life has just begun at Bookmycab.
We had to let go of some apparently good opportunities after investing substantial time. The robustness of our due diligence process highlighted potentially drastic shortcomings in a venture that we had issued a term sheet to in Sept’12. This is the third deal this year that we did not go ahead with, post issuance of the term sheet. On two occasions, it cost the company broken deal cost.
The quality of deal flow is continuously improving. More and more budding entrepreneurs are reaching out to YourNest. We received over 800 deals in the year 2012 and 2013 looks even better.
Sunil K Goyal
January 31, 2013
‘The times, they are a changing’ – must be the most repeated statement and yet it holds true every time. “Every crest is followed by a trough, and the trough, inevitably, by the crest.” And so the waves of fortune lap the shores of effort. The best amongst us know how to make the most of the changes, and use changing situations to change fortunes.
YourNest endeavors to find those Indians and Indian businesses that seek to dive deep into the ocean of opportunity and reap the pearls of its great bounty. Since our first close, we have invested in 3 such ideas. And in a short time, these warriors of the corporate world have grown – to over 100 bright, energetic people, 3 completely different businesses, in an investment of just around ?4 crores. We continue to search for the brightest amongst the bright ideas and the most passionate amongst the passionate.
We have also actively supported our investee companies in building their teams, encouraging them in their effort to enhance speed to market and product development. We have tried to be sounding board for their ideas, and encouraged them to develop roots and wings – wings to soar high, and roots to remain firmly grounded in reality.
The changes around us are also palpable. This year has witnessed a major fillip for “angel funding and early stage venture capital” with a comprehensive recommendation by Planning Commission committee on “Creating a Vibrant eco-system for entrepreneurship”. YourNest, we are proud to share, is championing this cause and is leading representations with relevant ministries for spreading awareness on how they can enable Indian start-ups and early-stage venture capital to prosper.
India’s presence in the start-up world is on the up. A recent study by Kauffman, the foundation for entrepreneurship highlighted that of the immigrant founded tech-companies in US 33.2% of the President, CEO, CTO’s are of Indian origin. Indians have founded more such companies than immigrants born in the next top seven immigrant-founder-sending countries combined (China, the United Kingdom, Canada, Germany, Israel, Russia, Korea, Australia, and the Netherlands). The genes have always been there. All that’s needed is a more fertile eco-system in the country. And with your support, foresight, and encouragement, YourNest will endeavour to continue to build on the opportunity that every change presents.
In the end, I would like to extend Seasons Greeting and Warm wishes to you and your family from the YourNest team.
Sunil K Goyal
November 6, 2012
The year 2012 has started on an encouraging note for early stage venture capital and angel investing in India.
The regulator formally acknowledged that venture capital has positive spillover effect on the economy, and has formulated Regulations imparting higher level of transparency & disclosures. The Finance Bill 2012, has clarified the tax pass through status for investors in SEBI registered funds, and also extended concessional tax rate of 10% on the long-term capital gain from investments in Venture Capital Undertakings by a Foreign Investor (this is in addition to 10% rate for the Non Resident Indian).
The momentum has continued in this space with over 50 investments announced in Q1 on the back of nearly 200 investments that were made in 2011. The enhanced activity being seen in the early stage is visible from the multipilicity of platforms that the entrepreneur has access to as they conceptualize and execute on innovative business models. These include programs like like The Economic Times Power of Ideas in collaboration with Centre of Innovation, Incubation and Entrepreneurship (CIIE), TechSparks, The Pitch, Start-up Weekend as well as the events hosted by TiE, Indian Angel Network, Mumbai Angels, VCCircle to name a few.
Post the initial closure announced in the last week of March 2012, YourNest is now uniquely positioned to identify business models coupled with great entrepreneurial teams that build on consumer and business insights based on the emerging themes in India including – attitudinal shift to immediate gratification; Internet penetration; mobility; media; shift in IT from services to products; to name a few.
YourNest’s maiden investment is in Proof of Performance (PoP), a company offering cloud based video analytics of the real world video archives and solving unmet customer need. Our second investment is in www.mycity4kids.com, an online market place that is a hyper-local solution for kids related services and products. Details of these investments can be found in the subsequent sections of this report.
This is our first annual report. We have tried to keep it lucid and simple. Hope you enjoying reading it.
