Part II — Laying a Foundation

Happy New Year to all! This blog is in continuation of Part I of our ‘Year in Review’ blog. To read Part I which focuses on our current portfolio please click here.

We started Gemba Capital in August 2017 as a family office to make early stage investments. The transition to a micro VC Fund now makes sense looking at the strong foundation we have laid in the past 18 months.

We now have a strong advisory board with experts guiding us on specific deals which fall in their domain.

We have deep relationships with accelerators, incubators, intermediaries, co-investors, family offices, micro VC funds, angel networks and fundraising platforms across India and across specific sectors. This strong ecosystem and network have helped us understand trends better and also is the foundation of our deal flow.

Our investment thesis evolved from being initially more CPG (Consumer Packaged Goods) focused to more technology focused. We have also internally developed frameworks to assess critical aspects of an opportunity. One such example is the Founders Attribute Score (‘FAS’) which is a weighted average point system to rate key attributes we look for in a founder. It has so far worked wonderfully for us and the framework is constantly evolving. We will probably write a blog on FAS separately.

Another aspect which evolved is the sector agnostic nature of our investments. Power law distribution works in an early stage portfolio rather than a bell curve. We believe that in angel/seed investing, it is best to be sector agnostic since the portfolio is broader and on an average, we intend to close 20–24 deals in 3 years timeframe.

In terms of business models and investment themes, we developed a preference for SaaS, marketplace platforms and products for Emerging Bharat in 2018. For 2019, we will write a separate blog in terms of the segments, sectors, and areas which look interesting to us.

In terms of founders, we prefer at least 2 founders (at least one with a tech background) and founders who are brave and courageous to solve a real, big and interesting problem. Complementary skill sets, relevant domain experience are our added preferences for founding teams.

We have a portfolio approach to investing and there are some markers like 70% B2C and 30% B2B; 70% Angel rounds and 30% Pre-Series A. We will continue with this approach in our micro VC fund as well.

Our value-add to our portfolio companies starts even before we have cut the cheque. We do get involved to the extent our founders want us to get involved. Testimonials from our founders are the best way to put this across.

We have lead 2 deals as part of a syndicate and we expect to lead many more in 2019 as our deal size increases.

Our misses in 2018, were Edtech, Agritech, Industrial IoT and a pure play CPG brand. In 2019, our focus besides our misses in 2018 will be on AR/VR, Insuretech, Drones, and Blockchain. If you are working on any of the mentioned areas then do reach out to us here.

Below is our 2018 deal flow in numbers:

Our current team is one partner and one analyst. Overall our conversion ratio from sourcing to investments is 1.6%. In 2019, this is expected to reduce to ~1%.

If we get on a call with the founders then 43% probability that we will have a one on one meeting. Conversion from the meeting stage to investments is ~12%

As you can see 58% of our deal flow has been a combination of proprietary and referrals. We plan to increase this to 70% in 2019.

Also, 24% of our deals were seed stage and 69% angel stage. Balance 7% includes bridge rounds, pre-series A and others.

Few observations are CPG deals came more from Delhi, fintech deals came from Mumbai and software deals from Bangalore.

Many IoT and Agritech deals came from Pune and Hyderabad

Chennai sent us hardware and SaaS startups.

Our initial focus was on CPG and hence the higher deal flow from that segment.

In 2019, we hope our deal flow improves on Edtech, Agritech, AR/VR and Blockchain

We received a healthy mix of B2C and B2B startups in 2018 although we would have liked to see more of B2C startups considering our preference to invest in B2C businesses.

Overall, we feel 2018 was a good year for us. As we enter 2019, we will strive to improve on all major fronts and metrics.

A big thank you to all our founders, bankers, lawyers, accounting firms, co-investors, investing platforms and our advisors for believing in Gemba Capital.

Wishing all a great 2019!

Disclosures:

The information set forth herein is not intended to constitute investment advice and under no circumstances should any information provided herein be used or considered as an offer to sell or a solicitation of an offer to buy an interest in any investment fund managed by Gemba Capital. Gemba Capital does not solicit or make its services available to the public. Past performance is not indicative of future performance.

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