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We Have Disbursed $4M; Will Invest In 20-25 Startups In The Next 12 Months: Mohamad Faraz, Co-founder, Upsparks

We have witnessed a lot of activity in the early-stage investments as the Indian startup ecosystem has not witnessed this many deals as it is taking place today.

Give us a short brief about Upsparks. What was the thought behind its inception?

Shivam Prasad, Vinay Jain and I (Mohamad Faraz) studied in the same college in Bangalore, and we passed out in 2009 and co-founded a startup called Solutions Infini which was a CPaaS communication platform as a service for businesses, providing SMSes, voice calls and WhatsApp for businesses to communicate. We bootstrapped our startup and were able to raise the valuation to $15 million up till 2016. And that's when we realized we weren't that capital efficient to expand into Western markets like Europe and US. We got into a strategic merger with a European company and in 2017 that acquisition was completed. And together, the company was rebranded as Kaleyra, which we positioned globally as a CPaaS player.

One of the core objectives of the merger was to look at public market listing, because both the companies were growing very fast. This allowed us to make a public listing for Kaleyra. By 2019, both companies and with another inorganic acquisition in the US, we had $100 million in revenue with operations in eight countries, serving some of the largest internet businesses like Amazon, Uber, Facebook and Google. In India, we were servicing companies like Flipkart, Ola, Zomato and Swiggy. Large internet business of all these critical services in India was powered by Kaleyra.

Post our listing at New York Stock Exchange, we decided to quit Kaleyra in January, 2020 and decided to start our own venture capital fund. The idea of Upsparks came from our personal network, where we knew people for close to a decade, in the ecosystem. They had worked at multiple startups and were looking for capital. But more than capital, what they wanted was our experiences and informal mentorship. We quickly decided if we had to invest in startups in the Pre-seed or Seed stage, we will set up Upsparks as a brand and entity. We pooled in our capital, which we made out of our exit from our first startup and started investing. In the last 19 months, we have we have invested in over 35 startups in the Pre-seed and Seed stage. We're now a micro-VC fund.

Upsparks is an open fund where we LPs invest along with us deal by deal. There are about 100 plus LPs based in India, US and UK, who basically are founders and are active early-stage investors, especially in India. Our core thought process, before deciding to engage, is that if we are investing in a startup, we are going to add value. Plus, it's more like a founder DNA mapping that we do before we decide to invest. Because in the early stage, there are several factors that depend on the founder, founding team and their capabilities.

Why did you choose to become an investor? And how has your journey been so far?

Most of the investors in India in the early stages, especially in the VC ecosystem, haven’t been founders of startups who have turned into investors. I would say that only the top 1% of the investors that are there in India have immense hands-on experience as startup entrepreneurs. We have been through that journey of a startup, wherein we were first bootstrapped, merged with a cross border company and also launched our own IPO. We have learnt a lot over the past decade in our journey. We thereby believe that as an investor for early-stage startups, we can add a lot of value beyond the capital, in the early as well as the late stage of the startup’s journey.

A successful startup takes its own time to shape in terms of its execution, vision and mission. Most tech startups which are today being built have entrepreneurs who have a great vision. Some of the startups are just actually redefining the category they are in. They need someone who's been a founder and has gone through the same journey as they have. Thus, in a 30-minute call, there's a lot of takeaways that an entrepreneur gets out of us to choose us as their investors.

What according to you, are the changes witnessed in the investor’s behaviour during the pre-pandemic and the post-pandemic phase?

When the pandemic hit, in the first 6-8 months, investors were largely looking to support their existing portfolios rather than betting on new startups. The reason for this was that no one was sure when the pandemic would come to an end on how it would impact the investors, the changes in consumer behaviour as well as the changes in business operations. But since digital penetration has hit the roof due to the pandemic and the government also bringing in policies to support digitization, things have changed. We have witnessed a lot of activity in the early-stage investments as the Indian startup ecosystem has not witnessed this many deals as it is taking place today. High liquidity, rise in the number of micro-VCs like us who are active in the ecosystem and angel investors creating specific funds for certain sectors are some of the reasons for this investment boom. This in turn has led to a greater number of startups being set up with the goal of providing innovative solutions.

What does an investor look for before funding a startup?

