Welcome to the AdvantEdge Mobility Podcast!
In this intro episode, Kunal & Ashish chat about the fund, how we started, how we invest in companies, and more on the mobility ecosystem in India.
Transcript
Ashish: Welcome to the AdvantEdge mobility podcast, your one source of everything to do with India mobility and the startup ecosystem in this very exciting domain. Hi I'm Ashish Gupta. And today we are in conversation with Kunal Khattar, the managing partner at AdvantEdge. AdvantEdge is a mobility focused early stage fund investing in shared mobility, electric vehicles, digital auto, and other domains across the mobility ecosystem.
Hi Kunal, and welcome to the show.
Kunal: Hey Ashish, pleasure to be here.
Ashish: So we hear a lot about AdvantEdge and what AdvantEdge is doing in the mobility domain. So why don't we start with a little bit about AdvantEdge and what would be your elevator pitch to founders?
Kunal: Sure, AdvantEdge is India's only sector focused fund in the mobility domain, and when I say mobility, we cover exciting areas such as the, entire electric vehicle ecosystem, we do shared mobility investments, we are also looking at now areas across the auto e-commerce vertical and logistics. The important thing about being a sector focused fund is that the investment is just the starting point of our relationship, and the promise we make is that we bring a lot of domain knowledge to the table, and therefore, we would prefer to partner with companies or startups who are building models in our space. That's why we think that, being a sector focused fund gives us that added advantage, compared to sector agnostic funds.
We are experts at minus one to zero, in a model that we call mentor building. And we help companies go from zero to one, which is a seed fund program that we run. We are not the right partner for companies who have already achieved late product market fit and want to go from zero to 10. So for us, those are sort of some of the criteria's tat we use effectively to differentiate ourselves from others.
Ashish: That’s interesting Kunal, I think what advantage is doing in the mobility domain, maybe you can share a little bit more about how did you get into investing and really, how did you to start? Like, what was this whole passion about getting into mobility or being a sector focused fund?
Kunal: Sure. So now I've spent my entire career, mostly in technology, including some years in the Bay area and 10 years in the U.S., also got my hands dirty in the private equity sphere, I’ve been both on the buy-side and sell-side, I've raised venture capital, I've raised debt, so I have a deep domain knowledge in automotive.
I've spent in fact almost close to 10 years in the auto domain, especially in the aftermarket space here in India itself, so given my passion for the auto industry, and the insights that I've drawn from running my own business in the auto domain, and also the fact that I've spent many years in investing, I realized that my true calling was AdvantEdge, which we we've sort of morphed into an early stage seed fund. I had been doing some investing as a seed investor, as well as an angel investor. And what I realized was that, India is very early in its investment cycles and a majority of founders have a lot of passion and energy, but really that ecosystem did not exist. I thought it was very important to create a platform that would solve for a lot of the issues and challenges that early stage founders face in a country like India, where the ecosystem is still not evolved.
And that was sort of the preamble on the basis of which we set up AdvantEdge almost six years ago now.
Ashish: Okay. And also it's interesting Kunal, you spoke about investing and how AdvantEdge invests, so maybe we can delve a little more into just purely investing - how do you really invest, what do you look for, when you are investing both in teams and in companies is there a framework, is there a structure?
Kunal: So to be honest with you being a sector focused fund gives us a little bit of an advantage of probably filtering out a number of pitches that come to us, which may be not in areas that we are keen on investing that allows us to actually spend, a considerable amount of time with every opportunity that we receive that comes from within our domain.
So that has really helped us in identifying the right teams to back. The good thing is that was being a sector focused fund, we created an investment thesis in fund-I where I would say that we were very fortunate to have identified the shared mobility model back in 2015 with the entry of companies like Uber and Ola, but their focus is predominantly on four wheelers.
We realized the potential of shared mobility in a country like India, which always has issues and challenges of inadequate capital in the transportation and mobility sectors, whether it's private or public or shared or personal, we recognize the need for technology to come in and improve the efficiencies in that.
So we were very bullish on shared mobility. But I think what we were very disciplined about was that we wanted to focus only on form factors where the typical price point for commute was less than a dollar. So we backed companies in the two Wheeler space and the rickshaw space and, companies using buses to provide solutions.
We also avoided asset heavy models, because we realized that in a country like India, managing assets on the ground was a challenge. And I think that discipline and that focus on identifying and investing in asset light platforms that are delivering solutions at under a dollar a day, allowed us to back a number of startups, including Rapido, Chalo, Shuttl, etc., which have gone on to become market leaders in their specific domains.
Having said that, that also allowed us to gain a lot of insights, and the experience of managing these investments and working with our founder partners, which further allowed the team to gain knowledge and understanding of the space, which we then continue to leverage across fund-II where we’ve started investing from.
