We caught up with Pankaj Vaish, a former Managing Director of Accenture in India who is now an active angel investor and startup mentor and a member of the 1Crowd investor and mentor community, to find out his thoughts on angel investing and startups in India.
Pankaj Vaish is based in Bangalore, and has over 32 years of experience in consulting / professional services across technology, outsourcing / offshoring, BPO and B2B sales. He started his career in 1985 with Accenture and was with the company for over 28 years. He was part of the founding team of Accenture’s India operations and when he left he was a Managing Director with Accenture in the Communications, Media and Technology (CMT) business. Pankaj was also an Independent Director on the board of Lakshmi Vilas Bank (LVB) for 3 years. He is now an active angel investor and startup mentor.
Q. How did you first get involved in the startup space? How many companies have you invested in, and are there any conditions you have before investing in a startup?
How I got into the startup space is interesting – my initial involvement was accidental and largely because people reached out to me to seek my involvement and leverage my experience / network.
After leaving Accenture, I was helping a friend in his business that had been operational for a few years, but was struggling with growth and cash flows. This was largely an unstructured effort, pro bono effort. During the course of that involvement, a business partner of my friend, who was involved with a software product startup, asked for some inputs; one thing led to another and I got actively involved with that startup. Over time, this person introduced me to other startups and also to Keiretsu, a startup investor forum. Separately, another acquaintance introduced me to the CEO and founder of an information services startup, who had looked me up on LinkedIn and wanted to bring me onboard as an advisor. I also became a mentor in IvyCamp, a startup ecosystem, after they reached out to me via LinkedIn. Both Keiretsu and IvyCamp have given me the opportunity to get involved with various startups and provide a front row seat to witness firsthand the evolution of the startup space.
I currently have stakes in 4 startups and am in active discussions with a few more. In general, I do not take a stake in a startup without also becoming a mentor / advisor – this helps create value for both the startup and myself, and provides an incentive to me to help the startup be successful. I am not a big believer of just writing cheques – there are many others who can do that.
Q. What do you typically look for while selecting your investments? Is it the team, idea, scale, market, IP, business model or something else? Tell us about your most enriching/rewarding experience in angel investing.
I do not believe it makes sense to be overly analytical / dogmatic when choosing startups to invest in. There are too many variables, and as most participants in the startup space will probably agree, there is no clear formula for success. However, over time, having seen more failures then successes, I have come to believe in a few basic selection / elimination criteria.
Firstly, I gauge the founding team’s sense of integrity – especially in financial matters. In other words, the way they spend external funds vs their own. If I get a sense that the founders think that external funds are to be managed with less caution than their own, it is a definite “no-no” for me.
The people involved make or break a startup, so a reasonably well rounded team, comprising people with complimentary skills / experience and an aligned vision, with the commitment to ride the ups and downs is another promising sign.
Over the years, I’ve come to notice that quite often, especially with founders that have a largely technical background, their primary satisfaction comes from creating a sophisticated / elegant technical solution. As a corollary, they often lack adequate clarity on what the problem is that they are trying to solve. So, startups that are based on a “solution looking for a problem to solve” tenet are ones to keep at bay.
Another very significant aspect to consider is market validation – is it sufficiently and satisfactorily robust? Has enough work been done to be confident that there are customers out there who will pay a reasonable price to use the product / service being offered? I cannot over emphasize the need to have paying customers.
Most people will acknowledge that execution is the key to success; when that requires a lot of people across many entities and locations, then the risk of failure is high. In other words, scalability without a large dependence upon on-ground execution improves the likelihood of success.
Businesses must be able to ride the natural growth of the market, that is, they should be able to make money even while the founders sleep. A question I often ask is, “Is there an opportunity to latch on to an existing growth wave and just enjoy the ride?”
Customers are usually quite resistant to massive change; therefore, the magnitude of change a customer has to be willing to accept to get value from the new product / service is yet another influential factor.
Lastly, a good understanding of the presence of “me-too” businesses which are already operational. I have seen many instances of the same business idea / model with slight variations. In such cases, the best funded businesses tend to win out. What would be better is for those businesses to find ways to collaborate.
