The Moonshot Game: Summary and Reflections- Part I

The Moonshot Game covers the two-decade journey of Rahul Chandra and his adventures as a Venture Capitalist. The book offers an insider view to the VC world through his co-founding and running of Helion Ventures and gels it with the broader evolution of the VC space in India

Helion Ventures was one of the most respected and top-tier VC’s in India which raised $600M across three funds (Fund I $135M, Fund II $210M Fund III $255M). The fund made 130+ investments (most notable being BigBasket, RedBus, Shopclues, Taxi For Sure, MMT) and exited 25+ which include MakeMyTrip, UnitedLex, and Housing.com.

It is an honest read into the VC journey which looks super glamorous from the outside but is centered on grit, delayed gratification, and handling constant failures from the inside!

The overall key learning for me was that a top tier VC fund needs to become an expert in both selecting and harvesting deals. The deal selection muscle is built over time as one evaluates various themes, listens to countless pitches, and connects it to the future. Team dynamics and the ability to stick for the long run is a crucial factor to become a top tier VC.

This is a two-part series. Below is my reflection from the book as well as some of the instances/ quotes which stuck with me. I recommend entrepreneurs, investors, and anyone curious about the startup world to give this a read.

Chapter 1.

Talks about the fund’s pick of a market winner in MakeMyTrip. MMT’s journey is a fascinating one surviving near-death during the dotcom bubble of 2000 before it took wings in 2005. It eventually listed on Nasdaq in 2010 raising $70M with a valuation of $450M providing early glimmers of success in the VC landscape.

One lesson I learned was the ability to identify founder traits/ default characteristics by going as early as school/ college time to test her/ his endurance for entrepreneurship. Deep Kalra was an accomplished TT player and most of his friends remember his fiercely competitive nature in sports which translated to the entrepreneurship world

It also talks of a now market winner BookmyShow and what made Helion pass on it. In 2006–07 the fund’s thesis was that internet users would see slow and steady growth. BMS with its revenue model of commission on ticket sales would not be able to grow its revenue base fast enough. Market sizing which is one of the common reasons for anti-portfolio to be formed in a VC’s journey came to bite Helion here!

The chapter ends with the early origins of the most valued startup in India at present Paytm. The fierce raw energy of Vijay Shekhar Sharma was displayed as he pitched to Helion in 2007. While the fund was keen to invest, Vijay being a strong entrepreneur did not stay unclaimed for long (yes VC was competitive even in the early era!). Another VC fund offered him a term sheet before Helion did and locked him in. A good learning overall was that not all entrepreneurs might be articulate but their ability to express their passion is not compromised by language, words, or slick presentation material.

Chapter 2

Talks about some of the unsuccessful investments such as Ji Grahak (m-commerce and mobile payments). It talks about the frenetic pace of deal-making which happened in 2006–08 as most debut VC funds who had raised $140-$160M started deploying

It covers the investments in Getit (digital offerings in the local search and classified space) and UnitedLex (legal process outsourcing company). The parallel drawn on the diligence journey for each was interesting considering the varied dynamics.

It also touched upon the negotiation aspects of a deal-making (term sheet, SSA/ SHA) and how getting stuck into it can be extremely frustrating for a VC (could empathize!). Time better spent meeting new entrepreneurs or building an investment thesis is unproductively spent on lengthy negotiations.

The fund also picked ideas that were probably ahead of time. HummingBird (allow property owners to put their free space on rent for business travelers) was one such investment. Rahul also talks about it when he mentions that in an alternate universe Graycell could have grown like Whatsapp, JiGrahak like Paytm or Hummingbird like Oyo. Timing is a huge determinant of startup success and is the hardest to determine.

Quote from the chapter: I had to develop the patience of a fisherman and listening ability of a counselor

Chapter 3

The quarterly portfolio review discussions were an important concept institutionalized at Helion. Broken into ‘hits’ and ‘misses’ it would help the team members bring honesty into conversations and develop the habit of breaking bad news fast.

It includes an honest confession from Rahul on how startup investing can be mentally taxing and stressful as you have so much riding on the performance of your portfolio. Fear of failure and not acting fast enough can cold stone you.

Capital efficiency was a big factor in deal selection. During that time no one had seen unicorns or could imagine startups hitting that milestone (how times change!) So if you could not sell for a lot the only way to generate returns was by using limited capital while scaling up.

Quote: VC business forces you to be a ruminator. It forces you to think of the problem in steps, focus on items that are critical, which problems need to be a priority at a board level. Essentially a problem must be sliced, diced, analyzed, and prioritized before it can be exorcised which is a lot of thinking!

