"WEEK 26"

Nov 29 - Dec 6

Happy Sunday folks! Vedica here with the weekly round-up today. It was a long week after the Thanksgiving break and we have a lot of news to cover. Our long story this week is Anmol's take of Sequoia Surge and the larger seed landscape.

Sequoia Surge and more thoughts on seed.

Late last week, Sequoia's seed scale-up program announced it's latest batch of companies. Interestingly more than half of the companies are building for global or regional markets (that they are presumably not based in) and are HQd all over Asia & even in the US and Australia.

Now coming to the part that shocked me a little: "Surge 04 startups collectively raised $45.35 million in their Surge round from both Surge and co-investors." The average Surge company in the current batch raised a >$2.5M seed round with Pagarbook probably raising the largest round, followed by LambdaTest & Plum and the rest (not all the rounds are public yet).

With the four batches, Sequoia has backed just under 70 companies and since they invest $1-2M (at the minimum, I assume they might do more in some others) in each company, they have now invested over $100M through the program. I had previously talked about the explosion of seed rounds in a substack piece a couple months ago but maybe I had downplayed the influence of Sequoia.

The explosion of seed seems to correlate to both Sequoia launching Surge as well as YC expanding their batches sizes for Indian companies. And this year, amidst a global pandemic the early stage market can only be described as insanely competitive. And while there are more and more investors entering the market each year, it seems like the number of founders is shrinking.

With platforms like AngelList and LetsVenture, almost anyone can run a syndicate and invest in companies, and with the massive Jio fundraises more firms in the US are also actively looking towards India - but where are the founders?

To this I can only speak anecdotally but after talking to friends who've been working in the industry for a bit, the one major takeaway I have about Indian startups is that being a founder is really fucking hard, and being one in India is even harder. The operational headaches of running a company along with the hyper-competitive environment can really take it toll on folks. On top of all of that it really seems like its culturally ingrained in us to try to tear down founders and companies who are doing well.

Thus while we have all these investors with huge new funds, there is still a very real lack of founders starting companies, resulting in the second-time and third-time founders raising huge seed rounds- and at times double digit figures diluting over 30%+ of their companies at the earliest stage.

The other result of this hyper-competitive environment has resulted in firms doing things they might not have a couple years ago. Rahul Mathur (founder @ BimePe) wrote about his own observations raising his pre-seed round where a lot of the top tier venture firms (which traditionally) invest in Seed/Series A companies are now writing ~$150k pre-seed checks.

It seems interesting and a little weird that $100M - $300M esque funds are writing option checks as tiny as $150k, but that probably just shows what kind of hyper competitive environment the seed landscape looks like currently.

The reason why I say "interesting" is that the same firms putting a couple hundred thousands in a pre-seed or seed round for low single digit percentage ownership are also investing several million dollars in other seed rounds and owning a significant part of the companies- in the mad dash to get into competitive rounds, some firms are potentially not as concerned about ownership targets.

I'm a huge fan of Sequoia's surge program because the best founders of the country can now partner with Sequoia from the very earliest stages and continue to work with them through their venture and growth rounds, but I do hope there are other larger scale programs that actually drive the exponential growth of new founders in the country.

Until then seed & pre-seed will continue being frothy and while some firms (under pressure to deploy) will buy into the hype, some will play the patient game and stick to their check sizes and expectations of ownership.

Rohan Malhotra (Managing Partner @ Good Capital) also had this great piece on the early-stage investing in 2019 and the hype continues to grow into 2020.

Weekly Recap:

  1. Kaagaz Scanner raises $575K in funding: Homegrown document scanning and storage app, Kaagaz Scanner has raised $575,000 led by Pravega Ventures, alongside Axilor Ventures, Better Capital and a few prominent angel investors. The company had been backed by First Cheque and Axilor Ventures in its pre-seed round. Since its launch in June 2020, Kaagaz Scanner is installed on over 1.9 million phones. More than 90,000 people use the app every day and more than 50 million pages have been scanned using Kaagaz so far. The app's USP, its founders say, is that it is completely offline, has no ads or watermark, and requires no sign in to use.

  2. India sets rules for commissions, surge pricing for Uber and Ola: In India, the state always threatens to intervene and it finally properly has in the case of ride-hailing apps. The Road Transport Ministry has issued guidelines that will provide an overarching regulatory framework for ride-hailing apps to operate under, and it's not good news for these firms. According to the guidelines, ride-hailing firms can only charge a maximum 20% commission on ride fares. Further, surge pricing has been capped at 1.5x the base fare and the floor for discounts at 0.5x base fare.

  3. CRED raises a $80M Series C: CRED, the popular fintech that just turned two, has raised an additional $80M in a Series C valuing the company at $800M. This is a significant increase from the company's previous valuation of $450M when the company raised their $120M Series B. The interesting thing about the round was that it was mostly (if not completely) done by existing investors in CRED- led by DST Global with participation from Sequoia Capital and Ribbit Capital.

  4. Unacademy raises at a $2B valuation from Tiger Global and Dragoneer: EdTech company Unacademy has raised an undisclosed amount from Tiger Global Management & Dragoneer Investment Group, valuing the company at $2B. The comes just 2 months after the company was valued at $1.45B following an investment from SoftBank's Vision Fund 2. The comany's subscription product has completely blown up in 2020 - the company has grown its revenues by 9x in the last 12 months.

  5. Loop Health raises $2.3M in a seed round led by Sierra Ventures: Tech-driven health insurance co Loop Health has raised a $2.3M seed round led by Sierra Ventures along with participation from Y Combinator & Soma Capital. Several angels also invested in the round including former Google Ventures partner Daniel Burka, Twitch ex-CTO Kevin Lin, and former WeWork CTO Shiva Rajaraman. The company was founded in 2018 and offers companies group health insurance plans from various insurers bundled with a virtual primary care experience with their in-house medical team.

  6. LambdaTest raises $6M from Sequoia & Blume: Cloud-based testing platform LambdaTest has raised a $6M round (seed? Series A?) from Sequoia (as a part of its Surge program), Blume and Leo Capital. A couple of angel investors including DoorDash exec Gokul Rajaram also participated in the round. LambdaTest is a cross-border startup (based in the US and India) and has built a cross-browser testing platform to let developers automate testing across thousands of browsers and devices.

  7. PhonePe raises $700M from Walmart: Flipkart is finally partially spinning out PhonePe - the fintech with the most popular UPI app in India. The company is now being valued at $5.5B and the round was led by Walmart with participation from some existing investors. As a result Flipkart's ownership of PhonePe is also being reduced from 100% to 87% but gives the company access to capital in a highly competitive & high-burn space.

  8. Fisdom raises $7M led by PayU: Wealth management startup Fisdom has raised $7M in a round led by PayU with participation from other backers including Quona Capital and Saama Capital. The company had previously raised $11M in a round last October. Fisdom provides technology-enabled wealth management services including solutions for investments, savings, and protection.

What we've read this week