Sunil K. Goyal
It has been a just over a month since I stepped away from the corporate sector to concentrate on angel investing full time. Having researched the economy closely for over the years, I realised that this is perhaps the best time to initiate this step, with economic indicators in India being strong and an increasing larger number of people taking on the challenge of entrepreneurship. I take this opportunity to introduce my venture “YourNest” – an angel investment fund ‘in the making’ and seek your blessings and advise.
YourNest Capital Advisors Private Limited was incorporated in April 2011 and plans to launch an Angel Fund soon. In the last 5 weeks, we have met and been advised by over 20 veterans in the PE/VC circle, and many market participants such as trustees, lawyers, PR firms, auditors, tax advisors, administrators, wealth managers, outsourcing cum technology partners etc. It became immediately evident that they believe this is the right time to float an Angel fund. The Eco-System of Venture Capitalists is hungry for the super angels to build a high quality pipeline of businesses and entrepreneurs for them to invest in and build on. Indian entrepreneurs are jumping into numerous scalable businesses – many on the back of the Indian telecom networks. YourNest is all set to build on this opportunity for its customers – the high net worth individual investors.
A flood of high quality business proposals that we are receiving daily – without as yet having established a formal structure – strongly supports the need gap. The memberships at The Indus Entrepreneurs (TiE), Indian Angel Network (IAN) and the Mumbai Angels has certainly been a major reason for us to have access to these brilliant opportunities.
The first of anything gives a great sense of achievement and so has it been with us. YourNest has been able to close its first investment as a lead with Mumbai Angels in a missed call service platform – ZipDial. A visit to www.zipdial.com will show how Lead generation for your products can become much more effective. Happy to share that ZipDial has achieved its 100 million zipdials already.
Another great opportunity has come in the shape of Inventys. YourNest leads the investment in this Singapore based patented Software Company. This has been fully subscribed by the IAN. As a lead, I am happy to have first connected with the entrepreneur, completed first-cut diligence, signed term sheet, prepared investment case, and lead the subscription from over 25 investors. Inventys will improve productivity of enterprises operating with large number of application in their shared services centre, BPOs, and front offices by 30% to 80% for the repetitive activities on a desktop. The due diligence process is currently on and an all clear will result in closure of the investment in another 6 weeks with final due diligence, documentation, and structuring.
There is more. We have made passive investments in ‘Appleofmyi’ (a retail chain for kids up to 6 years in age… now going online), ‘Mobiquest’ (a mobile loyalty program), ‘Jigsee’ (a mobile video streaming client application), and ‘Hotelogix’ (a cloud based ERP for lodges and hotels). We are certainly seeing a shower of excellent opportunities.
YourNest business model of focusing on mentoring, leadership development for the entrepreneur is coming out to be the distinct need-gap. At an early stage, an entrepreneur is truly lonely at the top. He needs constant guidance and access to a wider network for business development / counselling. YourNest is preparing itself to effectively fulfill this need.
I value your inputs and look forward to your wishes, ideas, and suggestions. YourNest is in its infancy, and can make strong progress with your support. I will be happy to share our progress and update you of developments and opportunities if you so desire. I will want you to help us in building insights into your industry, seek your opinion, and help in developing the investee companies.
YourNest is operating out of Gurgaon, India.
Sunil K. Goyal
Changing trend in angel investing: Businessmen, senior executives rush to join IAN, Mumbai Angels and others
Smart investors demonstrate capability to invest in the right idea, early. They are not only supportive, collaborative, friendly but also back the venture and stay invested. Most importantly, they know when to exit.
To build successful, performance centric teams creating powerful brands, YourNest, invests up to Rs. 50 million in a start-up, for a significant minority equity stake in the venture.
In choosing to be in the pre-series A round of funding, we strive to create inspiring workplaces that give disproportionate returns. Tremendous time and energy is allocated to making successful businesses with a strong DNA. The core of our business model to deliver superior returns is talent pool, because it is the people behind the idea who take calculated risk, listen to customer needs and translate them into mega opportunities. These individuals have to leverage scarce resources and constraints, get charged with motivators such as power, money or serving the people.
Our investment thesis can be stated in one line: Start-ups are driven by people – their vision, beliefs, values and individual initiative – more than the technology or business models.
Our approach towards investing is three-pronged. It focuses on delivering superior returns, mitigating risks and executing healthy exits.