Chapter 4

Three years is typically the ideal period to determine the success of a fund. The intersection between big companies that are born in this period and the fund’s investments determine whether it is a topnotch one. In a lighter vein, the period is broken into ‘clueless phase’, ‘sane phase’ and then ‘lazy phase’

As Helion raised its second fund of $210M it did new investments in 2008–09 and then in 2011

It talks about finding a high-quality team in Webaroo (VaaS meet Facebook) with no revenue model. Still, the opportunity to socially connect millions of phone users from diverse backgrounds seemed compelling enough and the team went ahead

The investment in EyeQ (eye-care chains) was a riskier but much-needed investment in the healthcare space. While healthcare delivery was a largely untapped opportunity, the market had become a bit distorted due to rich valuations provided to a few earlier investments (20–30x revenue). The reality of slow scaling up of clinics collided with the dreamy vision of large market size.

Another exciting pick was Azure Power when the company had just won a contract to set up a 1MW solar plant in Punjab. With an installed capacity of 145GM in 2008, less than 10% of power came from renewable energy in India. The long-term vision of the founder coupled with an intricate understanding of the solar business convinced them to invest.

Chapter 5.

This is one of my favorite chapters as it talks about the fund’s journey in the financial services space (where performance was excellent!) as they invested in Spandana, Equitas and later Shubham Housing

Microfinance was a high potential sector with the model being validated by the success of Grameen Bank in Bangladesh.

What was interesting was the clarity of thought seen in the pitch by Vasu (the founder of Equitas). Vasu’s focus on sustainable growth coupled with confidence in the execution capability of his team tipped Helion in their favor. The site visits and diligence reminded me of my own experience visiting our portfolio companies in this space — Sitara and Grameen Impact.

The investments also highlighted early trends of impact funds (Lok Capital, Caspian) partnering with commercial funds such as Helion to source and co-invest in deals. This has become increasingly common now and seen as signs of healthy growth of the impact investing space in general.

Chapter 6.

The team’s thesis to find companies with solid market demand which could raise late-stage capital on fundamentals was beautifully validated in reality as Equitas listed on the stock markets having raised almost ~$210M in private capital.

Another important point illustrated was the questions of replacing a founder when a high-potential company would start going sideways. Even when a replacement was made it rarely succeeded. This was because absence the life energy and intoxicating vision which a founder brought to a startup; it became lifeless

Chapter 7.

Based on excel crunching and financial model analysis, Helion estimated that Spandana was a ‘5x’ and an easy one to exit. In 2010 this was a rare find with scale companies not available every day.

An important point in the diligence was the team assigning an ‘exitability’ score. Exitability remains one of the most important factors in diligence with funds assigning probabilities on an investment going public or being acquired in M&A. We are in the business of exits as remarked by another prominent VC definitely holds true. VC’s need to demonstrate returns to LPs when they go back to raise a new set of funds.

The chapter also talks about their pick in Shubham Housing Finance which provides retail home loans to low-income borrowers. The founders Sanjay and Ajay brought in the operational expertise having started a retail business for Reliance after a long career in banking. This was an enormous problem due to the lack of affordable housing in India.

Creating a new means of underwriting to assess the creditworthiness of borrowers who were completely out of the formal financial system required ingenuity. The founders decided that listening to their customers was the best way to design the product. Eventually underwriting a formal loan for customers with an informal income was the key USP which helped the company succeed.

VC Quote: You go to bed feeling good about an investment and you wake up to a shitstorm. You almost conclude that an investment is not going to break through and just before you turn the lights off, you hear the jet engines revving. How do we undergo this and keep our sanity?

Chapter 8.

By early 2010 Helion had 25 kids (portfolio companies). MMT was scaling well with 1.6M air tickets booked on its platform in 2010. When it listed on NASDAQ the stock price ‘popped’ 70% on opening and was a dream debut.

The chapter talks about the fund’s tryst with Redbus. Unlike MMT, Redbus had to build out its online reservation system in a market that was micro fragmented and needed patient stitching. The business required a slow patient build-out not typically suited to be venture funded. But with each bus network added, its defense moat was raised higher. The frugal nature of the build and minimal capital requirements convinced Helion to invest. Although they entered the round which was later than to their liking.

Helion’s default food ordering choice from their portfolio Mast Kalandar (personal favorite!) reminded me of another VC Lightbox ordering from Rebel Foods (so much investor love!)

An excellent point brought out was the ‘peril’ of being VC funded for non-tech startups. Linearly growing business which is not VC-funded must figure out profitability early on as there is no VC money to boost growth. So, VC funded linearly growing businesses have to overcome two challenges. First figure out the economics after they have established unprofitable practices. Second, they have to raise the next rounds from investors who would always be skeptical of growth slowing down due to the offline nature.

Why do VC’s love tech-businesses? It is because they grow non-linearly and scale fast. This allows investors to be rewarded early if the hypothesis is validated. In the best case, the growth resembles a J-curve where pumping growth capital leads to a 90-degree curve upwards, pushing a business into the stratosphere. The business starts getting rewarded with premium valuation because there is a clear growth expectation

Chapter 9.