Being a sector focused fund, we were able to attract and partner with a number of LPs that come from automotive, or mobility backgrounds, including India's largest auto component manufacturer Motherson Sumi, as well as members of the Hero Group family. So that was the other component of the platform that we've built. And now I would say that since we are deep into our second fund, we have now created an ecosystem where our founders from fund-I are up and ready and have created successful companies are ready to partner and mentor with the second cohorts of founders that are coming through fund two.
So I think that’s been sort of the investment thesis, our investment philosophy, and I'd say that we have been successful in creating this platform, which continues to focus on the mobility side. Just like shared mobility was an area that we focused on, we think that India as a country is entering a stage where we think electric vehicle ecosystem is going to be something that's going to explode in the next four to five years. So with that same level of energy and focus and intensity, we are actually looking to deploy capital across the entire ecosystem and fund-II as well.
Ashish: Well, that's very interesting Kunal, What I hear you say is fund-I’s focus was a lot on shared mobility, and fund-II’s focus seems to be on EV, but I think you spoke about some of these successful investments made in fund-I. So can I request you to maybe share what was the reason behind those, and take one or two companies from fund-I and share the story about what was the reason for success? And maybe also share, as you mentioned about fund-II, and the focus on a few companies in fund two that you've invested in, which are resonating with the EV theme.
Kunal: Sure, so let's start with fund-I. That investment thesis was very clear. It was around shared mobility, and a focus on form factors and price point also was very important. So we know that India as a country is a very value conscious, country, and so one area that we identified was that, we recognized, and I guess this was partly as an outcome of our close relationship with the Hero Group is that there are about 240 million 2-wheeler owners in India, and about 18 to 20% of them are either students or are unemployed or working part-time.
So there was a very large supply availability of two Wheeler owners who would be happy to work on a part-time basis, given that you provide them the platform for them to make some money on. So when we invested early in Rapido, their vision was to become a bike taxi company, but very early on we recognized that there was some challenges associated with that because that sort of model was compelling people to make additional capital investment and register their bikes as taxis, whereas, there was a clear recognition that there was enough supply of individuals owning private vehicles. So, the minute we made that pivot from bike taxi to ride sharing, the business started scaling rapidly, and we were able to identify product market fit.
Rapido was a category creator, so it took a little bit of time to establish that category and find out what the true product was, but once we had that identified, we bootstraped Rapido for the initial couple of years, and once we had that scale, we raised capital and we then extended that business across the country.
So I would say that's probably one of our most successful investments to date. I continue to be on the board of Rapido and like I said, so we helped Rapido go from minus one to zero, and zero to one. Now we've been fortunate enough to raise capital from global funds, such as Nexus, and WestBridge, and we feel that their expertise is probably what Rapido needs for them to continue to scale from this point onwards.
Another successful company in our portfolio Shuttl, where we started by using buses for last mile/first mile, recognized and understood that this is not the right form factor for that, but we took that to early morning and late evening commute. That business also scaled very well. We were also fortunate enough to attract investors such as Lightspeed, Amazon, and recently Toyota to come on board. So those are two examples of very successful companies in Fund-I in the shared mobility space.
Another company we’re excited about is Chalo, that is providing a full stack tech solutions to improving the efficiencies of public transportation in intracity commute. They have very interesting technology that they've built for things like cashless cards - making the whole transaction cashless, which has actually become extremely popular now in the post COVID world. They also have GPS tracking devices that allows the entire fleet of buses to become visible on your app so that you can have an accurate estimated time of arrival. That feature alone probably increases bus utilization by eight to 12%.
In fund-II, I think while we were sort of still sort of evolving and trying to prioritize what we should be focusing on, like I'd mentioned earlier, our focus was on the electric vehicle ecosystem, shared mobility, logistics, and e-commerce. What we realize now is that EVs are actually going to end up playing an important role in each of these verticals. So we are looking at a number of companies that are now using electric vehicles to provide shared mobility solutions. Startups are creating e-commerce businesses in the electric mobility domain, logistics companies - whether it's last mile, first mile, middle mile, or commercial distribution networks are now looking to see if EVs can help them improve the profitability of their logistics business itself. So we are seeing EVs now permeating and becoming an important element in all mobility business models across the entire ecosystem. So we have fortunately got a front row seat and given the amount of time we've been spending over the last seven, eight months with the number of startups in that space has helped us understand and get clarity in terms of what should we be prioritizing.
So we've made two investments from that space. Our first investment was a company called Sheru. Out of all the EV form factors, E-Rickshaws was one that's already extremely successful in India with an install base of over 3 million vehicles, but one of the biggest problems that we recognized is the fact that they're all running on lead acid batteries, and therefore they have a capital investment requirement every eight to 10 months. So Sheru is now looking to see if they can solve that model by converting a capex to an opex model by executing a battery as a service model.
The second investment we've made is a company called Electorq that's developed and created micro scooters for shared mobility and last mile, delivery. That's another company that has achieved tremendous success in the short term. This is a company where we have now about 11 graduates from IIT Delhi who are building from factors. Hardware is a tougher model to execute but also has higher entry-barriers from others, so we're pretty happy with the way things are progressing.
