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[Ask A VC] Finding diamonds in the haystack with Vinod Jose

In this episode of #ASKAVC, We sit with Vinod Jose, founder of KongloVentures. KongloVentures is a seed funding firm based in Cochin, India, with partner offices in Dubai and New York. since its inception, Vinod has syndicated $7m+ into 20+ startups and secured 5 exits. As an experienced angel investor, Vinod shares his investor perspective to anyone seeking to embark on an astounding journey as a successful investor.

Q-How did your journey as an investor get started?

A- It happened by chance. Please bear with me as I tell you a long story.

I come from a typical middle-class family, where the focus was on good education and getting a job. We never talked (nor are taught in schools and colleges) about money or how to think about money apart from the conventional wisdom of ‘savings’. Post my graduation in Mechanical Engineering, I worked in Accenture for 4 years in Bangalore, when I became ‘financially independent for the first time, but very quickly got into the debt trap with credit card payments and dubious investment products such as ULIPs and Mutual Funds. Moreover, I was always interested in understanding how a business, the economy, and the broader world works but did not have any access to resources to gain that understanding in the first 27 years of my life.

I decided to change that by getting an MBA from European Business School in Germany - 1) to get a jump start on basics and 2) to get exposure to the broader world and put myself in an environment that will force me to grow.

Post my MBA, I got introduced to the world of investments through books. Suddenly a whole new world opened up to me, something I was looking for my whole life and I started consuming any piece of information I could find, especially stories of successful investors (they became my heroes - Charlie Munger is one of my favorites). This was the beginning of the knowledge-building phase, which continues to date. (To be an investor, you have to be a life-long learner and it is a mindset/approach to life).

I then had the opportunity to work in an e-commerce startup in Munich which was funded by Rocket Internet. I was part of the core team that grew to a 100-member team as we expanded pan-Europe in 1 year. It was a great learning experience, working closely with the founders and wearing multiple hats in a dynamic team environment. This was my introduction to startups and the venture capital world.

After the startup, I joined a management consulting firm focused on the global mining and metals sector and was traveling around the world (Europe, Middle East, Africa) working on strategy projects. By this time, it had been 8 years since leaving college and my friends were in different parts of the world pursuing different careers and settling down in life. As we were losing touch, I wanted to find a way to rekindle the connection and we thought of doing something together which will create new shared experiences. From a long list of opportunities we looked at, we shortlisted startup investments in India.

Q- Which sectors are you interested in investing in? Prior to investing in a startup or a sector, what factors do VCs/Investors consider most important?

A- I am sector agnostic and invest in early-stage startups (up to pre-Series A), which typically fall into one of the following categories:

Prior to investing I mainly look at:

  • A large problem statement, i.e., a problem that is hard to solve and needs to be solved, that a lot of customers are facing → so that there is a large market size for it (only then is there potential for building a large company and therefore building a large company and creating long term sustainable value)

  • Strong founding team (with deep conviction and high skin in the game), with complementarity in skillsets/chemistry, deep understanding of the market they are playing, ideally with unique insights they have found from their past experience, and clarity on how they will enter and dominate the market

  • Validation of the business model via early traction, customer feedback, and favorable external / market forces (incl. underlying demand drivers, timing)

Q- What does the decision process look like to say, “I am investing in this company”?

A- Pitch deck review → Pitch call (1 on 1 or with my partner Anas Rahman Junaid or with a broader group of co-investors from Konglo and SupremeYield) → Internal discussions with co-investors (+feedback from market/technical experts) → Further rounds of discussions/grilling with the Founding team → Sleep on it → Intense discussion with Anas → More sleep → Call Founder with the investment decision.

Q- Even the most experienced & celebrated founders & teams fail often in the startup world. How do you predict/identify the next unicorn?

It is quite hard to predict but over the years there are certain patterns of successful founders/setups that we recognize. Becoming a unicorn is a function of playing in a very large market, with rapid growth (in many cases which is a function of massive fundraising). Even if you have identified a very large problem to solve and you have a good team, a good product, etc, there are several factors that are not in your control to get to a large outcome such as timing and loads of luck. Rather than looking only for unicorns, we build a portfolio that can consistently give 3-5x returns with a few that have the potential to go on to become unicorns / give large outcomes.

Q- What are some of the red flags that indicate a startup isn't on track?

A- Lack of product-market fit, the market is too small, the founder doesn’t have enough depth in market understanding, founders with low skin in the game, distracted founders/lack of focus, fluctuating strategy, lack of vision/ambition, unhappy customers …

Q- What are the metrics you use to evaluate a startup's success?

A- Have they given a return to shareholders, if yes - return multiple, i.e., money on money, time to exit, and IRR.

Other metrics that I like to think of include jobs created, and impact on customers (i.e. is the world a better place because this company exists).

Q- How do you typically handle portfolio startups after you have invested money in a startup?

A- I like to build relationships with the founders and help them in any way I can (e.g., the customer connects, thinking through strategy, being a sounding board, helping with next round fundraising, general chit chat, a shoulder to cry on). I am regularly in touch with most of the founders in my portfolio.

Q- What’s your motivation as an investor? There's also a financial aspect, but you look at an investment and say, "Hey, this is going to be great, and we're gonna make a bunch of money." Would it be fair to say that there's also their technological fascination that you kind of wants to foster, etc? What makes you invest in a business or what gets you excited about it?

A- I believe technology is at the core of human progress and in the current world, it is a great leveler that enables upward social mobility. I am a user of technology and immensely value the benefits it provides to society but I am not necessarily fascinated by the actual mechanics behind it.

Apart from the potential financial returns, what really motivates me because of which I have been able to keep doing this over the last 9 years are:

  • It is a way for me to stay connected with India

  • It is a sustainable way of giving back to the society (vs. charity), with real impact (via job creation)

  • It is a way of leveraging my expertise outside of work and using it for value creation somewhere else

  • It is a way to experience the startup journey (through the eyes of a founder), as I missed the ‘startup wave’ - when I graduated no one knew what startups were :)

  • It is a fun activity that I am doing with my close friends, and it leads to new shared experiences

  • It allows me to build a very interesting and unique global network

Q- What are some of the things that VCs wish startup founders knew before they pitch?

A- Know what the investors care about - at the end of the day, it is about making money while solving something that matters. So think of how you can map your pitch to ‘investor speak’ very quickly.

This means you should be able to:

1) get the attention of your audience and generate curiosity → large problem statement, validated with pain points/use cases [there is money to be made]

2) generate excitement → about large market size, interesting solutions, and business models [a lot of money to be made]

3) generate FOMO → strong team with a clear GtM strategy and competitive edge [this is the team that can get me that money]

The above is roughly the emotional journey that an investor goes through in a successful pitch.

Q- What is the most important thing to you in a startup? Is it the business model or value creation?

A- Value creation. Business models can change, you will experiment to get it right. But fundamentally if you are not creating value, there is no reason for your startup to exist.

Q- Life after failure is hard, how do you support a portfolio founder who has failed at his startup?

A- Haven’t had too many of those, only two so far. In the first case, the relationship ended abruptly but the founder came back to me after several years apologizing for his mistakes and I was happy to see his personal development and maturity. In fact, I invited him to pitch his second venture. In the second case, the founding team was fraudulent and conspired to deceive the investors. So I am not supporting them in any way.

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