Good learning here was the ‘thesis confirmation bias’ which VC’s need to be aware on. A pre-existing thesis leads VCs to invest because it confirms their own conclusions. But the thesis is a theoretical construct. A startup which gels into the thesis is just a source of comfort for VCs

The chapter talks about the MFI crisis of 2010 which dented Helion’s portfolio in this space (Spandana, Equitas, Shubham Housing). Politicians told borrowers not to repay the loans. Microfinance company employees who went for loan recoveries were arrested!

It was good to see Helion’s portfolio tackling the challenge head-on. As Rahul mentioned for Padmaja (founder of Spandana), a lesser founder would have given up at this stage.

e-commerce was beginning to sprout in 2011 with the seeds being sown in 2008 and 09. Tiger Global invested $10M in Flipkart at 10x last round valuation and was on the prowl. A lot of investors balked at the forward-looking valuation provided and the capital guzzling build-up which the venture would entail.

Helion also felt that the capital needed to build a horizontal e-commerce business in India was not available (who knew 8 years down the line one of the biggest exits would be delivered!)

An excellent learning which came across was that spaces where investors have burnt their fingers sees higher skepticism and greater DD when new players with similar models come across. JiGrahak had allowed Helion to know that business losing cash to growth needed a solid investor to carry the company on their shoulders for a few years which explained their hesitance towards Flipkart.

Vertical e-commerce at that time made more sense due to a capital-constrained market and customer experience differentiation. Small defensible castles could be built without the risk of infusing large rounds of capital.

The journey on Letsbuy (which deserves a separate piece in itself!) was also briefly covered. Their specific focus on consumer electronics attracted Helion to invest and fit their thesis on the vertical play. The hypergrowth was crazy and fascinating but also required enormous cash to grow. It required a supersonic speed of execution to keep pace. In 6m the sales had 10xed. But as runway kept depleting and conversations with investors fell, Letsbuy was bought out by Flipkart. The brand could not survive within Flipkart and a potential rival was eliminated.

Chapter 10.

Vertical e-commerce was a focus area for Helion. In the baby care retail space, there were only a few startups and Indian consumers were waking up to the need to have one. Helion invested in Hoopos which was a mother care, baby care, and kids products e-tailing startup towards the end of 2011. It eventually merged with Babyoye in 2013 to take on Firstcry

This chapter also includes the fund’s seed investment in Taxi For Sure in early 2012. Founded by two IIM-A alums it focused its energies on tight execution and customer experience. Aggregating a highly fragmented supply base required a brute operational approach and it was a bold bet at that time.

Ultimately the capital fight led Ola to buy TFS in 2015 (similar to Letsbuy acquisition by Flipkart). Ola was more aggressive in execution, prepared for market demand explosion a lot earlier than TFS, and spent substantially more on tech to win the fight.

Rahul also candidly shared the VC ‘burn’ he experienced when 5 years into this high-volume absorption he was losing the joy of hearing new ideas (Pitch burn?!). A weeklong boy’s trip to Ladakh made him realize that he needed to be more compassionate towards the founders. The #1 thing that founders remembered after meeting a VC was how they made them feel. Not how cool the office was or how smart the VC’s were in that space.

The culture of the VC firm is on external display when its team interacts with startups. Could relate to early-stage fund Blume Ventures here which is most often quoted by portfolio founders and entrepreneurs as being extremely helpful and supportive in the ecosystem!

Establishing a human connect with the founders- their stories, triumphs, and epic fails led Rahul to feel more connected.

Chapter 11.

An offsite led to a broader consensus that a complete shift to ‘consumer tech’ was not too far in the future. The non-tech investments in beauty salons, restaurants, juice bars, clinics had found it tough to raise follow on funding. Unless offline players could pivot as brilliantly as Rebel Foods it did not make VC sense.

Helion’s decision to adopt a tech-first approach to evaluating pipeline made sense.

An important point was that team dynamics determine the quality of thinking in the firm. The IP around repeatability is the value that LP’s look for in VC firms.

By the summer of 2011, the company started talking to LP’s to raise its new fund with a target corpus size of $250M. By the end of the year, it had raised its largest fund to date and was ready to deploy!

The team structure also became sector focused with each focus area covered by 2 people from the investment team and an analyst. An important ritual followed at Helion was partners writing their weekly reports. This would cover their priorities, flagged important deals, and mentioned the help they needed from the team.

The next four years was an explosion in angel investing. Sensing the opportunity angels funded 650 companies in 2015 (up from 150 in 2011). Angel funded companies were hot property as they had received capital validation to advance their plans. However, mapping angels and seed funds became important for Helion as many were first-time investors wowed by the craze of the high returns than having a hard investing skillset.

Chapter 12. (Skipped)

Continued further in Part 2.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of any institute or organization he is associated with.