We don't keep nominees on boards of firms we nurture: 100X.VC's Ninad Karpe

In a Q&A, the partner of the early-stage venture capital fund talks about the unique investment philosophy of 100X.VC, iSAFE Note and the Indian entrepreneurial ecosystem

The year 2021 has been a watershed year in the startup ecosystem in India in terms of private equity (PE) and venture capital (VC) investments, with investment activity reaching an all-time high. An important cog in this wheel of investment has been the early investors. One such player that has been playing this foundational role is 100X.VC. The fund launched in 2019 has so far invested in 80 startups and plans to take this up to 100 in CY2022. Ninad Karpe, partner, 100X.VC in an interview with Jyoti Banthia talks about the unique investment philosophy of 100X.VC, iSAFE Note and Indian entrepreneurial ecosystem. Edited excerpts…

What is the idea behind 100X.VC and how did it come about?

100x.VC was the idea of Sanjay Mehta, and I, along with Yagnesh Sanghrajka, founder & CEO, Shashank Randev, founder and Vatsal Kanakiya, CTO joined him. The aim was simple--to identify and fund very early-stage startups.

We identified a big gap for funding among the very early-stage startups. So we typically fund enterprises that are in the pre-seed and pre-revenue stage. That is a space where not many funds operate. We think it is very critical for a startup to receive funding very early and get the funds required. So once we identified the gap, launching a fund was easy.

What makes 100X.VC different? It is the unique investment model?

The 100X.VC model is simple. We give a small amount of money and a whole lot of advice to a large number of startups. So far we have backed 80 early-stage startups in the three years since its founding in July 2019.

We work on the concept of iSAFE Notes or ‘India Simple Agreement for Future Equity’, which allows investors to make a cash investment in return for a convertible instrument. The compulsorily convertible preference shares (CCPS) can be translated into equity when the startup goes back on to raise capital.

What has the response to the iSAFE Notes strategy been?

We have open-sourced the iSAFE notes which is a future convertible instrument. Basically 100X.VC, gives a fixed amount and the money doesn't get into equity. We do not have a detailed shareholder’s agreement. It is a standard four-page, extremely simple document with the founder. There is no discussion on valuation, shareholders agreement or detailed rights.

This allows early-stage startups to skip the tedious paperwork, avoid the pre- or post-money valuation games. Typically, any VC investment in the startup can take three- four months or even longer due to long shareholder agreements and valuation process. What iSAFE does is standardisation of agreement, leaving all the complications out and is founder friendly. The model allows founders to sign the iSAFE notes quickly, without the hassle of going through long discussions. It reduces time.

As per the agreement, 100X.VC hands Rs 1.25 crore to each startup it picks in return. These compulsorily convertible preference shares (CCPS) can be translated into equity when the startup goes on to raise capital in subsequent rounds. This helps both the investor and the company avoid long-drawn negotiations on valuation at the early stage.

Till date, 100X.VC has funded 80 startups which together have raised $55 million.

What will your focus for 2022 be and what is the road ahead?

100X.VC is a sector-agnostic fund. We have not seen any exits till now as we are just three years into existence. We aim to invest in at least 100 startups this year.  

As I mentioned, we have increased our cheque size from Rs 25 lakh to Rs 1.25 crore. The equity that we take at the start is 15 per cent (increased from 7 per cent). 

In this rush of raising funds, how important is mentoring for you as the fund works with startups?

Our focus is mentoring. Mentoring comes after they raise money from us and we help them build a robust business model and raise the next round of fundings. We particularly help enterprises scale up. The startup business is fundamentally one of how quickly you can scale rapidly and have the right business fundamentals. We neither charge any money for it, nor do we take any free equity, it is a part of the services we offer while investing.

We rather believe in providing mentorship even if startups have got other VCs on the table.

What is your take on the rising tussle between VCs and founders in the recent past?

For us that never was an issue because we do not take a board seat. In all the 80 startups, we don't have a single board seat in any of them.

The VCs or investors who come after us, they actually drive the valuation. Between one round to another, there are methods of valuation based on the momentum, cash flows, generation, and the scaling up of the startup.

How did the pandemic impact your investments?

The pandemic impacted and reshaped a lot of things. We invested in around 10 companies without even having any in-person meeting with the founder. The pandemic has improved the efficiency and velocity of closures, along with many young minds wanting to start their own business.