Like every other industry, witnessing a massive shift and evolution, Venture Capital is no different!

One such trend has been Mega funds, who typically do series B-C rounds, going downstream - all the way to striking seed-stage deals! For example, Sequoia’s Surge and Scout programs are on a hunt for early-stage deals. As a large fund, a small round won’t move the needle in terms of the fund’s economics apart from enabling an early (surely more economical) stake in a potential unicorn, but it provides other unique advantages:(1) preferential access to deals to back with bigger cheques, weeding out any competition whatsoever or (2) the ability of shaping these companies quite early in their journeys to building for large value-creation in the future; these make the early deals worth it!

This strategy which seemingly floods the early-stage with capital, has slowly but surely started to blur the lines between investment stages, deal sizes and pre-money valuations. Seed-stage deals, especially in the Bay Area, today resemble Series A financings of yesterday, as deep-pocketed investors are more willing to dole out larger sums of cash at much higher valuations. Early-stage funds see this as a big challenge, yet that may not be necessarily true.

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In fact, this ‘capital flood’ is pushing funds to work harder on their own value-propositions for investee companies – whether it’s building specializations in domains / sectors or creating a niche capabilities such as customer access, market access, etc. Founders choose these funds for such unique capabilities, rather than just for the money.

Therefore, Mega funds that want to play the early-stage game, need to be mindful of this need! Early stage deals require them to build the right support infrastructure, abilities to provide the right interventions, and establish the right specializations. This is certainly challenging for these larger funds, who may not find all this effort worth their while.

Referring back to Sequoia of course, they seem to have gotten it right on this one - having set up dedicated teams to support their early stage investment programs; thus ensuring the right engagement and interventions needed to succeed in early-stage investing.

At Cornerstone, we have identified ‘driving scale thinking’ as our core value-proposition for investee companies. Focused on investing in startups that are at the Pre-A and Series A stage, our startups have proven product market fit and commercial validation, we know exactly what we have to bring to the table beyond capital - new customers, new geographies, business model interventions, and creating an impact-scale mindset.

This to us is as critical as our fiduciary responsibility as Fund managers for our investors!

~ Nanika

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Much to our delight, the Indian startups ecosystem has evolved from the clone problem. In the process of Deal Evaluation, after having ticked the boxes for innovation, solving real business problems, impact scale; another tangible question for us to answer is – does the startup have tenacity to beat the risk of commoditization?

The startup may have an early mover advantage by offering a unique proposition. However, there may be future competitive risks, which may often lead to downward pressure on prices that comes with too many players, offering similar solution. Simple demand supply mechanism. And so is important to build to mitigate this risk from a future outlook perspective. Tenacity can be built in 2 ways

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1. Well thought through Product road map: The strong technology differentiation should be relevant not just today, the Founder vision should chart out a road map for the startup to build continuous moats around the business. This can be achieved by:
   • Going into adjacent solutions for the customer, basically a simple thumb rule of having 7 relationships with the same customer - where a startup makes its margins from 3-4 key offerings that define relationship with the customer, break even on 2-3, and offer additional 1-2 solutions where they may even lose money. This way the startup can fortify their position as the one-stop go-to-person for all issues relating to the customers critical business process / function and build significant inertia for the customer to ever jump-ship even if there are pricing pressures of competition
   • Offering products and features to cater to multiple stakeholders in the value-chain, and as such creating a dependence for the entire value-chain on the product / platform.

1. 2. Vertical Specialization: It is a known fact that output for predictive Data models is as good as its input data, and they refine with the amount of data it processes. Vertical specific, segment focused data would make for a much-enriched data input than data which has a horizontal reference. This focus makes it tougher for others to enter the market with similar segment focused output and results (they may have similar solutions / data models). It is time and data that sets them apart

As Investors we are not just looking for unique ideas and solutions, we are looking for the one’s that have the grit to innovate and execute on a continuous basis, and it is those that built for the long haul.

- Nanika

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Few investors could have predicted that a viral outbreak would end the longest-running bull market in U.S. history. Now, the COVID-19 pandemic has pushed stocks far into bear market territory. From its peak on February 19th, the S&P 500 has fallen almost 30%.

