Are Micro-VCs the Way Forward For Start-ups?

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Gaurav Arora, Head of Startup Ecosystem, Asia Pacific and Japan, Amazon Web Services (AWS) ,and Rajat Tandon, President, IVCA speak to Ms. Urvi Shrivastav, Editorial, BWBusinessworld about the role of Micro-VCs in today’s start-up ecosystem, and why they are the need of the hour!

Urvi: What has led to the rise of Micro VCs and what role they are playing in powering India’s early stage startup ecosystem?

Rajat Tandon: India has a booming vibrant and prosperous Startup ecosystem. The growth of these Startups is supported by investors ranging from angels and incubators to large global VC funds. In the past decade, Micro VCs (including funds with the latest active fund size of

Micro VC investments are starting to bear fruit as some start-ups funded by Micro VCs have become unicorns and many have gone to raise their next funding rounds. They have been able to add value to their portfolio companies as well as generate some good exits as stated in our report, ‘Micro VCs have infused US$ 341M in the Indian start-up ecosystem through 730 deals across 566 start-ups in the past 3 years. Going forward, we expect Micro VCs to play a prominent role in the Indian early-stage start-up funding space.

How are Micro VCs creating unique value propositions by addressing the gap between Angels & bigger VCs?

Rajat Tandon: Micro VCs are thriving in India, have increased to 88 funds in 2020 from 29 in 2014. The increase in number is driven by India’s booming startup ecosystem, micro VCs’ ability to fill the funding gap between institutional and angel investors, and increasing domestic LP interest in start-up models. They have nestled themselves between accelerators, incubators, and the larger VC ecosystem. These funds are giving the much-needed risk capital as early-stage start-ups seek to achieve product-market fit and become ready to scale with stable business models. Though the cumulative dollar spending of the entire lot may be equal to the largest Series D or E financing, the impact of the Micro VC funded universe can be 10x larger in the long term. The Micro VC stage of investments with a smaller fund size is the highest risk capital asset class that is supporting India’s next-gen innovation-driven entrepreneurs. Several smaller funds that started a decade ago have not only enabled an established Startup-VC ecosystem that we witness today but have also outgrown themselves, supporting their early bets in later rounds as well. Some of those startup founders have grown to become Angel/VC investors or Limited Partners (investors in VC funds) themselves. Such is the compounding effect and importance of Micro VC funds.

What are the primary industries micro VCs focus on and why?

Rajat Tandon: The number of Micro VCs has been increasing due to their potential of addressing a funding gap and booming Indian Startup ecosystem. Micro VCs typically invest in the sunrise sectors, ~60% of micro VC investment in 2020 were in SaaS/AI sector, consumer apps and platforms, e-commerce, and listing platforms. We also did a survey with a few of the Micro VC Funds and out of the 46 Micro VCs surveyed in the study, 52% are sector agnostic; SaaS/AI, BFSI, Healthcare & life sciences are the major focus  verticals for Micro VCs

How is AWS using technology to nurture future startups?

Gaurav Arora: Since AWS launched nearly 15 years ago, our goal has always been to enable anyone to access the same scale and advanced technology services as the largest companies in the world. We fundamentally believe that making powerful cloud services available to everyone democratizes innovation and allows the best idea or business model to succeed – not necessarily the one with the most resources behind it. Today, we offer a broad range of programs and initiatives to support start-ups at every stage of their lifecycle, from early-stage through to maturity. At the earliest stages, our AWS Activate program provides qualified startups with a host of benefits, including AWS credits, technical support, and training.

• Since 2013, AWS Activate has provided hundreds of thousands of startups with a host of benefits, including AWS credits, technical support, and training.

• Amazon provided more than $1 billion in AWS credits during 2020 to help early-stage start-ups launch their businesses and accelerate their growth. With this help, start-ups are using scalable, reliable, and secure cloud services like compute, storage, database, analytics, Internet of Things, machine learning, and many others from AWS to scale their businesses.

• Just recently we released the Activate Console, which is designed to support founders through every stage of their startup’s journey: from the initial idea to building the MVP to securing the first customer, to scaling the business on AWS and beyond. The Activate Console offers founders personalized recommendations on a wide range of training topics that might be of interest based on their AWS usage, and also tracks and monitors a user’s AWS credits and costs. We also offer extensive cost optimization services to our customers. Our team members are actually tasked with reducing a start-up customer’s cloud bill, ensuring start-ups make the most economically efficient use of our services. We also offer tools our customers can use to self-manage their cloud consumption.

