Earlier this week, SAIF Partners, the Gurgaon headquartered early-to-growth stage investor, disclosed a $500,000 seed investment in mobile app A/B testing startup Appiterate. What’s interesting about that deal is that SAIF brought in angel investors Greg Badros and Prashant Malik as part of the seed round, after it had decided to invest in the company.
The Appiterate deal also signals a fairly important shift in strategy at SAIF Partners, which typically concentrates on Series A deals in the early stages. That has now changed with a sharpened focus on seed investments, alongside other stages. The seed team includes Mukul Singhal, who also heads early stage investments, Rohit Jain and Mayank Khanduja.
We chatted with SAIF Partners vice president Khanduja, an IIM Calcutta alumnus and former consultant with McKinsey & Co, on the Appiterate deal and the firm’s strategy for seed stage investments. Edited excerpts:
1. Tell us how the Appiterate deal was sourced.
If you go back to the history of the founders, they used to run a company called DSYN (a design focused technology services company that makes custom mobile/web apps). They had worked with several of our portfolio companies. They had also worked with Zomato. We liked the work they did and kept in touch. Also, Anuj (Appiterate co-founder and CEO Tanuj Mendiratta) is my junior from IIM Calcutta and there was an additional connect there. When they decided to start working on a product in the mobile space, we decided to back them.
2. What stage was the company/ product at when you closed the deal? Why bring in angel investors?
When we invested in them, which was in May last year, it was at the prototype stage. They had one version of the product ready. Our hypothesis was that while A/B testing was not a new thing, there was no product/ or very few that catered to native mobile apps. We thought that was an exciting opportunity.
Why bring in angels? Well, it is rare that angels come in after a venture capital firm has invested. In this case, the logic was that since Appiterate is in a somewhat advanced area of technology, it would be valuable for the company to bring on board people who have been involved in creating successful cutting edge technology before. We knew both Greg (Greg Badros, former vice president product and engineering at Facebook) and Prashant (Prashant Malik, one of the first engineers at Facebook and an investor in Hinge and creator of Apache Cassandra) through our own networks. We didn’t go to them with an investment pitch, but after being introduced to Appiterate they expressed the desire to be involved more closely as investors. That worked well both for us and the founders.
3. You’ve invested $500,000 in this round. What kind of runway does that give the company before it raises its next round?
It gives them a fair amount of runway. They already have a few good customers in India (Olacabs, Goibibo, Reviews42, Taxiforsure, SpiceLabs). They already have a good pipeline of new customers, both in India and overseas. The US is going to be a big market for them and they’re in talks with potential customers there. So, they should be okay, in funding terms, for a while.
4. SAIF Partners doesn’t usually play at the seed stage. Is that changing? Will you do more such deals?
It is true that we have historically been more active at the Series A stage in early stage deals, but we now also have an focus on seed deals. We’ve been actively looking at seed stage investments for the last 6-8 months. We do have some prior experience in scaling up companies from the seed stage (HomeShop18, Zovi). Internally, there is now a fairly large team that focuses only on seed stage companies. I cannot reveal the size of the team but we now have the internal bandwidth to address investments at this stage.
5. What kind of opportunities/ sectors do you currently find interesting at the seed stage?
Obviously, mobile is a big area of interest. Any business that is ‘mobile first’ or mobile driven. While Appiterate is an example of a mobile B2B play, we are also keen on mobile B2C ideas, direct to consumers apps and solutions. Consumer Internet is another area that we are looking at closely. There are several spaces within consumer Internet that offers opportunities for disruption, for instance, education and travel. We also like the healthcare sector. There’s opportunity there to solve problems through mobile and Internet. Again, staying with mobile, payments is a focus.
6. You’ve been interacting with seed stage startups for 6-8 months now. What are some of the issues there and how are those going to influence your investment strategy?
I think the most pertinent problem that founders at the seed stage in Indian face is investor expectations on revenue traction. As a firm, we realize that a lot of businesses will not see revenues for at least 2-3 years. Therefore, focusing on revenue traction at this stage could actually hamper product development and ultimately hurt the end customer. Therefore, we are okay backing companies that have low or no revenue traction at this stage.
For instance, in B2C mobile, if we see a good product with limited revenue traction, we understand that it will take a little time, and we are willing to take that bet, provided all other parameters are in place.