The Moonshot Game: Summary and Reflections- Part II

This is the second part of a two-part series on the Moonshot Game book summary and my reflections from it. Do read Part 1 here which covers Chapters 1–12 before diving into this one!

Among the best ones in heydays!

Chapter 13.

This chapter talks about Helion’s investment in Shopclues. It was a horizontal e-commerce marketplace and was envisioned along the lines of Taobao, a Chinese online shopping site. As the founder Sandeep had come from the US, Rahul had his doubts on him being able to build a transaction heavy business in India. However, observing solid growth and identifying a white space (‘brand-less’) category of goods convinced them to invest.

Shopclues did become a unicorn in 2016 but eventually nosedived and was bought out by Qoo10 for between $50-$80M last year. The founder went on to start Droom which was a used automobile marketplace platform.

An interesting event in the chapter was one of their outsourcing companies getting an inbound offer for $100M which was pooh-poohed. The team smugly assumed that better offers would come. But none ever came.

The learning was that acquirers knocking on any company’s door were a combination of fortuitous timing and luck. It did not happen very often. It is interesting to see how some VC’s thinking has evolved on that as Karthik (founder of Blume) mentioned to keep calm and go all the way to an IPO!

Quote: I had negotiated enough agreements to know what to give up on and what to focus on. I was no longer afraid to fail. This was a good place to be in for my next decade

Chapter 14.

This chapter talks about the early origins of Oravel better known as OYO, the country’s most controversial startup. Ritesh’s mail was an eye-catcher as it precisely captured the key points of what they did, how they had been growing, their credentials, and timeline for the next round.

Revenue had grown 10x in 6 months to Apr 2013. Ritesh was 19 when he started and raised seed capital, a testimony to growing risk capacity among investors. But Helion felt that the ability of a 19-year-old to build a large business was highly questionable. This would eventually become a big anti-portfolio for the fund. Oyo was last valued at $10B when its founder purchased back shares from early investors.

Chapter 15.

With funding of under $10M Redbus had scaled beautifully and was selling tickets worth Rs. 100cr a month. By the summer of 2013, MIH acquired a controlling interest in Redbus. Although Helion earned decent returns, the pain of building something bigger and meatier remained.

In Jul 2013, Sandeep (founder of Shopclues) was arrested in California on insider trading charges which were shocking for Helion. The amplitude of swings from ‘It’s all good’ to ‘Oh my God, I don’t know what the heck just happened’ hits founders frequently.

At Helion, it is believed that all startups would go through at least one near-death experience. Especially those destined for greatness. Events like Sandeep’s arrest or Spandana’s ban seem cataclysmic when they occur. But both survived to become bigger and grittier.

Quote: Fundraising for a startup is a lot like fishing for a smart game like trout. Like a skilled fisherman who waits for a bite, followed by the tug before he starts to reel in, a smart fundraiser understands the nature of each investor conversation. They wait for the tug. You tug too soon and you lose the conversation prematurely.

Chapter 16.

It talks about the funding bubble which started in 2014 and hit its peak in 2015. VC’s had bigger funds, were investing faster and companies were raising fresh rounds of capital at breakneck speed.

When market sentiments are frothy, prices tend to drift away from value more acutely than in public markets. Price discovery in the private space is driven by a shallow buyer market of other VCs. Kashyap Deorah explains this period brilliantly in his book Golden Tap. Tiger made 17 investments in 2014 with their team sitting in New York!

An intern recommended MoEngage in which Helion invested in 2015. This was a tool for marketing teams at mobility startups to send a personalized notification to prompt users. It fit their thesis of India being a mobile-first market and that startups that built tools for mobility companies could be born in India.

Food-tech space (the centerpiece of the bubble) saw >400 startups in 2015. Hype overtook rationality as investors funded these startups in droves lured by their success in the US and China. However, India’s per-capita GDP was $1,600 compared to $8,000 in China and $56,000 in the US in 2015 which was missed out.

A very important lesson learned was that startups in India had to build uniquely differentiated models that considered the practicalities of the Indian market than copy-pasting successful models from the US or China.

Another excellent point brought out was when Flipkart became weaker in the fight against Amazon in 2014 despite having deep-pocketed investors. Capital flow to an emerging market startup (Taxi For Sure, Flipkart) was relatively lower and came at a higher cost.

When the supply of capital increases (as it was for Uber), when comparative uses of capital are unattractive or when the risk in the company comes down, the cost of capital is lower. Global capital flow to Amazon or Uber was hence much greater as it came at a lower cost due to high return expectations.

Lower cost capital was fighting higher cost capital and beating it convincingly through sheer size.

Chapter 17.

In 2014 angels invested $200M in 350 companies. In 2015 the number was $300M in 650 investments. Angels were mostly practical and liked to back founders who understood ‘dhandha’.

More startups meant greater learning across a wider base and the entire VC ecosystem was coming of age. It also felt satisfyingly evolutionary for the strongest but meant quick mortality for the rest.