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It’s impossible to predict how long Covid-19 will impact the financial markets and its societal disruption is unprecedented. Some things might change for good – some economies may go into severe depression, some sectors might suffer much longer while others may bounce back hard in no time, business models will transform, value-propositions will change, definitions of scale will alter… how do you survive through this?

Here’s some advice we have been giving to our portfolio companies:

1.       Communicate – Be brutally honest & transparent – with customers, teams & as well as with investors; that’s the best way to get them all to chip-in to the best of their ability. It’s time to hold on to your customers, your key team members, and nurture relationships that matter!

2.       Pivot – Eliminate inertia to change – target new customers, tap new segments, new use-cases, roll-out new business models - whatever is your market’s need – run trials & tests via pilots - do them free of charge!

3.       Recalibrate – Revisit those projections – optimize spends, rework budgets, rehash plans, rethink recruitment – prioritize your efforts and your capital utilization!

4.       Conserve - Manage cashflows – reduce burn, renegotiated fixed expenses (rents, cloud credits, etc.), focus hard on collections, preempt capital needs - raise a bridge – do all you can to extend your longevity!

5.       Refocus – Rethink your efforts – Hunker-down to build product capabilities, advance innovation roadmaps, build new IP / capabilities now that help you stand tall later - once new business starts shoring up!

While each founder needs to find her/his path/means to survive through this ‘bear market’, there is hope - when things start moving upwards, they will move fast; growth will be steep – at an unprecedented pace!

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Be ready to catch that wave … Go Slow Now, So You Run Faster Later!

~Abhishek

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What do we at CSVP Fund, look for when we invest ?

How do we identify the Super-Achievers ?

The only question we ask ourselves is - does the Company have the potential to become a Value-chain Controller ?

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Our 3 Stage Evaluation Process:

1. Impact Creator: The startup should be able create significant business impact for its customers. It should ideally become a critical part of the customers’ business in long run.
2. A simple measure to evaluate the impact-scale is recurring revenue-per-customer and growth in revenue-per-customer. Typically, customers are willing to pay a tenth (or lower) of the “impact / value” created for them by the startup. Therefore if the revenue per customer is low (<$10,000), it’s nearly impossible for the startup to scale meaningfully. The growth in revenue-per-customer signifies the extent continuous additional value-creation.
3. Category Leader: The startup needs to have a path to elevate from an Impact Creator to a Category Leader – a position of stronghold in its category via a strong product IP, technology differentiation and unmatched intelligence. Category Leaders command a strong value in their ‘category / vertical’ of business and become indispensable to their customers.
4. A key measure of Category Leadership is the market share of the total opportunity that can be captured by the Company. Typically, a Company will not be able to garner more than 10% of the total market. Therefore, it is imperative for the market opportunity to be large enough for even a10% market share to create large value (10x-50x).
5. Value-chain Controller: When a Category Leader enhances its product-offerings to cater to multiple stakeholders in the value-chain, creates intelligence that can potentially transform how the business operates and becomes an integral part of the entire value-chain, it yields tremendous power as a ‘controller’ of that value-chain. This is the point at which value multipliers start growing exponentially (100x+) because the ‘Controller’ starts tapping into previously untapped & unknown value-pools.
6. Learn more about: CSVP Fund | CGES Index | Enterprise SaaS

~ Vatsal

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Zoom: 70,000+ enterprise customers in 8 years

Slack: 85,000+ enterprise users in 10 year

QuickBooks: 750,000+ registered users in 15 years

Previously we talked about impact-scale balance, and how low-impact solutions (annual pricing <$100K) require significant sales & marketing effort to reach a meaningful scale, making it capital inefficient.

But, as always, there are exceptions! Some products have the ability to catch onto enterprise virality – a phenomenon, where certain products become de facto industry standard due to widespread acceptance and usage

In such situations, the cost of customer acquisition can come down to near zero, enabling significant RoI on sales & marketing investment, akin to a high-impact B2B product.

We look for such enterprise products that could possibly mimic a B2C app in terms of sales & marketing effort, while creating the B2B SaaS like impact and stickiness.

