We invested in a pre-seed company with deep conviction around the market, a wedge with which we wanted to build a new product for that market, had clarity that the current alternatives were missing the mark and that a massive new category awaited us if we got the core right.
And we were right - an early product quickly got users, word of mouth, WoW growth, supported by paid acquisition the top-line numbers were growing too - we unleashed the product roadmap for a quarter beyond which we said we’d laser focus on growth only.
All seemed to be right - as right as it can get in the early days based on our experience across 100+ pre-seed bets we’ve taken.
But we hit a roadblock when we started to focus on growth with the product fully built out for our V1. We had decent retention numbers but they were stalling. It felt like paid processes were holding the bottom. On speaking with users - several of whom we’d spoken with earlier too - we started seeing different nuanced signals which were invalidating our core thinking…and supporting the retention problem.
The founders were phenomenal because they not just initiated this investigation but were brutally honest about the truth we may be uncovering - this is a rare trait.
After weeks of thinking more, discussing findings and going back to our founding stage hypothesis and assumptions, we concluded that we were wrong.
It was terrible for everyone and for many reasons… because we were SO clear of the market opp.
But we concluded that it was not worth iterating. There were structural issues that we’d not want to underwrite. It would be incredibly hard to build a large company even if we were lucky in finding a wedge or something.
We just lost faith in our core hypothesis - and as a team we accepted it.
My key takeaway from this was the “process of correcting conviction” - if you are a high conviction founder or a high conviction investor, you know how hard it is to let go of your conviction. It was an incredible learning experience on “correcting conviction” and why it is key for us as an early-stage investor and, while we stumbled through this one, we learned how to do it better.
As an entrepreneur, your spouse is always your biggest investor whom you can never return enough to - a truth often overlooked and forgotten, but one you must talk about as you kick off yet another year as an entrepreneur.
When I started my first company barely a year out of college, it was possible only because my wife was doing a role she loved and at a company that was doing well in its space. She invested in helping me start my career as an entrepreneur - without any guarantees of success.
That was just the start of a never-ending list of investments that my wife made in me an entrepreneur: buying our first home, ensuring our immigrant-to-citizenship status, moving countries to fulfill our collective choice of spending time closer to our parents, and ensuring our children know where we came from - the list is never-ending, not to mention the constant unsaid encouragement that helps you dream bigger and bolder. The deep emotional support that you receive, without asking, is irreplaceable.
You can never get an investor as good as your spouse and it's a truth you must recognize as you start another year building your entrepreneurial dreams to the next level.
Your spouse is as big a part of every ounce of your success & your truest partner-in-crime in every sense of the word.
PS: For founders who are single, your parents are most often the source of unsaid encouragement & assumed support and you will see that feeling scale to the next level when you find your partner and you’ll see most of the above in play. Every situation is different but the underlying feeling of support remains the same.
If there's one thing that unites all 400+ Better Capital founders, it is a sense of commitment to building something that will deliver true, real, and tangible impact to our users - that is the purpose that drives us every day, through ups and downs, through the thick and thin and the gives us the power to show up every day. Without a deep sense of purpose, it is impossible to ride the roller coaster of entrepreneurship.
The clarity of purpose & focus on the impact you create should also help you put the lows in perspective so you count your blessings & always look at the brighter side - always. An important reminder in light of so many recent situations across our ecosystem.
This "impact delivered" video from Teachmint showcases an example of what Teachmint is enabling but it is ALSO representative of the impact that each of our 150+ teams is delivering to millions of users - from students to teachers to SMEs to shopkeepers to women to enterprises to factory owners and many many more segments of our society.
Let this impact be the driving force as you build with purpose in 2022.
One large outcome of the extended global pandemic is the emergence of full-time remote work mode. We've never had the concept of full-time remote as an option AT SCALE.
Now that Full-time Remote is real and here, we will see a complete makeover of how offices are thought of, how teams are built, how teams work in the full-time remote mode, what tools full-time remote companies use, what service providers cater to full-time remote future and so much more.
It's time to re-imagine products and services for the full-time remote work mode - just tweaking existing tools is not enough.
Future of Work was always too broad for us at Better - Full-time Remote is a clearer category for us to invest in and learn with our founding stage investments in stellar teams who see it the same way as we do.
Stay tuned for more as we learn from our teams who will/are building the different building blocks of Full-time Remote.
Historically, our online experiences in apps have been lonely - we get in, do whatever it is that we have to do, and get out. We don't know who else is on the app, what they are doing, if they have the same questions as us - because we are alone and having a fairly lonely experience.
I believe changing user experiences from lonely to social may be a thing to explore across a wide range of apps.