To deliver superior returns YourNest focuses on Selection Criteria, Valuation, Handholding, Team building, System & Process Development, Advisory Network and Operational Freedom.>
To deliver superior returns YourNest focuses on the following:
- Selection Criteria: Backing the right team and the right idea – first generation entrepreneur led team with complimentary skill sets; a unique and scalable idea; right attitude and a focused approach.
- Valuation: Adequate capitalization without overt dilution. Spotting an opportunity early-on allows us to lead the first round of funding.
- Handholding: Easy accessibility to the investment managers, periodic operational reviews along with supportive sessions on business progress and strategy. YourNest plays the role of a dispassionate observer, counsellor and coach to the investee teams. High-levels of engagement keeps the focus on delivery.
- Team building: Ensuring that right people are selected in the team. Helping them develop leadership capabilities and advising on change management as the business scales up.
- Systems and Process Development: Advising and assisting in setting up appropriate systems and processes for ensuring efficiency in operations, objectivity in decision making and regular monitoring.
- Advisory Network: Access to a set of highly experienced professionals and mentors to ensure fast growth and judicious decision making by the investees.
- Operational Freedom: Providing the founders (of start-ups) operational freedom to build their business and manage the day-to-day operations. At the same time building high levels of trust in the relationship and be partners in the journey. By having a significant minority stake, YourNest retains enough room for future dilution and funding options.
Early stage businesses have their own challenges. While ensuring that the business ownership and accountability is with the entrepreneur, a number of checks and balances are put in place to ensure investor protection. Risk mitigation is exercised through-
- Time & Portfolio Diversification – Investment is spread over 5 years with 10-15 start-ups.
- Milestone based disbursements – Investment tranches are linked to realistic milestones with a clear objective of injecting capital. This helps the entrepreneurial teams to stay focused on building the business.
- Effective deal structuring & investor protection – This is ensured with measures such as founder vesting, founder lock-in, pre-emptive right, liquidation preference, information rights, right of first refusal, valuation protection, tag along, drag along, special rights to exit etc.
YourNest is cognizant of the fact that the key measure of success for a first-time fund is the quality of start-ups and successful exits. With this in mind, the endeavour is to support the entrepreneur to realize their dream – building a successful enterprise – and thereby execute a healthy exit for our investors.
As our portfolio start-ups grow, we would require larger capital inputs from investing partners, given our fund size and our focus on early stage ventures only. At this stage, we are likely to see part exits to a growth stage Venture Capital Fund.
We are committed to building businesses that exit to strategic partners while having multiple exit options including 2nd stage VC, strategic buyout, M&A, PE and listing on the SME Exchange. We also retain the option to participate in the subsequent rounds of funding so that returns from eventual exits are favourable for our investors.
- The fund is a SEBI registered domestic venture capital fund (IN/VCF/11-12/0226 dated November 30, 2011).
- YourNest Angel Fund is managed as a Trust with IL&FS Trust Company Limited is the Trustees.
- Deloitte Haskins & Sells are the Statutory Auditors of YourNest Angel Fund – Scheme 1.
- Orbis Financial Corporation acts as the Custodians of the Fund.
- KPMG acts as the Tax & Regulatory Advisors of the Fund.
- Fund Size planned at Rs. 100 crores.
- Founders’ investment commitment is Rs.3 crores.
- Investment or Commitment period for fresh investments by the fund is 4 years from initial close.
- Life of the fund is 8 years + 2 years. In general the investment holding period is 4-6 years.
- Minimum Capital Commitment of Rs. 25 lakhs and in multiples of Rs.5 lacs thereafter.
- Planned Capital Calls – 5%-10% of commitment each quarter.
- Management Fees – 2% per annum of Fund Corpus but all adjusted for at the time of distribution of sale proceeds.
- Hurdle Rate – 12% per annum.
Disclaimer: This is an Investor education initiative by YourNest. For specific information on related laws, rules, regulations, guidelines and directives framed there under, please refer and study details on the website of SEBI (Securities Exchange Board of India), The Companies Act’2013 (Ministry of Corporate Affairs), The Income Tax Act’1961, RBI (Reserve Bank of India), Press notes of Ministry of Finance (MoF) & the Ministry of Commerce (MoC).
