IPV and the science, art and psychology of early stage investments

The angel network plans to increase its investor base beyond 5,000; double the number of investee firms and corpus for 2021

Vinay Bansal, Founder CEO of Inflection Point Ventures, an angel network, has an ambition to make early-stage investment in startups an asset class available to every working professional and support startups in their growth journey. To do so he has managed to apply science to investments made in early startups.

Started in 2018, Inflection Point Ventures (IPV) had an investor base of 150, which went up to 3,500 at the end of 2020, and now Bansal wants to take this number to over 5,000 in 2021.

Along with taking the investor base beyond 5,000, he says IPV has doubled its total corpus of investment for the year (Rs 155 crore). It will be doubling the number of startups it will fund and work towards becoming the most trusted investment platform and also one of the best founder supporting networks.

Asked how has IPV managed to get such a large base of investors, Bansal said: “We are making investing in startups available for general professionals. We have made the process simpler, time efficient, predictable and managed to put science behind it and given it at a price point that works for a good profession. Moreover working with startup is very engaging and people who have passion and expertise in an area or know of colleagues who may have expertise can bring that to the network. We have managed to do the market-product fit right that is the reason we have managed to have large base.”

Early stage investments are generally the most risky, wherein investors take bets on founders and the ratio of success to failure is always skewed towards the latter. But this does not bother Bansal. The reason is the three part philosophy of investment that IPV has created.

“There is a science, an art to the investment and also a psychology to the investment. The science evaluates the business of the startup, art is all about evaluating founders, having intuition and practice. And psychology is all about when, where and how much to invest,” explains Bansal. At IPV investors can start investing at a minimum of Rs 2.5 lakh per startup.

For the science aspect of investment IPV makes use of time tested models to evaluate a business based on the Porters Five Forces. “This allows us to figure out how big is the market, who is disrupting the market, how is it getting disrupted, is there a POC, have the founders/product shown that the market can be disrupted, et al. Then there are features like talking to customers of the startup, are they happy, is the price point good, do they love the product etc.,” said Bansal.

IPV has put together 100 point checklist and process each to evaluate businesses and founders and another 20-30 point checklist and process to understand the pshycology.

Bansal share that in the last three years IPV has invested in 70 startups, of which one startup which will return money and at one of the startup’s they might lose money.

“So far that is the only failures. In the big picture analysis this is 3-5 per cent failure rate. When we talk of startup ecosystem we generally say 99 per cent chances of failure happen, which means there is just 1 per cent success, if we can convert that 1 -5 per cent success rate to 20-50 per cent success rate, then we have really achieved something meaningful,” said Bansal.  

With an agenda to create a large ecosystem of investors to support the startup potential of India, IPV continued investing even in 2020 even when investors in general were cautious of backing cash-strapped startups. For 2020, IPV invested a total of Rs 76 crore across 40 startups. And about 16-17 startups that IPV invested in 2020 managed to raise funds from other investors.

“We funded a lot in 2020, and our thought process was that if others are fearful you have the right mindset. While investors were not opening their cheque-books and many pulled out the term sheets, we got an opportunity to look at those businesses and wherever we found the founders and business model good we went right ahead. Many of these business sky rocketed in the last 5-6 months,” said Bansal.

Some of the companies it has funded include MilkBasket, Eden Smart Homes (IoT), cloud kitchen firm Samosa Party, Edvizo and edtech startup and healthcare firm Phable.

In fact, IPV also took 2020 to beef up its team. While companies were cutting cost, IPV doubled its team from 35 to 70 and also gave salary hikes and bonuses.

The year 2020 has been one of learning for Bansal. “If we went aggressive in signing cheques and supporting startups, many founders who weren't coming to us (earlier) as they wanted to raise money from VCs, were now ready to give our investors reasonable valuation for angel investors. Our systems and processes underwent change. Given these learnings we are going to fast track our ways of working so that we can do more with what we have and we will look for businesses that can work in these situations,” concludes Bansal.

-Take investor base beyond 5,000 in 2021

-Rs 155cr total corpus for 2021

-Double the number of investments in 2021

-Hire in tier 2&3 cities

-Invested Rs 76cr across 40 startups in 2020

-About 16-17 startups raised follow-on funds