In edtech, think of users consuming recorded videos alone vs consuming videos but along with a live chat with others to jam on ideas or ask questions?
Are your users having a lonely experience? Or a social one? That's the question to ask.
And if they are having a lonely experience, ask how it can be social in the context of the app and use case.
Taking your user experience from lonely to social/community can do wonders for your retention metrics.
At Better, we believed that digitizing our SMBs across sectors is not just essential but also inevitable for progress.
So it was incredible to see Amazon announcing a new $250M fund to invest in Indian startups focusing on digitization of SMBs.
Over the past 24 months, we’ve invested in BharatAgri, Khatabook, Teachmint, Renewate, Dukaan, Kaagaz, YourPhysio, Filo, Jai Kisan, Saveo, Voosh, Zingbus who are all digitizing SMBs across sectors using multiple different models - and creating unprecedented value.
It's great to see more venture capital being committed to this mission!
Carrying on from the last post, here's another scenario I come across (and love it) ---- founders build slowly & surely and iterate rapidly with user feedback and land in the "I made something people want" bucket with certainty: 80% of pilots convert to paid, global customers signup inbound for pilots, users rival app cashback to buy your product & more. (All true stories)
AND YOU STILL GET CRUSHED IN INVESTOR MEETINGS - because of vitamin/pain killer question, scale question, x question, y cohort, etc.
Since 2018, I was scratching my head about the way education was being "sold" by edtechs in India - I am deeply passionate about fixing education, coming from a family of award-winning educators.
The common message I heard was this: edtech is about burning to build a brand and it will be a winner takes all market and its a capital game and so on and on.
There was no answer to my question around: what is being sold is just a digital textbook, why do you have to hard sell if the product is so good, why aren't users sticking to the brands, IS THERE DEMONSTRATABLE INCREASE IN OUTCOMES OF STUDENTS' LEARNING considering the 100s of millions being spent on India edtech?
10 years later we have ploughed Billions into Indian edtech but I fail to see a product with GREAT PULL from users - everything is a massive PUSH.
But the good news is that a completely new generation of founders are taking a fresh look at the problem and building product-first companies with no sales teams to find valuable educational experiences that see deep user pull.
They are more likely to "truly improve education & learning & teaching" -- which was the objective all along.
Capital is a commodity in a zero interest rate world and it will seek any growth whatsoever at different risk profiles - this is exactly what is happening in the world of startup financing world today.
As founders navigate this phase, you will face incredibly hard decisions around how to think about your valuation compared to where your value delivered is at - sometimes one will be far ahead of the other and vice versa too.
The important thing is for (long-term game playing) founders to not fool themselves or confuse valuation and value - because everything catches up eventually and long term players DO NOT play on exiting the game at the right time (when valuation is ahead of value) BUT they will be forced to figure out how to ensure a strong balance between the two as they leverage the zero-interest capital world to their advantage.
This is the hardest phase for most founders - esp those who've hit PMF++ and are exploring the best way to build long-lasting companies.
Don't diss this capital overage as a fad/temporary/madness, learn how to think about it in light of where you are in your building cycle.
Seek all the guidance from the right minds on this.
When you associate yourself with the smartest people and use that association to prove your value, you are in the Borrowed Credibility territory - and it is at its peak right now in a world of followership and signaling where no one knows who the real expert is :)
While I have appreciated the need for associating with the smartest people, I've always worried about the thin line between that and using that to borrow credibility --- because when you borrow credibility you almost admit your lack of expertise and that you have to rely on someone else to make you look smart.
Don't borrow credibility - do stuff where you are the one people borrow credibility from :)
A dear friend and early-stage investor said to me about a company he had invested very early in - as we continued to discuss it since then as the company continued to raise larger and larger rounds led by Tier 1 one investors.
I didn't get it from the start and never invested (or tried to) and we both agreed it was not clear what value they were building - and as they raised another large round he said - "I still don't get it".
All our conversation including this latest one was NOT about the company not being a good one OR the investor hype being unreal BUT IT WAS ABOUT intellectually trying to figure out how we have thought about it since the start (he as an investor, me as one who didn't invest), what we are missing, are we missing anything, what do we take away to put back into our "system of investing" and how we can come out as better and stronger investors for our own good.
I often see discussions around "I don't get it" as trashing a company or an investor which may be missing the mark entirely - every time you come across the "I don't get it" scenario it is YOUR BIGGEST LEARNING OPPORTUNITY.
The jury's still out for me about this company - I still don't get it either :)
At Better, we are big fans of scalable customer acquisition via product vs brute force.
For this, on most occasions, the product is free.
So as we see scale and true pull from the users and build confidence that we can scale acquisition with good retention to beat our competitors, the very next question to solve is monetization.