Venture Capital is a term used for the money, or capital, provided to early-stage, high-potential, high-risk start-ups. The Venture Capital Fund (VCF) gets an equity stake in the start-up, in lieu of the funds it provides. These start-ups, usually own a novel technology or choose to operate in high technology industries, such as biotechnology, IT, mobile, internet and software.
Venture Capital investment, mostly, takes place after the seed or angel funding. It is considered growth funding because it generates a return, when the start-up goes for an IPO, trade sale, strategic investment etc.
The general partners and other investment professionals of the venture capital firm are often called “venture capitalists” or “VCs”. Broadly speaking, VCs either have an operational or a finance background, though there is no hard and fast rule.
The types of financing options roughly correspond to the stage of a start-ups' development and amount of risk capital required.
- Seed funding : Small funding given to prove a new idea, often provided by angel investors, incubators or accelerators. Crowd funding is also emerging as an option for seed funding.
- Start-up funding: Early-stage ventures need funding for expenses associated with marketing and product development. It is normally provided by early stage venture funds, like YourNest, or angel funds.
- Early Stage (Series A): At this stage some of the risks associated with a start-up have been negated or refuted, the market has validated the concept and its value proposition to some extent. Normally known as Series A funding, it continues to be an early stage funding but for growth. YourNest normally participates in such subsequent round of funding, also.
- Growth Stage funds: These Venture Funds provide growth capital to established businesses who are now ready to scale-up, on the back of significant brand building, or ramping the manufacturing or production capabilities.
- Bridge Round: Working capital for early stage companies that are selling their products or services however, are not showing cash profits, yet. These funds are intended to finance the process to “go public” or a “private equity” round.
An Angel Investor is an individual who believes in entrepreneurship, can create value for the economy and has allocated part of his investible surplus for supporting start-ups or investing in a Venture Capital Fund.
Recently, SEBI (Securities and Exchange Board of India) has defined Angel Investor as a person who proposes to invest in an Angel Fund and who has net tangible assets of at least two crore rupees, in individual capacity, excluding value of his principal residence, and who:
- has early stage investment experience, or
- has experience as a serial entrepreneur, or
- is a senior management professional with at least ten years of experience;
‘Early stage investment experience’ means prior experience of investing in a start-up or emerging or early-stage ventures. ‘Serial entrepreneur’ means a person who has promoted or co- promoted more than one start-up venture.
The definition of investors, who can invest in certain types of higher risk investments including seed money, hedge funds, private placements and angel investor networks, is different in each country. The term generally includes wealthy individuals known as accredited investors.
For example in the United States, an individual is considered an accredited investor, if his net worth is at least one million US dollars, not including the value of one’s primary residence or has an income of at least $200,000 a year for the last two years (or $300,000 together with his or her spouse if married) and expects to make the same amount this year.
Venture capital firms are professional investors who dedicate 100% of their time to investing and building innovative companies on behalf of third party investors or their limited partners. The angel investment community is a more informal network of investors who invest in companies for their own interests. Typically, angel investors invest less than $1 million in any particular company, whereas venture capitalists usually invest from small cheques to say up to $20 million.
Venture Capitalists are long-term investors who take a very active role in their portfolio companies. They invest with a horizon of 5-8 years, on an average. The initial investment is just the beginning of a productive relationship between the venture capitalist and entrepreneur. Venture capitalists bring value by providing capital and management expertise. Venture capitalists often are invaluable in building strong management teams, managing rapid growth and facilitating strategic partnerships.
The nature of Venture Capital is such that it offers an opportunity for wealth creation- by investing in entrepreneurs driven by high growth aspirations. The Indian scenario offers:
- An attractive high-growth opportunity.
- Strong entrepreneurial spirit taking root in Young India.
- Unique business ideas offered by Indian start-ups that fulfil the unmet needs of the target segment.
- Vibrant environment for sharing gains with co-founder, equity participation and strategic exits for appropriate returns.
- Significant value creation by first generation entrepreneurs in recent years energizing early stage opportunities.
- Limited availability of early stage funding in India.
The resource and expertise of a Venture Capitalist not only provides funds, without the regular repayment liability, to a start-up but also provides several other less tangible benefits such as handholding and coaching. The VCs share a common desire of succeeding with the entrepreneuer. A start-ups success or failure is the VC’s success or failure. VCs bring expertise, experience, contacts and discipline, to the table. The presence of a venture capitalist also lends credibility to the company.
