Ideaspring Capital’s investment priority is as clear in the day: assist the most startups in its portfolio to achieve $10 million in annual revenues in order to either exit or pursue the option of an initial public offer (IPO).
The investment firm also assists founders in other fields and also to reach the milestone, financial support is essential.
Over the last six years, the Bengaluru-headquartered early-stage venture capital firm’s purse has swelled. It began in the year 2016 with a fund in the amount of approximately Rs 100 millions–investing into 16 companies and completing the exit of four. The company is currently in the final stages to close its third fund, which is estimated to be within the range of around Rs 250-300 crore. The VC company has already received the sum of Rs 200 crore from new and existing investors.
Ideaspring Capital remains focused on investing in B2B (B2B) companies and focusing on key indicators like profitability, revenue, customer acquisition, and growth as well as other aspects.
The VC company has paid back 40 percent of the capital it raised from the fund’s first fund. As per Naganand, Ideaspring Capital is seeking a minimum return of 2x from its first fund, and has the potential to yield 5x returns.
Experience is a factor
About 80% of Ideaspring’s limited partners and investors who were part of the initial fund returned to the second one as well, Naganand says, attributing the confidence of financial investors to the expertise and reputation that the founding members have, such as Arihant Patni (Managing Director) and Suryaprakash Konanuru (CTO).
Naganand began the career path as technologist having engineering degrees from Bengaluru and, later, an MS in the US. Later, he became an entrepreneur and established three B2B startups: PhotonEx Lexar Networks, and Span Systems, which were mostly in the telecom industry. He experienced his first success at 45 , when Span was purchased by an Norwegian company.
Naganand profited from this experience and noticed certain shifts that were taking place on the Indian startup ecosystem. Global multinationals were creating various technology centers in India and could be a catalyst for innovation and entrepreneurship. They could also develop new software that could be used by large corporate clients.
This was the catalyst for the creation the idea Ideaspring Capital, with the goal of supporting entrepreneurs with years of experience and deep knowledge of their field.
The average size of ticket from the initial fund was $8-9 crore The VC firm is planning to increase this number up to around 15-18 crore. The firm typically makes about four investments per year.
Focus on B2B
When Ideaspring was established in the year the year 2016 B2C startups were drawing the bulk of the funding, while B2B startups were not receiving much funding, says Naganand.
B2B entrepreneurs must not simply build their service, but communicate with potential customers, collect feedback, make sure they are using the correct message, etc. The VC firm claims it doesn’t limit its assistance to financial aid but also covers other areas of business as well.
Ideaspring lets the founders be in total control over their team as well as the development of their product, and can help in other domains, including helping startups gain their first customers, establishing the correct messages out there and defining the roadmap for the future and helping them raise the next round of funding.
Ideaspring invests in startups that can prove their concept or are running a pilot projectand demonstrate the potential to earn $500,000 to $700,000 in revenues within the first year of operations. Its investment premise requires startups to put a strategy in place to achieve 8-10 million in annual revenue within around four to seven years following investment.
“I contact my entrepreneurs each week and speak to them often, especially during the first 18 months. We’re extremely close to them and we are well-aware of their aspects, so at the monthly meetings, there is no surprise,” Naganand says.
Ideaspring has supported startups such as Lavelle Networks, SimYog, Nimesa, Beagle, Peritus and many more. It was able to exit successfully after Whodat, Zapty, Spanugo and Numocity.
As per Naganand, Numocity, which was purchased through ABB Sweden, gave them the benefit of a 10X increase. Although some of the startups didn’t make much success in the market, Naganand says they found buyers mostly due to the quality and quality.
“We want to get a decent exit and remain invested till startups get a $10 million revenue, and a valuation anywhere between $60-100 million,” the CEO says.
Tips for entrepreneurs
A nugget from the wealth of experience at Ideaspring, Naganand says any founder who’s reached the threshold of the threshold of $10 million in revenues should consider whether they would like to pursue an additional round of funding or an exit but if they are planning an IPO and want to go public, they need to plan for another five to seven years of hard work.
“That growth can be very different where it is about building the company and not about the idea anymore,” he says.
In the last seven years, this company was forced to change from an entrepreneurial approach to one is one of an investor. Naganand admits that sometimes the team is very sympathetic when a founder is struggling and brings them back to their early days as entrepreneurs however, they have only one option: tighten the screws and giving an honest critique or telling the founder there was no other way to go.
The success of Ideaspring’s measure is based on the ability of startups to earn revenue and earn the ability to make a profit. “It is these metrics that help you with an IPO or getting acquired,” the CEO says before signing off.