VC’s started going earlier and investing in the seed stage. This was a direct result of the fear of being priced out or missing out on future rounds. Still writing seed cheques of $250K in a VC firm which typically invested $5M required suspension of the typical process of deliberation

A very interesting company funded was Wooplr which was one of the earliest social commerce companies in India connecting women to fashion influencers. The company liked its mobile-first approach, its deep product view, tracking the right metrics and growth coming from non-paid sources.

The thesis made a lot of sense as it was an alternate path to building a sticky commerce business around a community without the crazy customer acquisition costs.

Post their investment in Wooplr and Crownit the thinking evolved to find companies that were massively mass-market purely as a result of PMF. The value proposition had to be so strong that customers would not need to be bribed to use the app.

Building on this the team invested in Railyatri. It was an app that predicted delays in train arrivals and chances of confirmation of waitlisted tickets on trains. Providing information which the user really needed could make all the difference in user adoption.

The growth in MAU’s also validated this as Railyatri grew from 150K from the time when Helion started looking at them to 1M when they invested. All this while spending $2–3M to reach to these metrics!

Chapter 18.

A reference to their investment in Housing is definitely required and this chapter talks about it. Each day at the startup generated national news as Rahul pointed out! The controversial poster boy was Rahul Yadav who was the founder CEO.

Before raising a truckload of money they had wowed the investor community with their data and product approach to solving the real estate discovery problem. Helion invested in the second round when other investors were jostling for a piece of it. They burnt money rapidly (even spending $1M to acquire the domain name!).

But over time Rahul emerged as the ‘bad boy’ of the startup world. The board let Rahul go as his presence became detrimental for the business. An overall lesson for me was how in the frenzy to back the next big thing, investors can often overlook diligence on founder qualities and traits. In Rahul’s words, the saga would be remembered as the one that set a new benchmark for pissing off the greatest number of people in the least possible time!

The chapter ends with TinyOwl a food delivery startup that raised $20M in quick funding rounds. Both TinyOwl and Housing got fancy offices too early in their lifecycles. Both burnt cash like there was no end to its supply. Both laid off employees in the hundreds.

Chapter 19.

Two kinds of founder existed by end of 2015- the first who had burnt all cash they had raised and the second who had some dry powder left.

Success had been equated with growth. Growth meant that you had to ignore basic questions about sustainability. A candid confession by Rahul while sitting in board meetings was that peer pressure was so great that it sounded insincere to talk about conserving cash!

Pivots became popular by mid-2015. A lot of startups especially in food tech which had no clue on their direction continued going down the unsustainable path till they hit a wall. Few other companies figured outgrowth and had high user stickiness but no revenue model.

An interesting point brought out by Rahul was on the online marketplace for home services which was a prematurely overfunded sector by 2015. I feel the same might be happening in NeoBanking at present. Overfunding a space could stifle than allow innovative models to emerge. But the polarity of VC’s missing out on the next unicorn (FOMO effect) tugs strongly against the natural evolution of an emerging space at times!

Tiger invested in a company called LocalOye in Apr 2015. Its tech solution connected customers with service professionals within a few minutes. SAIF and Accel invested in Urban Clap (now Urban Company). As the hyperlocal space remained hyper, Helion went ahead to invest in Doormint. This was an open marketplace for home services. But the home service business like e-commerce was a cash guzzling model and unit economics was tough to crack. Doormint squeezed cash but realized survival was not possible without raising larger rounds. Eventually, both Doormint and LocalOye perished

By 2016, VC’s hit the pause button on investments. The funding winter meant that small cheques to get new companies off the ground had disappeared. Portfolio adds from 2014 and 15 became the priority for VCs. In hindsight, these were seminal years for VCs according to Rahul as hunting and winning became a large part of the business. It also became a lot more competitive. VC teams had to react quickly on ‘deals with buzz’ and prevent hierarchical decision making. ‘Great’ founders had to be hunted and firms had to minimize the number of touchpoints that a founder had to go through before a decision.

Helion invested in 11 companies each in 2014 and 2015. The theme-oriented focus meant that tag teams had become domain experts and knew best on which deals to recommend for approval. A budgeting exercise in 2015 yielded that preparation to raise Fund IV had to begin. The dry powder from Fund III would be used to support follow on in portfolio companies.

Despite past successes, an existential discontinuity emerges sooner or later for every VC firm. In the middle of new fund conversations, there had been no internal discussions on reorganizing the team. The three newer partners wanted to equalize economics and decision making among all the partners. Unfortunately, this could not happen and the three decided to start a new VC fund. By Mar 2016, all three had quit and went on to start Stellaris VP.

The departures were a big blow to Helion. Institutional investors were hugely disappointed with the outcome and eventually the fund could never fully recover. The repercussions were also felt among the 60 odd investments

Helion decided not to raise any new funds and Rahul stayed back to stabilize the ship. In his words, a good story ended abruptly, and they lost the potential to build a firm that outlived them.

Chapter 20.