In most cases, these companies may delay monetization for a decently long time BUT we often like to experiment with it - try a number of different ideas to understand if we've crossed the value threshold enough for users to pay for a premium feature.
In doing so, we are NOT testing pricing or HOW much they can pay BUT ONLY IF THEY WILL PAY ANYTHING AT ALL.
Will they pay a penny? ...because paying anything is good enough of a signal of deep perceived value as it takes a lot for users to enter their credit card.
That's why - The Penny Gap :)
Try this as you think about monetization well before you think about pricing.
When you have a choice, choose the investor with greater conviction over one with a larger check size because an investor with greater conviction is likely to be deeply thinking about your product/problem and be additive to strategic thinking which can have an oversized impact on your company and its growth vs just a larger check size with not as much conviction or deep connection to your problem.
This is harder than it reads and as a founder, you have to be super authentic in evaluating conviction, expertise, value-add, and put check size at the bottom of the list.
The more meetings an investor needs to discuss your company with you, the less likely that they'd invest in you. Conviction building happens fast most of the time - when it takes longer, I have seen that it is more to confirm the NO than to create a YES.
*Super important for founders to understand this.*
ps: applies more to early-stage. and there are exceptions, as with everything else in the world.
Founders doing the rounds of the fundraising circuit see the fortunes of their raise change when one high-quality term sheet comes in - because it is often followed by a mad rush of term sheets and everyone proclaiming their strong conviction. Yeah, the timing sorta works like that :)
I am often fortunate or unfortunate to be seeing this play out in many cases - so it's amusing at best, and painful at worst...worst is when we struggle to find space in a round that we committed to much before the rain or pouring started. LOL.
But we are usually fortunate as the best founders pick investors with deep conviction first.
Like it or not, this is how it works most (not all) of the time.
It has been awesome to see founders being incredibly thoughtful about choosing investors. One founder said no to a $4M termsheet. Another has plenty of interest but has his/her own priority list. Another is asking how to politely say no to investors and request them to wait for a few months.
I am happy to be at the receiving end of all of the above too - because all of this signals the maturing of our ecosystem to the next level.
Most founders who are further along in their journey will vouch for being cautious about who to partner with - very very little is said about this but a wrong founder-investor fit is worse than not raising capital at all.
Of course, you have to create this optionality for yourself first and that is Step 0.
But its fab to see it happen for real - and well beyond the *hot* deals or teams :)
A brilliant founder who is building something really interesting reached out yesterday about his round that was in closing to say that the key investor was changing terms, asking for additional terms and stuff that he is not at all comfortable with.
With a short runway, it is not like he has many options to re-start or re-configure the round so he was in a dilemma.
Hardest spot to be in, I told him.
But if you are asking this question aloud, and to me, then I think the answer is clear. It's a NO.
You are fortunate to feel the lack of comfort before you sign the dotted line - it's 100000x worse if you feel that after you sign.
Leaving aside the investor and the full context and irrespective of the right/wrong (not the point of this post), IF AS A FOUNDER you feel this and you are in this position, the answer is HELL NO!
ps: I also told him to treat my input as one of the inputs he considers but that I wanted to make sure my answer to his question was crystal clear.
In the world of venture, the very best outcomes happen in the *non-consensus* bucket when you end up being *right* about your unique view.
It is the hardest thing to do - and getting increasingly harder than ever to be non-consensus and still play. Only a few investors truly have structures to even allow this.
Add today's FOMO-driven investing to this where most founders will say that their rounds move when they get their first termsheet - and you'd be hard-pressed to find anyone who is doing non-consensus investing.
In fact, it feels like there is not even an attempt at being non-consensus - and more the opposite where investors are letting others' conviction building drive their own deal flow and "what they should focus on".
I can attest to the efficiency of this but I worry about the effectiveness of it - short term and long term - because borrowed conviction is the biggest mistake in venture investing.
Founders have no choice though - other than hunting/hoping for someone who is ready to do non-consensus investing and focus on what others are not focusing on.
This is the final and most important question we ask at Better when we make investment decisions.
The key terms here are "deeply passionate" and "problem" -- we laser focus on the intensity of the problem and our deep belief that it must be solved to make the world a better place.
It's never easy to find a framework for that "final YES" but this works really well for us - it removes all biases around teams, TAMs, markets, timing, why NOWs and everything else -- brings it all down to the very very core.
Easier said than done but something we try very hard to stay true to.
I think this is a great framework for founders too - it helps you establish a long term commitment to building a long term company.
