500 Kulfi is 500 Startups’ Indian regional fund with $25 Million focusing on early stage companies with product-market fit and demonstrated traction. As mentioned by 500 Startups partner, Pankaj Jain
– “Although we’re sector-agnostic, we will take a closer look at FinTech, EdTech, Health & Wellness, Data Analytics, Content and SaaS/SMB.” India’s attractiveness to both VCs and other investors comes from the fact that the country boasts of a vibrant startup ecosystem, and has the second largest Internet population in the world only after China.
Talking to Technology Issue on the origin of the name of the fund, Pankaj says he is a foodie and loves food. He says ”I think Kulfi is one of the best dessert that suits the Indian climate very well. It’s yummy and tasty and also as a fund we have been in investing in food related companies for many years. A couple of our other funds are also named after foods. So it just seemed like a logical choice to pick another food related name for a company.”
500 Startups has, in the last 4 years, been very active in India with over 15 investments having been done through them. “We are not coming to India now, we have been coming to India for quite a while. And we want to do more. Invest more. We want to be there for the entrepreneurs.”adds Pankaj.
While a deluge of companies have approached 500 Startups for acceleration, only 2% – 2.5% globally have been chosen to be a part of the incubator. Companies coming in through reference, either through the companies funded by 500 Startups or though the mentors, are given preference.
Pankaj also talks about how there aren’t as many Venture Capitalists in India as can be supported by the country. “The way people think about VC is different than traditional business or investments in stock markets.
It’s a highly risky affair. So a lot of folks don’t want to invest. People talk about Alibaba and Baidu the most but there are many other VCs from China, Japan, US that are coming to India and investing in India” says Pankaj adding how the dearth of domestic VCs in India isn’t a cause of people not being cognizant about opportunities but rather because it’s a different mind-set.
India’s mobile-revolution backed consumer growth is what all foreign investors have their eyes on with the market being immensely large promising phenomenal growth and opportunity; more than everything else, the fact that India has a market where the mapped conditions have been stable and more attractive than any other markets, makes the country a big attraction for VCs.
When asked for his view on where the Indian Startup ecosystem was going right and also where it had to improve, Pankaj responded “I think that the Indian startup eco system is right in trying to solve the real Indian problems/challenges. For example, in order to tackle the traffic jam problem in Indian cities like Bangalore, which can be a massive nightmare sometimes, startups like Ridingo, which has recently gone through the GSF accelerator program have come up with the idea of ride sharing. They aim to decrease the number of vehicles plying on roads. I think investing in these type of companies is exciting. However, on the other hand the very fact of directly aping US ideas is very wrong and should not be encouraged at all.”
Pankaj believes startups should focus on solving real problems such as traffic, water, electricity. In that way, everyone turns into a potential customers. They should execute the idea and build and acquire new customers and users as well. “From an investor’s point of view, I would like to see how they plan to address a real social issue to curb the problem of the masses, how they leverage innovation and technology, and try to make it a money generating machine – its business at the end of the day” adds Pankaj.
Speaking on the possibility of a India facing a startup bubble, Pankaj denied the possiblity since the market is too small with “maybe some overfunding at some stages and sectors but not a broad bubble. Some sectors had got overfunded but that seems to have corrected itself.Fortunately, we’re not hearing about food and grocery delivery companies getting funded every day!” says Pankaj.
When asked about possible factors for the rising attrition rates in Indian startups, Pankaj said “Priorities change overnight. For some, the fast-paced start-up culture is tough to cope with, so employees get nervous when cycles end/start. One cycle has ended and a new one has begun. Some companies are struggling to maintain employee retention programmes. Some are doing fine. People (founders, employees, and investors) need some time to adapt to the changes.”
Pankaj believes the Indian Government’s initiatives to boost the startup ecosystem in India is a positive step in the right direction. While a lot needs to be done, but the mere fact that the government recognizes the need to support the innovation economy is a great step. “I just hope the government doesn’t begin regulating and taxing this part of the economy and inadvertently, kill it prematurely. I think the very fact that the Indian government has removed the so-called ‘angel tax’ for investors thus providing funding to startups under its ambitious plan to boost entrepreneurship and job creation in the country is an awesome step towards progress” says Pankaj.
When finally asked what three things Indian startups need to do to be recognized by 500 startups, Pankaj says confidently :
• Attraction – having an idea is not enough; startups must have some users and usage. It doesn’t have to be huge necessarily but has to be measured well.
• Team – Forming a good team is important. Single Founder Company at the very early stages are inherently very risky, especially in India. Its not good to rest too many things on one shoulder.
• Articulate the idea – A start up should be able to inspire people by articulating the idea of business, efficiently and effectively.