Venture Capital has a positive spillover impact on the economy. It is a catalyst for job creation, innovation, technology advancement, international competitiveness and increased tax revenues.
Venture Capitalists invest in private enterprises and get return on investment as and when they dispose-off their shareholding to another investor. “Exit” is a crucial moment for any VC. Typically, an “Exit” could be achieved when the portfolio company goes public (IPO) or merged or purchased by another company.
A VCF's lifespan is 8-12 years. It normally has an investment holding period of 4-6 years in each portfolio company. When the shareholding in the portfolio company is disposed-off the VCF realizes cash against the original investment. The “sales proceeds” are distributed among all, in proportion of their contribution to the fund. An individual investor does not have a say in the liquidation of the investments in the portfolio company. He or she gets a return only on “Exit“ by the VCF along with all other investors.
Private placement (or non-public offering) is a funding round through sale of shares, which are not sold through a public offering, but through a private offering, mostly to a small number of chosen investors. The PPM is a legal document stating the objectives, risks and terms of investment of the private placement. This includes financial statements, management biographies, detailed description of the business, etc. An offer memorandum provides buyers with information on the offering and protects the sellers from the liability associated with selling unlisted securities. The contents of the document are governed by the securities regulator i.e. SEBI in India.
Venture capitalists are compensated through a combination of management fees and carried interest (often referred to as a “2 and 20” arrangement):
- Management fees – Annual payment is made by the investors (in the VCF) to the Fund manager for carrying out the operations. In a typical Fund, the general partners receive an annual management fee up to 2% of the committed capital.
- Carried interest – This is a share of the profits of the Fund (typically 20%), which is paid to the VCF’s management company as a performance incentive. The remaining 80% of the profits are paid to the investors. Strong limited partners, in top-tier venture firms, have commanded a carried interest of 25% to 30% of the profits, in the recent past.
Dec'13 Indian Tax laws allow a pass through benefit, so that income is only taxed in the hand of the investor and not taxed at the VCF level. However, It is advisable to consult a tax expert because every exit has its own nuances. The main tax implications for the beneficiaries of the fund are –
- Exit gains on sale / buy back of securities – The gains arising from the sale of shares held in the Portfolio Companies may be treated either as “capital gains” or as “business income” for Indian tax purposes. In case of “capital gains” –
- The short term capital gains are taxed at the marginal rate of tax that is full tax rate applicable to the investor e.g. an individual resident in India is taxed at 30.90%.
- Long term capital gains: There will be no tax on Resident/ Non Residents in case shares are listed in India and the sale is subject to Securities Transaction Tax (STT) or in the case of sale of unlisted equity shares under an offer for sale to the public included in an initial public offer and the sale is subject to STT. Otherwise, for unlisted shares –
- For Resident in India after considering indexation
- if beneficiary is a Domestic Company, it is 21.63%.
- if beneficiary is any other assessee, it is 20.60%
- For Resident in India without indexation benefit or sale not subjected to STT (i.e. off market transactions)
- if beneficiary is a Domestic Company, it is 10.82%.
- if beneficiary is other assessee, it is 10.30%.
- For Non Resident :
- if beneficiary is a Foreign Company, it is 10.51%.
- if beneficiary is any other assessee, it is 10.30%.
Venture Capital is a subset of Private Equity. Therefore, all Venture Capital is Private Equity, but not all Private Equity is Venture Capital. Both PE firms and VCs invest in companies and make money by exiting – selling their investments. The key difference is that PE firms buy mature companies whereas VCs invest, mostly, in early-stage companies.
The risk associated with early stage investments is expected to be high due to a variety of reasons. The portfolio company may be less than 3 years old, promoted by first generation entrepreneurs, offering a service or product for the first time in a market. In some cases, they may have revenue, but may not have achieved break-even. Most VCF exercise risk mitigation through –
- Time & Portfolio Diversification – Investment is spread over 3-5 years so that all investments are not made at the peak of a economic cycle. Moreover, 10-15 start-ups are nurtured so that the risk is balanced across the portfolio.
- Milestone based disbursements – Investment tranches are linked to realistic milestones so that capital is optimally utilized.
- Effective deal structuring & investor protection – This is ensured with measures such as founder vesting, founder lock-in, pre-emptive right, liquidation preference, information rights, right of first refusal, valuation protection, tag along, drag along, special rights to exit etc.