• AWS Cost Explorer service allows users to better manage their spend, and even set alarms when specific thresholds are reached

• AWS Trusted Advisor provides an online tool that helps startups reduce costs, increase performance, and improve security by checking their use of infrastructure and services, and makes suggestions to help optimize performance. Ultimately, we believe the AWS Cloud is the best place to build a start-up, and we strive to create the best possible environment for founders to bring their ideas to life. Our start-up customers tell us they choose to build on AWS because of the agility and flexibility the cloud provides. Furthermore, the cloud is global, meaning that a solution built in India can be deployed anywhere else in the world, in just minutes. This scalability that AWS’s global infrastructure offers is essential to hypergrowth startups as they grow and expand into new international regions.

A good example of how India’s startups are realizing the benefits of cloud computing in the health and fitness startup, Cure.fit. When COVID-19 hit last year, the company had to shut its physical gyms, but quickly saw they could stay connected with customers by running virtual workout classes and creating personalised online programs. The success of this new offering led to a sudden spike in traffic to Cure.fit’s website, which they were able to manage by leveraging Amazon CloudFront, a fast content distribution service that securely delivers data, videos, and applications to customers globally.

AWS has the broadest and deepest set of capabilities of any cloud provider, with more than 200 products and services available to startups, and our team can help startups determine which services are best for them as they grow and mature. No matter what a startup wants to do, we have the tools and applications that enable them to do it on the AWS Cloud.

How has AWS worked with Micro VCs to provide successful growth for startups? Any examples?

Gaurav Arora: We see Micro VCs as such an important pillar of India’s dynamic startup ecosystem, providing essential capital at the very earliest stages of a startup’s growth journey. Supporting early-stage start-ups to launch, build, and grow business ideas successfully is something that we at AWS aredeeply committed to, as well.

We regularly facilitate programs designed to build connections between the Micro VCs in ournetwork, and the startups we work with, setting up opportunities for early-stage founders topitch for funding, and gain valuable mentorship to support their growth, too. AWS works with a broad network of Indian Micro VCs, providing their portfolio with support through the AWS Activate program, which provides benefits like AWS credits, technical training, and business mentorship to help early-stage startups get started building on the cloud. A recent example of how we’ve worked with the local Micro VC sector that I’m particularly fond of, is a collaboration we ran with Campus Fund, a Micro VC focused on nurturing student start-ups. The Grand Challenge was designed to identify student entrepreneurs who are leveraging technology to advance emerging industries like agritech, fintech, and robotics. That program and its support for India’s younger innovators specifically, demonstrates the great impact that Micro VCs can have in India’s ecosystem.

How are cloud-born startups revolutionizing the investor landscape, and what are the upcoming trends?

Gaurav Arora: Cloud services are incredibly cost-effective and can quickly give start-ups access to computing resources as they need them, on a pay-as-you-go basis. This can often mean that born-in-the[1]cloud start-ups can get building faster, and with less capital, while maintaining the ability to experiment, fine-tune the right product-market fit, fail fast with low financial impact, and recover easily. In fact, Silicon Valley VC, Marc Andreessen has said that the AWS Cloud has helped to lower the cost of running a basic internet application from about $150,000 per month, to $1,500 per month – a 100x difference.

The cloud has democratized innovation in a remarkable way. Let’s look at the fintech space, for example, which is one of India’s most exciting sectors to watch. We work with many startups who are pioneering in this space, including Gain Credit, Zest Money, Krazybee, Upstox, EasyPay, and more, and they are all leveraging the cost-effective nature of cloud computing to try innovative new features with less risk, and improve the way Indians manage their finances, whether that’s securing loans faster, making it easier to invest, providing better access to cash even when ATMs are less accessible, offering convenient contactless payments, and more. Cloud computing has given start-ups at even the earliest stages, access to the same level of innovative technology, security, and global scale that the world’s biggest companies have. In terms of upcoming technology trends, we’re particularly enthusiastic about Machine  Learning, and our start-up customers are, too. AWS’s range of advanced services takes care of much of the ‘heavy lifting’ in building a start-up, allowing founders to focus on developing those aspects of their business where they can deliver the most value quickly and cost-effectively, even for non-technical founders. We’re seeing start-ups use our Machine Learning services to create chatbots or personalize e-commerce offerings to enhance online shopping experiences, and even to heighten consumer identity protection. A good example is KreditBee, a fintech start-up that aims to increase loan eligibility for students and self-employed users, as well as newly banked individuals. Currently, KreditBee is enabling consumer credit for its four million users, with a goal to help them access different types of microloans to pay for essentials like medical expenses, university tuition, and more. They’re using our facial recognition service, Amazon Rekognition, to confirm a loan applicant’s identity by verifying the photo taken during  the application process against the identity documents uploaded



Categories: Investing Professionals, Micro VC

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