“You are not a gold loans company. You are re-imagining the front end of asset-backed lending starting with gold loans - to deliver a 10X improvement in the consumer experience” - is what I said to Sumit in 2015 when we met for the first time and I was unsure about thinking of Rupeek as just a gold loans company. Sumit let me invest then & I got the incredible opp to see it all unfold.
Re-imagining a market is a core investment theme for us at Better - it requires the deepest conviction because it's super hard to bet on & generally hard to find co-investors who see the big opp in the early days.
Teachmint is re-imagining online teacher tools for the mobile-first world. OTO Capital is re-imagining how 20M two-wheelers are bought & financed every year. FILO is re-imagining how students learn. Wint Wealth (Previously GrowFix) is re-imagining the debt asset class. Stoa School is re-imagining business education. And, Better is re-imagining early-stage funding & unbundling of access for LPs.
Re-imagining is the largest opp we have as 1.3B Indians get digitally transformed in their personal & professional lives.
What are you re-imagining - is a great question to ask as founders as well as investors!
Venture is a long-term game so I am often surprised when people ask short-term questions.
Asking a distribution-first play, "how will you make money" is one example of a short-term question.
Asking a company that's hitting a $4M run-rate within months of launching "if they can sustain it" is another example of a short-term question.
Asking a social app that hits instant early scale if their early traction can sustain is another example.
To be clear, all these are great questions - but asking them at the wrong time can destroy a company that could potentially be a rocketship.
At Better, we warn ourselves against asking short-term questions because we want to think about Decacorn outcomes only - and those will come from founders who think distribution-first, scale-first, tangible, and clear user value first.
Let's define Bharat as Tier 2 - Tier 4 India. 100s of millions of users in this segment. So it's a large TAM.
The common concern: it's hard to build for Bharat, they don't pay, they don't have any money, they don't care about digitization, they are chalta-hai people.
The uncommon excitement: Bharat wants to learn like India, Bharat wants to live like India, Bharat wants to eat like India, Bharat wants to save time like India, Bharat has smartphones & data, Bharat is open for digitization if you see what happened during Covid, Bharat is ..<add more>.
At Better, we had been at this fork for a long time until we learnt from a few of our investments and decided that we do want "to Bharat" and believe it may be the next large opportunity for founders to build for. Of course, we could be 100% wrong.
Building for Bharat may need a radically different view than building for India and perhaps a Bharat-esque founding team that can empathize with the Bharat users to understand what to build for them.
ps: this is strictly within the context of entrepreneurship, venture investing, etc. only.
Founders should try their hardest to make their cap tables look the highest quality possible. It starts from the very first check founders take - and it more or less defines the path forward, because quality attracts quality.
At the earliest stages, founders may often be tempted to choose the highest price - rightfully so & naturally - but if the highest price is not coming with the highest quality of the investor it is unlikely to be the right choice.
Laser focus on creating conviction with blue chip investors for the stage you are in - and put that partnership's value well above the price itself because the quality will recover any perceived difference in price way faster than you can image.
Easier to do at Series A and onwards (if you are doing well), way harder to recognize the need for this at Pre-seed and Seed - but exactly where it's needed the most.
The best way to build a company is to show your idea and conviction in action, with data and user pull. Then you can tell your story.
Let the "show" lead the "tell" and you'll rarely be gasping for air.
At Better, this is at the core of our pre-seed playbook - we take non-consensus bets early and then work with our founders closely to chip away at the core to get to the right insights and then "show them" with consistent growth, at whatever scale, to establish data around our combined conviction. The "tell" is then automatic for the company, and it is about finding like-mindedness to choose the next set of investor partners to grow to the next stages.
The founders are the main actors in this, of course -- Better is supporting cast at best :)
Over the past two years, at Better, we have been over-indexing on one simple question when choosing to make an investment - even at pre-seed stage: can this become a long term company, can this be built for 10 yrs and still have more to build, can this team think long term, is there a large zoomed-out view.
Salesforce is one of the best examples of a long-term company and Marc Benioff an example of a long-term founder.
The primary reason behind this is (for us) is that the most valuable and highest quality compounding happens over the long term and you need to build and be around for that.
If there's one thing you could say we do different at Better, it's this - we think like a founder.
It's hard to explain what it means but easier to feel it - it's a massive amalgamation of optimism, can-do attitude, long-term thinking, confidence, whats-the-opportunity thinking vs whats-the-risk thinking, non-consensus-ness, and more.
Thinking like a founder helps connect the dots better, helps imagine the future along with the founders, and understand the challenges in a positive vs negative way.
It also cuts through FOMO and other stuff that comes in the way of conviction building.
Most of all thinking like a founder helps connect with founders at a level that is not possible when you are thinking like just an investor.