For Upsparks, some of the parameters that we look at before investing in a startup include the founder’s vision, the problem that the startup is trying to solve and the target consumer. But one of the key factors for us as investors is the narrative from the founding team. It gives us clarity on the goals and plans of the startups in the short term. We also look at the long-term goals of the startup in terms of the target market, the challenges they might face and the competitors in the same space. 80% of our decision-making process also relies on the founder or founding team’s ability to execute. We have seen good founders spending more time in building a product, raising funds and getting a better understanding of the sector they are in which showcases their conviction. We in turn, have a turnaround time of 3-4 days in committing our investment in the startup.

What are some of the red flags for an investor while funding a startup?

If there is no synergy between the founders of a startup in terms of their goals, vision and plans, that would be one of the red flags for us. A founder’s past work, history and background is also taken into consideration before investing. The startup as well as the founders should also be aware of all the rules and regulations and ensure that they are able to follow them.

Do you feel there is a huge gap when it comes to funding female-led startups? Are they not considered as competitive as male-led startups?

We don’t think that is true as the startup ecosystem in India has evolved over the years. We are witnessing many women-led startups raising funds and there are specific accelerator and incubation programs for such startups. We have witnessed immense encouragement in the system for women entrepreneurs whether it is to lead a startup, become a mentor, lead incubation programs or as investors themselves. There is no gender bias today when it comes to startups and investors are looking for those that are solving a problem with a unique solution or innovation. In fact, in the last 6 months, we have witnessed several women-led startups that have raised funds.

What is the additional support that you provide to startups apart from funding them?

In early-stage tech startups, most founders are focused on building their product, getting feedback from their users, their internal strategy as well as their go-to-market strategy. We have seen many of them come to us to understand the plan to scale up, their product building strategy, how they should spend their funds and how they could increase their user base. This is a critical stage for such startups and as we have been founders ourselves, we share our expertise, experience, and domain knowledge that we gained over the years. We help these budding entrepreneurs navigate in the right direction and prioritize their plans accordingly. In the early stage, most of the backers for startups are angel investors who are passive. Thereby, if we invest in a startup, we have a deeper engagement with them throughout their journey and growth.

Why did Upsparks choose to only invest in technology startups? Do you plan to also invest in startups in other sectors in the future?

Currently, we do not have any plans to invest in startups from other sectors. Since we had founded a technology startup, we have gained immense knowledge and understanding about the sector. We wouldn’t be able to add much value for the startup in other sectors. Our belief is that founders should only raise funds from those investors who have domain expertise and experience in their sector.

What are your views on the rising number of micro-VC investors in the startup ecosystem?

We believe that it is an opportune time for the Indian startup revolution. Going by the number of activities in the past 12-18 months in early-stage investments, micro-VCs should be given due credit as they make decisions quickly despite having a small fund size. Most of the micro-VC investors are closing a minimum of 22 deals and at times, 45 deals in a year. Such enthusiasm is also being appreciated and acknowledged as well since most of the pre-seed funding is being led by micro-VC investors along with other angel investors and syndicates.

What would be an ideal startup for you to invest in?

Given our past investments, we have built a strong network with the founders of startups. We believe in this network and have a great synergy with them. If they provide any reference of any friend or budding entrepreneur who wants to start-up, we give that a priority and preference. Otherwise, we are quite open to investing in tech startups and are in touch with several entrepreneurs.

What are the future plans for Upsparks?

We are looking to invest and nurture 20-25 startups in the next 12 months. So far, we have deployed $4 million and we are looking to fund startups in the Web 3.0 space i.e. cryptocurrency, decentralized finance (DeFi) and non-funglible token (NFT) sectors.

Which sector, according to you, would be the favourite sector for investors to fund startups in?

The Fintech sector will continue to remain a favourite amongst investors as there are huge opportunities here. With several activities happening in the space, it will continue to be at the heart for investors. Other sectors include SaaS startups wherein we have seen the success that Freshworks has achieved. The gaming sector will also see traction as there are many innovative startups that will rise in this space.

The cryptocurrency, DeFi and NFT sector will also witness huge traction as there is a good community being built in India. Social commerce is also another sector that we believe will grow in the coming years and will witness success like the e-commerce sector.

Recently a report was published highlighting how venture capital investments are the most valued asset class. Could you share your opinion on that as well?

In the previous decade, investments and fundings were mostly dominated by foreign investors. Today, there are several startups that have launched or will be launching their own IPOs. This in turn has provided handsome returns for the investors of these startups. Thereby, we are witnessing many Indian investors who are keen to fund startups that have the potential to grow large in their own verticals and domains that they operate in. Investors are acknowledging this asset class and although it comes with high risk, they provide huge returns as well. None of the investors now want to miss out on this opportunity.



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