By the middle of 2016, most of the team had moved on and Helion shut its Bangalore office. It would have been a strange period for Helion who would not be making any new investments.

The core value in a VC firm is a competency that Rahul called as ‘deal-selection muscle’. This muscle is a complex network of openness to recognize the past mistakes, having people around to institutionalize the lessons from these mistakes, and carrying the gumption of investing in deals that might make you look stupid. Some of the worst investments Helion did were ones where the entire team agreed heartily

What went with the departed team at Helion was the learning gained by evaluating at least 5K startups in the past 10 years. Rahul also started introspecting on what was next for him and whether a new fund made sense.

It meant going through the entire cycle again as investors expect the managers to prove adherence to the thesis and put together a quality team. The fund-raising progress would be rigorous with him being on the road for 12–24 months, making 300+ pitches and hearing countless ‘No’s’. Was he ready for it all over again?

Chapter 21.

By early 2017, a year of stabilization at Helion was complete. In 2016, United Lex crossed $100M in revenue while Equitas went public in Apr 2016. To an investor seeing a vision which he backed at seed to IPO and list on public markets is the ‘most pleasurable things to witness’

Shubham had taken a lead in the micro-housing market. RailYatri had reached MAU base of 10M+. Rahul spent the time to evaluate the long-term trajectory of India’s VC business. Post the 2016 bubble the sector was going through a rebirth and freshness was coming in.

Large funds spent a lot of effort on marketing their value add. Founders were also demanding of their VC’s. They wanted to partner with funds that provided depth in thinking and strategy inputs specific to the industry vertical which the startups belonged to.

Investing and harvesting are two sides of the VC business and need to be achieved in conjunction. A good question Rahul used to assess a startup was if he would put all the capital at his disposal into a company and the reason for the Yes/ No

Rahul eventually decided to build a new VC firm. He called it Unitary Helion which was renamed to Arkam Ventures. The fund invests at the Series A/ B stage with a focus on food/ Agri, healthcare, financial services, and mobility. It hit its first close last month with a target corpus of $100M. Some of their investments include JaiKisan (Agri Fin-Tech), KrazyBee (mobile lending for students) and Jumbotail (wholesale food & grocery, new retail platform)

Points left Unanswered!

1. Would have loved to know more about what went wrong at some of the underperforming companies and the lessons learned (Shopclues, Ji Grahak, Wooplr, Doormint) among others.

2. A sneak peek into the discussions/ debates which happened among partners while evaluating a deal. Taking 1–2 deals as case studies to highlight the most polarized ones would have been an exciting read!

3. What were the learnings from other partners (Dr. Ashish Gupta, Sanjeev Aggarwal, Kanwaljit Singh, Alok Goyal, Ritesh Banglani, Rahul Chowdhry) and their operating styles

4. A deep dive into the discussion on mergers and negotiations would have been good (respecting the confidentiality of course!). Would have loved to know through the lens of Letsbuy, Taxi For Sure or Hoopos

5. Few other investments done by Helion such as BigBasket, EzeTap, ID Fresh, Toppr, Trulymadly, Simplilearn, and Zefo. Understand that it would have been tough to capture almost all though in a single book!

Key Reflections:

1. Overall a great read on the story of a VC veteran and understanding the thought process to invest behind some of the most successful companies in India now. The first step is the toughest and the book provides a sneak peak into the origins of some of the most successful ones (MMT, BookMyShow, Spandana, Equitas, Railyatri, Oyo)

2. Estimating success in VC is impossible and there is no single well-honed formula to help identify winners early on. As Bala Srinivas states, it’s nearly impossible to predict the trajectory of a specific technological innovation given the number of variables involved. It is a game of long odds. Luck is a major contributing factor that weighs in on the side of the successful team — start-up and investor alike. Even in Helion’s portfolio, a Letsbuy could have been the Flipkart of today, Taxi for Sure could have competed with Uber and not Ola while a Wooplr could have been the Meesho.

3. Your ability to consistently participate in the funding rounds of ‘resilient’ future unicorns is what differentiates a legacy VC fund. As more and more VC funds come up in India and existing ones expand their spectrum from seed to growth stage, it will be crucial for VCs to pull entrepreneurs in hot demand to be funded from them. The differentiation is now being done through specialist sector focus funds (Omnivore, Fireside, Quona to quote a few). Or by VC’s aspiring to be thought leaders in the space by publishing investment thesis, starting podcast/ blogs, etc.

4. Ultimately once you are a VC, nothing else excites you more (apart from a high-intensity role in a startup maybe!). The thrill to find interesting ideas and passionate entrepreneurs who execute on them is what drives them each day. All the partners at Helion went on to start their own funds. That depicts the huge potential and their continued passion for venture investing!

5. Lastly, I do hope that many other VC veterans like Rahul pen their journey and reflections and capture it in a book. A well-written book can be the strongest medium to inspire, motivate, and provide a unique perspective to readers fascinated with the entrepreneurial ecosystem. I am sure many will 😊

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.