For enterprise solutions to be able to catch onto such virality, there are certain conditions that a product would need to satisfy:

1.      Self-serve SaaS: Cloud based, zero touch, intuitive platform for users to download, use and pay on their own

2.      User-driven Networking effect: Immediate value creation for the user; increased value for all with more users on the platform

3.      Universal use-case: Solving globally relevant problem using the same platform / approach

Conclusively, in cases where the solution is targeted at non-critical processes and creating not-so-significant impact, we look for its ability to catch onto enterprise virality to be able to create exponential value for our investors.

Learn more about: CSVP Fund | CGES Index | Enterprise SaaS

~ Vatsal

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Investment selection methodology is typically driven by a fund’s investment thesis, opportunities / areas of focus, stage of participation, and target returns.

Yet it’s hard to compare / co-relate investment selection process of one fund with another; one often sees very different looking portfolios emerge from similar kinds of funds!

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In fact, funds with similar investment thesis may tend to make different investment selections - clearly there is more at play here than the obvious quantifiable tangibles!

Intangibles such as the ‘chemistry’ between the fund manager and the entrepreneur make a huge impact on the investment decision. For example, some fund managers like aggressive founders who are highly self-assured and follow their own path, while others like founders who are malleable in nature and could be coached with ease.

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Our thinking at Cornerstone is a mix of such factors too. Summarized below:

Tangibles: Quantifiable - therefore measured as a part of the selection process

1. Opportunity - Market Size, Market Characteristics, Solution Uniqueness, Value/Impact Created, Competitive Intensity, etc.
2. Scalability - Growth Strategy, Smart Growth Hacks, Partnerships, No / Low Capex Models, etc.
3. Capability - Domain Depth, Team Strength, Partnerships, Customer Traction, Revenue Pipeline, etc.
4. Monetizability - Business Models, Revenue Models, Value-creation Potential, Exit Opportunities, Ease of Exits, etc.

Intangibles: Learned via. the diligence process and interactions with the founders

1. Alignment of Vision - It’s more important for us to align with the Founder’s vision for the company rather than push our views through
2. Maturity & Fortitude - Entrepreneurship is no easy journey and several meandering paths lead to success; founders need to have the maturity to see through this journey while keeping an eye on the end-goal!
3. Transparency & Forthrightness - Critical attributes that we look for in founders; these typically emerge through our diligence process

- Abhishek

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Returns maximization is the fiduciary responsibility of every fund manager! So what’s the most suitable stage for an investor’s participation in a startup?

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There is no one right answer to this question and every investor needs to evaluate what’s right for them…driven primarily by what value-addition she/he brings beyond capital!

For example, if your strengths are in helping in product design, setting up technology stacks, develop and pilot business models, etc., it’s best you put those to work and engage / invest in early-stage companies which are still building their value-proposition and seeking the most meaningful way to do so!

On the other hand, if your core strengths are in the ability to enable go-to-market opportunities, new geographies, tapping into new customers, evolving business models, and driving scale thinking, then your best bet is to invest in companies that have established a certain scale and commercial validation.

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We at Cornerstone, certainly are the later kind, and simply follow a few handful of directional principles:

1. Established product-market fit - implies engaged and paying customers
2. Validated commercials - basis proven value proposition that’s solving a valid real-world problem for a customer
3. Global relevance - ability to replicate the success achieved in new markets and new segments

Having said this, of course once in a way we come across founders who, though early in their journey, bring deep domain expertise, and are solving a large interesting problems which have the potential to create tremendous value; Our 10^12 Program caters to exactly this!

Most of all it’s important that engaging with a startup, whatever stage, has to be mentally stimulating and professionally gratifying for an investor - else what’s she/he doing on the cap-table anyway?

- Abhishek

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When investing in B2B startups, typically Series A / A+, one of the most critical measures we use is the Impact-Scale balance!'

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A very simple question which helps us answer this:

How many customers do you need to reach a revenue of $10 million?

If the answer is anything more than 500 customers (~$200k per customer per year), that’s a red-flag for us! It implies that the startup isn’t able to generate significant revenues from it’s customers … which really implies it isn’t creating significant meaningful value for it’s customers!