Finally, there is another big picture question that I ask – are the founders building a business with the intent of scaling it and staying the duration or are they looking to build just to sell? I prefer to avoid the latter, because efforts then often get focused on upping the company value vs building a valuable business.
Q. What are the sectors you are bullish about in the Indian start-up landscape? Why do you think these make for a compelling proposition going forward?
Building upon the points I made previously, I like the following kinds of business models: SaaS-based business models, where revenues are earned from subscriptions and / or transaction fees. The primary challenges here are the large investments required upfront, with a potentially slow and long ramp of revenues.
Another type of business model I like is one that which involves disintermediation – eliminating the middleman who often adds costs, but limited value besides connecting the buyer and the seller.
Lastly, I like business models that operate in “white spaces” – businesses that seek to address the needs of those parts of the market that are underserved because of the cost and effort required in current business models are not justified by the profit potential. What is important here is to not take on the big players, but to find ways to peacefully co-exist.
I also believe that technology driven businesses with limited dependence upon the human factor to deliver services are more likely to be successful and scalable, especially in India.
I think the following models should be avoided: discount driven e-commerce and sectors where regulatory changes can wreak havoc.
Q. What are your views on Indian start-ups and how in your opinion has the landscape changed in the last couple of years?
Based on the ideas and businesses that I have seen, it would appear that newer Indian startups are moving away from business models that are based on simple aggregation, referrals, discounts, etc. and are now a lot more focused on scalable technology-based plays. I also now see startups who view the world as their market, with India often being more of a lower cost testing ground with easier access.
Q. Where do you think our startup ecosystem is doing well and where in your opinion is it lagging?
There is no dearth of new startups and ideas; it is very difficult to keep up with everything that is out there. There are positive changes on many fronts, such as the presence of more experienced founders and fewer bright eyed, bushy tailed college graduates. In my opinion, the presence of people with a more realistic view of the value of the startup, and clearer, more tangible and differentiated value propositions are other promising changes.
Other positives to note are greater appreciation by founders of the need to conserve cash, significant focus on global markets vs India only, growing number of accelerators and incubators, and ever increasing number of angel investor and startup ecosystem platforms. A specific encouraging development is the launch of incubators by corporates looking for new ideas for their business to leverage – which is great news for startups since “big brother” is saying, “I am open to experimenting with new companies that have new ideas”. Banks have been quite active in this area, given the huge impact of fintech startups in the financial services space.
At the same time, there are still a number of things that warrant significant improvement such as more validation of the uniqueness of the business model and value proposition through better scanning of the competitive environment by founders before jumping in, creation of more IP-based businesses, more M&A in the startup world – especially of the strategic nature, a more robust mentor ecosystem, with mentors who are committed to helping their mentee companies succeed, a willingness of corporates to work with startups to test their offerings and incorporate them into their larger business.
Other points that require improvement are Series A type funding options – both to help startups raise growth capital and provide angel investors with exits, simpler options for raising debt at sustainable rates of interest, and finally easier access to various government schemes and programs, with more tangible benefits beyond just giving awards and recognition.
Overall, I would conclude by saying that things are moving in the right direction on many dimensions, but it is still a long road ahead.
Pankaj has wide ranging experience across consulting / professional services, including technology, BPO, outsourcing, offshoring, P&L management, large / complex deals, M&A etc. He has built businesses from scratch and scaled them to global proportions.
When he left as Managing Director of Accenture, he was a member of the global leadership team of the Communications, Media and Technology (CMT) business, where he held various roles, including Asia Pacific MD and Global MD of CMT Management Consulting.
Previously he was MD of Accenture’s Delivery Center Network for BPO, before which he founded Accenture’s BPO operations in India. He also contributed to the Accenture strategic agenda such as Horizon 2012, Human Capital Strategy and Leadership Careers Framework.
Pankaj was an Independent Director on the board of Lakshmi Vilas Bank (LVB) for 3 years until July 2017. LVB is a rapidly growing, publicly listed private bank in India. During his tenure at LVB, he was a member of many key Board Committees, including the Audit, Management, HR and IT Strategy Committees. He was closely involved with its transformation, of which technology is a key focus. LVB is now ranked amongst the 500 best companies in India and is included in the MSCI India Small Cap Fund.