And I would say in our pipeline we have about nine or 10 companies in different aspects of the electric ecosystem which we are looking at right now, and we're making some investments in the near term.
Ashish: It seems very exciting what you're doing, I think maybe I'm going to take the liberty of calling you for the next podcast where we can just talk about EVs and what's happening in that space. Because what I hear you say is that EVs are here to stay. It's going to be very big. And AdvantEdge is at the forefront of already investing in the segment and also a healthy pipeline of various startups in India, which have done tremendous work in this segment, so I think maybe we will take this up in our next podcast going on.
Before we close Kunal, I know you've been in this industry, in this segment for many, many years, you, yourself being an entrepreneur, so what's your advice for start up founders?
Kunal: Oh, well I think we could take up the next hour answering that question, but I think that a couple of things I have recognized being an entrepreneur myself, both as a successful and a failed one, and now having interacted with probably north of 200 plus founders over a period of four to five years, I think the number one thing I would suggest, or at least ask people is to become entrepreneurs for the right reason. I think 80% of people become entrepreneurs for the wrong reason, It's gotta be the only reason you should be an entrepreneur - when you've identified a pain point or a need in the market, and it sort of keeps you up at night saying "listen, I know exactly how to solve for that - let me stop what I’m doing and do that". Don't become an entrepreneur for the fame and fortune, that should not be the objective of going down the startup path, that should be an outcome.
So start with a problem, I cannot tell you how many times people come and pitch to us a solution, and then ask “Can you help us? Here's the solution that I'm building, can you help us find the problem it solves?”. That's the worst way to do that.
India is a fairly complex country, It's very different to China and America, so you can try to create me-too products here and sometimes they may work, but what we've seen is that it's always better to make sure that you understand the local nuances, the customer behavior and the needs, and what's the hair on fire problem that Indians are having in their current day-to-day lives. Building solutions around the non-problem is far easier than bringing a solution that's worked in other markets, and then trying to see who the customer is who has a similar pain point here in India.
The other thing that we differentiate as a fund is that there are certain companies that are category creators and certain companies that are just improving the efficiencies of existing well-established companies. If you're a category creator then bootstrap your company for the first couple of years, don't try to overcapitalize it, because it takes time to get product market fit if you're creating a new category. But if you're a category aggregator, then you've got to make sure that you raise capital on a continuous basis because then that's more of a land grab, and then the only entry barrier is capital and scale. So that's distinctly different in both cases.
Age and experience also is very, very different. What we've seen is that if you're building a product which has deep tech and has a lot of intellectual property or technology, or is a digital product, we tend to think that we skew more towards experienced founders because we think that's something that's difficult to replicate, but business models that require a lot of physical execution and operational excellence on the ground are probably better suited for first time founders or younger founders. I mean, I'm sure that I exceptions to every rule don't get me wrong, but I think on the mobility side that’s something that we've also seen across both - we have backed first-time founders, we've backed founders straight out of college, I think they definitely need a little bit more in terms of making them understand what important elements are in terms of executing successful businesses and building, organizations of scale.
So that's the model we refer to as mentor building, and I call that minus one to zero. So we've got experiences on both those, and again, like I said make sure you start for right reason and start with the problem, look for solutions, not the other way around and make sure you have the right age and experience depending on what the business model is, and what category it's in. I think if we had able to filter out and make sure that we have the right founders for the right product, the right solution, I think the probability of success is much better.
Ashish: That's an interesting insight Kunal, you know, every Startup 101 slide says ‘Find a problem. What is your solution? Get a product market fit`, and I think we should do another session on that, where you can walk through all your experiences and AdvantEdge’s own experiences about founders who went on that journey, and I think more interestingly, how did they achieve product market fit? So I think we will definitely cover it in another session.
Thanks so much for joining us for the first session today Kunal, and I look forward to seeing you and other members of AdvantEdge Founders as well. And there's some ideas to get since AdvantEdge is now invested in many successful mobility startups, do you plan to get some of those founders, CEOs, and share their experiences with us?
Kunal: This is the first of many podcasts. I think our objective is to allow some of our founders to come and talk about their experiences - what's worked for them and not, ultimately, I go back to why we've started AdvantEdge, and the vision of AdvantEdge to create successful founders coming out of India.
And I think the most important element for us to be able to do that is sharing the knowledge of experienced founders and the objective of this podcast is an extension of that. Hopefully we'll be able to achieve that, and we will be having a number of follow on discussions where we'll be inviting a number of people from the ecosystem, not just founders, but we'll also get some investors and people like that help us expand and share knowledge and hopefully be able to build a number of such recordings, which will be helpful for future founders who are trying to build, in India, successful mobility companies and take it to the next level.
Ashish: Great! Thank you for the first AdvantEdge Mobility Podcast, and we look forward to seeing a lot more on this platform.
Kunal: Thanks a lot Ashish, take care.
