We picked up our phones and placed our order. The potato-and-cheese, chicken boti, and paneer tikka wraps were delivered in about ten minutes and were smartly packaged in long, rectangular boxes. The wraps were pretty good. Unlike other wraps we have sampled in an around Mumbai, Faaso’s goes easy on the oil, the paranthas (both whole-wheat and white flour) are crisp, the fillings succulent and it appeared to be just the thing to have when you want to a quick lunch or an evening snack. But would we have put $5 million into the company? After all, the wrap is pretty common fare in most parts of north and east India.

A chat with Jaydeep Barman, co-founder and CEO of Faaso’s, threw some light on why Sequoia may think this company is worth its money:

• Each outlet occupies just 200 square feet and is designed to be exactly what it appears to be – a clearing-house for dispatching orders. There are usually ten delivery motorcycles attached to an outlet – an emulation of a Domino’s Pizza or McDonald’s outlet model. Real estate and overhead costs are therefore kept to the minimum and the motorcycles ensure faster delivery turnaround.
• The menu keeps it simple with a singular focus on wraps. Variety is offered in the form of fillings, the ingredients for which are relatively easy to pull together – kebabs, potatoes, cheese, cottage cheese and eggs.
• The company uses social networks, chiefly Twitter, to take orders. This cuts down on the cost of running a large call center, though it also takes orders on phone.
• As a result, deliveries take place within 10 minutes, maybe 15 minutes tops.
• Prices are competitive. A potato wrap meal, which includes a beverage, wafers and a dip costs Rs 75 – again taking a leaf out of McDonald’s book.
• The packaging is a winner. The attractive yellow boxes in which each wrap arrives offer both hygiene and convenience.
• Each outlet operates at one-fifth the cost of a fine-dining restaurant and takes about three months to break-even.
• The low-cost model makes the business extremely conducive to scaling rapidly.
• There are already 25 Faaso’s outlets between Mumbai and Pune. That compares more than favourably with a much older competitor like Jumbo King Foods, which hawks vada pavs, or a contemporary like KaatiZone, which also started with wraps.

The idea for Faaso’s was born out of Barman’s experiences with the roll in his hometown Kolkata. “I was fascinated by the concept of rolls. It’s a bit like a pizza, except that it’s not flat. And it is so versatile. You can wrap anything under the sun,” he says. (For the uninitiated, the legendary Kolkata ‘roll’ is a greasy and absolutely delicious parantha wrapped around succulent kebabs.)

After completing his management studies at IIM Lucknow in 1999, Barman moved to Pune to work for elearning startup Brainvisa Technologies. That’s where he met his co-founder Kallol Banerjee, also an alumnus of IIM Lucknow. The two decided start Faaso’s as a part-time business in 2003. Angel funding came from another IIM Lucknow alumnus, Anand Lunia, currently executive director at Seedfund, and an old friend of Barman’s. Lunia, who declined to comment for this story, invested around Rs 5 lakh to get them started. The day-to-day operations were entrusted to friends Siddharth Joshi and Biswanath Chakraborty, now shareholders and part of the senior management team.

The first Faaso’s outlet, incidentally, was a large, air-conditioned full-service restaurant. The founders quickly realized that the overheads would be untenable if they were to expand and quickly stripped down to the bare-basic format. Faaso’s in its current form began to gather momentum around 2009, when Barman quit his job as associate partner with McKinsey & Co in London. Banerjee, who was employed with Maximize Learning (now known as Aptara) in the US, followed a year later. By this time, the company was running six outlets, mostly in and around Pune. That’s when Lunia came in with a Rs 50 lakh second round of angel funding. The founders also raised a term loan of Rs 1 crore from SIDBI.

In early 2011, the company decided to raise a larger round of funding and started approaching venture capital firms. “We actually wanted $2.5 million,” says Barman. Out of the $5 million that Sequoia has committed as investment to the company, it has drawn half so far. The money will be used to primarily to expand the number of outlets 250 by 2014.

But, there may be some challenges on the way there:

• The single-item menu, though cost-effective, could see the novelty wear off if the company doesn’t introduce more options, either in fillings or dishes.
• As the company grows bigger, retaining quality, and more importantly keeping the taste buds tingling, will be a challenge. Already, much as we liked Faaso’s, the rolls at Hangla’s down the road though greasy, hit the spot better (but that’s a personal preference).
• Finally, adapting the Western quick service restaurant format to desi fast food is not a novel concept. A good example is Mumbai’s own Tibbs Frankie, which has been successfully flipping its version of wraps for decades and is expanding rapidly. Clearly, this is an easily replicable business model. Execution and innovation will be key.

Image: StartupCentral

Tridibesh Satpathy bootstrapped his education training and certification company Edusys for seven years before reaching out to venture capitalists for funding. The Bangalore-based company raised $7.5 million from Sequoia Capital today, which it plans to use to launch new products, expand into larger market segments and strengthen its senior management team. Sequoia classifies the investment as a growth deal, made from its $725 million second India-dedicated growth fund. The company currently has a customer base of more than 350 companies and its products have been used by more than 100,000 students across 150 countries.  Satpathy, an IIM Lucknow alumni and former executive at IBM and Cognizant, spoke to StartupCentral about the company’s need for venture capital at this stage and his startup journey. Edited excerpts:

How has Edusys been funded so far?