Typically customers are willing to pay a 10th (or lower) of the “impact / value” created for them to the startup. Therefore if the revenue per customer is low it’s nearly impossible for the startup to scale.

Challenges are two-fold:

1. Retaining existing customers:
2. Let’s take an example of $10k per year, simply implies the quantification of the impact created is $100-200k at best! That’s clearly not large enough to keep the customers interested in working with the startup for an extended time duration. Additionally, there is a high risk of substitution as the customer could easily opt for the next cheaper option, and worst of all, the customer may just stop using the product / solution.
3. Scale requires a large number of customers:
4. If a startup requires 10,000 customers to reach a reasonable revenue number, the cost of customer acquisition and the cost of operations are going to be prohibitive. Such a large B2B customer base requires a huge operations team, significant on-ground operations, and an enormous customer success team to support them; therefore non-viable to scale!

For us as investors, a lack of this balance of impact-scale is a deal breaker when evaluating potential investment opportunities.

- Abhishek

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9th July, 2019: Happy to announce our investment in Wigzo Technologies.

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Delhi based Wigzo, provides cloud based AI solutions for marketers to enhance customer engagement and improve investments on marketing spends.

Wigzo’s customers include several online commerce companies of varied sizes and formats. Wigzo’s solutions not only automate digital marketing campaigns, leading to optimizing spends and enhancing RoI’s, but also provide customers an ability to make sense and build intelligence on their CRM data, and thus engage effectively with customers. Key value-adds include personalized and contextual marketing campaigns with over 70% better RoI on spends.

Umair Mohammed, Co-founder & CEO, Wigzo, said “Cornerstone brings tremendous experience and expertise in scaling up companies via their network of GTM Partners.”

Nanika Kakkar, Investment Director at Cornerstone, said, “We have known Umair for a while and seen how committed and patient he has been in building his company as a leading innovator and been delivering measurable value for their customers. With significant customer traction and revenues achieved, this is the right time for us to come in and help drive the next phase of growth for Wigzo.”

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B2B / B2B2C Models: We are positioned well for such investments

1. Sophistication of problem - not run of the mill / pedestrian in nature; sure feels more meaningful to engage with
2. Visible impact - paying customers / repeat customers who are actually seeing the value of the solution / product
3. Experienced / profound founders - not college kids; have typically spent double-digit years in their industry / domain; there is always a lot to learn from them
4. Meaningfully scalable - sustainable models that need to be scaled; requires minimum capital and a path to unit economics is fairly visible
5. Relatable - given our past experience - the entire team comes with a B2B investing back-ground - guess we are in comfort zone when it comes to investing in such opportunities; which also ensures that our value-addition is far more visible
6. Exitable - from Day-1 one is able to predict / target a potential exit; it’s our job to orchestrate it at the right time to ensure the right multiples are generated

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25th July, 2019: Announcing our investment in Intelligence Node

Retail analytics and pricing intelligence leader Intelligence Node today announced the successful close of its Series B funding round with new participating investment partners Cornerstone Fund (CSVP Fund) and Calibre Ventures. Existing investors, MegaDelta Capital Advisors (erstwhile NEA India funds) and Orios Venture Partners are also participating, leading the company to its total funding amount of $10.6 million to date.

Intelligence Node will use the funding to accelerate its goal of capitalizing on a unique market opportunity. Intelligence Node is now the leading independent player in this space having a fully productized solution and is well-positioned to capitalize on its market leadership, offering retailers a competitive solution providing the depth of coverage and superior performance which cannot be matched by in-house teams.

“We are seeing really good momentum in the market for Intelligence Node's AI-enhanced retail pricing solutions,” said Abhishek Prasad, managing partner, CSVP Fund. “The brand itself has established clear leadership in the retail technology space on a global scale and the executive team, led by CEO and Co-Founder Sanjeev Sularia, has done an amazing job molding Intelligence Node into an industry force to reckon with, especially in the U.S. Cornerstone is excited about this partnership and is convinced that the startup will double in value by 2020.”

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