VCCircle Startup Walkabout Pit Stop IV: Blume Ventures says local capital on the rise

Early stage investor Blume Ventures is known for its investments in the pre-Series A round where its sweet spot is around $500,000. Last October, the firm closed its second fund of $60 million with a focus on business to consumer (B2C) sectors.

Early this week, it announced that it has entered into a strategic partnership with US-based Draper Venture Network (DVN), an alliance of independent venture capital firms.

In an interaction with startup founders as part of a Walkabout at News Corp VCCircle Startup Summit 2017, Sanjay Nath, co-founder of Blume Ventures, and his team shared their thoughts on outsourcing technology, intellectual property (IP)-related issues and domestic capital. Walkabout is a unique VCCircle initiative where entrepreneurs get to visit offices of marquee investment firms and listen to top investors as they talk about their strategy and what matters to them before they write a cheque.

Nath said there is no ideal founder mix, but if a team comprises founders who are strong on the business side, then the firm outsources the function of the chief technology officer. The outsourcing is typically done just before the startup raises money.

“In Bangalore, we had an alliance with somebody who specialises in (outsourcing). What we found is that if you only have business skills and tech is going to be outsourced, that can take you only so far. At some point, you have to bring (the tech guy on board) and it can’t be a junior developer; it should be a CTO,” Nath explained.

More than five years ago, most venture capital funds raised capital from the US or another country. However, now with the number of local angel investors on the rise, there is more inflow of domestic capital.

“We are always asked this question – why do fund managers go abroad to raise money for India-focused funds? Why don’t they raise Indian money?” Nath said he is optimistic about the government’s move to address this issue through the startup programme.

One area that needs significant restructuring is IP, and the government has taken note of this issue. “India is not the best location to house your IP. We don’t have a good way to register. The time it takes to get everything on record is humongous and infringement is really bad,” said Ashish Fafadia, CFO of Blume Ventures. However, he said startup founders over the years will find it increasingly challenging to stay in India and create an entity in the US just for the sake of funding or valuation. There is merit in shifting business operations abroad only if the market is located there, “You need to be closer to your market. You can be in the US if your vendors or key enterprise customers are going to be there,” he said.

Nath explained that some companies consider setting up their IP abroad for the wrong reasons. Firms should try to complete their funding round and then migrate.

Fafadia said at times the firm has advised startups to file their IPs only after they have completed their Series A round. A small nuance that startups should consider when filing for IP, is to consult their attorney who will ensure that their registration abroad covers all infringement-related issues. “In an effort to save costs, startups end up registering in one jurisdiction,” he explained.

Blume Ventures typically co-invests with other VC firms such as Tiger Global, Accel Partners and Nexus Venture Partners, among others. Through its second fund, it has mostly backed tech firms across verticals such as fin-tech, ed-tech and health-tech. Fafadia said these three sectors will largely drive investment activity for the firm.

The firm’s portfolio companies include energy management startup Zenatix, bitcoin exchange Unocoin, food delivery platform Runnr, student micro-financing startup SlicePay, medical devices firm Tricog Health, and food-tech startup MonkeyBox.

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