We started out with seed capital of Rs 3 lakh (which came from my personal resources) and became profitable from the first year of operations. That has enabled us to bootstrap the company till this stage.

Why did you decide to raise venture capital now?

Last year when we set up overseas subsidiaries in the United Kingdom and Singapore (the company already has established operations in North America and Canada), we realized that we could scale the business much more and faster with external capital. So we mandated Ernst & Young to help us with fundraising. Sequoia was one of the investors that we were introduced to.

What does scaling the business imply?

So far, we’ve operated mostly in niche segments such as project management, Six Sigma, human resource and risk management. We have about 11 established brands. Now we want to go after bigger segments, for instance, the GMAT (graduate management admission test) market. The overall test preparation and certification market is $48 billion globally. There is tremendous opportunity for growth. We hope to grow at 100 per cent year-on-year for the next two years.

How will you use the funds raised from Sequoia?

Part of the funds will be used to strengthen the senior management team, both in India and overseas. We’re now going up against bigger competitors and will need a much more high-caliber team. The back-end technology platform, which has been the key to offering customers flexibility and keeping our cost of operations low, will also be augmented. I cannot share details but there are a number of new products in the pipeline.

Will you also look to grow through acquisitions?

Growth for the next 12 months will be organic. However, after that we may look at acquisitions.

As a bootstrapped company, what kind of challenges have you faced?

When you are a bootstrapped company, resources, particularly financial resources, are your biggest challenge. But that’s a good thing. It forces you to be cautious about how you spend money and fosters innovation. We spent money on advertising but very carefully. So, for instance, for every dollar that we spent on advertising, we had to ensure that we made a profit of $1.5. We spent a lot of time and used analytics to understand where the revenues would come from. This helped with the customer conversion rates. Today, because of all this, our cost of customer acquisition is much lower compared to competition and customer stickiness much higher.

Image Courtesy: Edusys

Sabahat Azim, founder and CEO of Glocal Healthcare, spends most of his waking hours in Sonamukhi, a small town in West Bengal, about 126 kilometers from Kolkata. Sonamukhi is the site for his 18-month old company’s first hospital for non-urban consumers. A general consultation costs Rs 90 and a three-day maternity care package costs under Rs 5,000. Azim’s big task is to keep the cost of services low and ensure that the quality of healthcare is at par, if not better, than hospitals in Kolkata. It is a fine balance and one that is crucial to Glocal’s success.

Azim is not the only one closely monitoring the 50-bed hospital. Venture capital firm Sequoia Capital is also keenly watching Glocal’s progress. Executives from the firm’s plush offices in Mumbai and Delhi make trips down to Sonamukhi every other week to review operations. Sequoia thinks Glocal requires that bit of extra attention because it is, unlike most other companies in its portfolio, a much younger investment. Glocal is one among a group of eight, closely guarded seed stage investments that Sequoia made through 2011. Apart from Glocal, mobile video streaming startup Jigsee, mobile recharge portal Freecharge and ecommerce site Healthkart are the other three seed deals that the firm has officially acknowledged. Its website, however, also lists cloud telephony startup Knowlarity and fast food chain Faasos under its seed portfolio.

Sequoia declines to break out the total investment that has gone into these seed deals. However, out of the close to $200 million that it invested last year across early stage and growth deals, about 30 per cent went into early stage companies, including seed. “In terms of number of companies, last year was particularly active for early stage because we added seed deals to the portfolio. We probably did one and a half times more (in early stage) than we did in 2010,” says Mohit Bhatnagar, who leads early stage investments for Sequoia out of Delhi.

But why is the country’s largest venture capital investor hunting seed stage startups?

Valuation Pressure

The reason partly lies in the explosion in the country’s venture capital market over the last six years. Venture capitalists, by StartupCentral’s estimates, invested $674 million (based on the disclosed value of deals available in the public domain) in 2011. A total of 137 deals were reported during the year. Other industry estimates put the investment numbers at over $1 billion. The investment levels over the last six years mark an unprecedented era of sustained interest in Indian startups. Prior to 2006, such investments barely touched $200 million a year.

However, for investors such as Sequoia, which has been active here since 2006 (when it merged local firm WestBridge Capital Partners with itself), the spurt in investment activity has brought along a familiar bugbear – pressure on valuations. This means that it has progressively become more and more expensive to invest in startup companies. A case in point is Flipkart. The five-year-old Bangalore-based ecommerce startup, which reported revenues of $11 million in March 2011, recently raised $150 million in Series D funding at a valuation of $850 million. In the bid to continue to put dollars to work but at reasonable valuations, investors have been compelled to back younger companies.

Sequoia is not the exception. Mumbai-based Nexus Venture Partners has a dedicated seed investment program in place to fund new startups. IDG Ventures India in Bangalore has been incubating technology companies, specifically in the area of software products. Even multi-stage investor SAIF Partners has taken to seed funding, beginning with ecommerce site Zovi last year. Given the competition that it faces, it is no surprise that Sequoia is keeping a lid on its seed portfolio.

Return to Roots

The quest for younger startups is not alien to the Sequoia DNA. The Menlo Park, California-headquartered investor has been a longtime seed stage investor in its home market, investing between $100,000 and $1 million in such startups. The firm’s North America website currently lists 36 companies in its seed portfolio, including DropBox, AdMob and Stripe. Several of these companies have since raised successive rounds of funding.

The firm has done seed deals in India in the past, but on an intermittent basis. Last year, though, it decided to institutionalize seed investing. In order to get in on deals early, it is now an institutional member with Indian Angel Network (IAN). This gives the firm two advantages. First, it is able to leverage IAN’s screening process to evaluate high-quality startups that may otherwise have slipped through the cracks. “There are 4-5 companies coming in to present every week,” says Bhatnagar. Jigsee, for instance, was sourced through IAN. The company raised an undisclosed round of funding from Sequoia and IAN last February. “We got several inputs from Sequoia at the seed stage, particularly in terms of cross-linkages with some of its portfolio companies in the telecom sector,” says Jigsee co-founder and CEO Ray Newal.

IAN also offers Sequoia a heads-up on interesting startups in emerging business segments. “As a result of spending time earlier with companies, we tend to see the trends much earlier,” says Bhatnagar. This also helps the firm to improve the quality of its deal flow at the successive Series A stage. Often, it encourages young companies that come through its own channels to go through a mentoring phase with IAN before it puts in money. The firm doesn’t typically take a board seat at the seed stage, though it may commit to the investment.

Apart from IAN, Sequoia’s investment team has also been sourcing proprietary seed deals through its own networks. The Glocal deal came out of a prior association with Azim in his earlier stint as CEO of contact center company SREI Sahaj E-Village. “I was a minority shareholder there and was hoping to buy out the company from the majority shareholders. We started talking to Sequoia at the time,” says Azim. When the deal fell through because SREI’s other shareholders were unwilling to let go, Azim left with his management team to start Glocal, with seed funding from Sequoia.

The past year has also seen the early stage investment team, headlined by Bhatnagar and Shailendra Singh, who relocated recently from Mumbai to Bangalore, engage more actively with bootstrapped entrepreneurs at various public and private forums. This is a significant departure from its earlier routine and follows its demerger from WestBridge Capital Partners last year. While overall, Sequoia’s new team continues to invest in growth stage companies, the post-demerger emphasis on early stage deals, including seed, aligns it more closely with its Menlo Park-based parent.

As the Indian venture capital market heats up further – January saw a flurry of new deals, particularly in the ecommerce sector — Sequoia will need to up its game even at the seed stage. Bhatnagar isn’t letting on much, but cloud-based businesses, mobile, specifically in the payments and Android-related segments, and ecommerce are on his radar.

Image Courtesy: Pixomar / FreeDigitalPhotos.net

Knowlarity was founded in 2009 by IIT Kanpur alumni Ambarish Gupta and Pallav Pandey. Gupta earlier developed go-to-market strategies for global technology and insurance companies at McKinsey & Co. Pandey founded Viplav Communications, a political consulting company, in 2003. The top leadership team is completed by Bipul Parua, also an alumni of IIT Kanpur, who earlier worked in the US with Cisco Systems among other technology companies.

The company started with the objective of enabling small and medium enterprises with telephony solutions. It claims to have more 40,000 customers now and the client list includes Makemytrip and Adani Group. The company’s flagship solution is a cloud telephony platform called Knowlus. Its product range includes SuperFax, SuperReceptionist, SuperConference and SuperCaller. For larger enterprises the company provides hosted IVR solutions integrated with their existing IT Systems. The three-year old company already has over 100 people on board.

Founded in March 2011, the startup was reportedly in the market to raise $10 million, chiefly to expand its portfolio and launch an online magazine. It started business with products in categories such as diabetes, home medical and baby products and intends to expand into elderly care, nutrition, personal care chronic care, vision and skin care. The company takes orders online, over telephone and via email. Orders that exceed Rs 500 are eligible for free delivery and the company also offers customers the cash-on-delivery option.

The 11-month old ecommerce startup, founded by IIT Delhi alumni Prashant Tandon and Sameer Maheshwari, also retails services such as health-checkups, fitness packages at gyms and spa treatment packages. The leadership team, apart from Tandon and Maheshwari, includes Animesh Jain, founder of online gifting startup iTasveer, who now heads marketing for HealthKart.

Sequoia is currently the largest shareholder in SKS with a 21.8 per cent stake. Post-issue it will hold 14 per cent. It entered the Hyderabad-based microfinance company in 2007 and has invested Rs 125 crore till date. The investments were made from Sequoia Capital India Fund II and Sequoia Capital India Growth Fund I. The firm is betting big on this exit. In fact, it expects SKS alone to return most of the $200 million Sequoia Capital India Fund II corpus — read an Outlook Business story here. The IPO price band is being speculated at Rs 600-700 per share. Incidentally, VCCircle reports that George Soros’ Quantum picked up a 0.4 per cent stake yesterday at Rs 636 per share.

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