ByNayantara Jha | May 23, 2023
Young, well-travelled and with a keen eye for numbers, Anirudh A Damani, Director of Artha India Ventures, is going all-in on Africa. Between 2022- 23, his firm has made investments in Kenya-based Badili and BuuPass, along with African business lender GoodLoans.
With four unicorns, eight soonicorns and 25+ exits in his Indian portfolio, Anirudh feels that similarities between the African and Indian startup ecosystems cannot be ignored. Having seen the stupendous funding cycles in the Indian startup ecosystem and tasting successful exists, Anirudh is now ready to bet on another rising ecosystem: Africa’s thriving tech scene.
Anirudh dons a few hats. He is the Managing Partner of Artha Venture Fund with a USD 33 M stash that ploughs capital in its Indian portfolio. He is also recognised as the force behind Artha Select Fund, a USD 55 M growth-stage microVC fund for India. Anirudh’s successful investment strategies can be traced back to his founding of Artha India Ventures, his family office investment arm. He ventured into various investments through this entity, including those in Africa and companies such as OYO, Tala, Purplle, and IconBuild (all unicorns).
Anirudh’s journey with Venture Capital began in 2012 when he returned to India from the US. The Indian startup ecosystem was still in its nascent stages at the time; names like Flipkart, Freecharge and PayTM were still introducing themselves to Indian consumers.
In the following year, through the family office, Anirudh was one of the first investors in the lodging booking company called OYO, which became a USD 10 B company in 2018. Anirudh says he secured a sizeable exit from OYO with over 150x returns.
In this exclusive interview with WeeTracker, Anirudh tells me that he is geared up to make 100 investments in Africa in the coming 10 years. I met Anirudh last year at an event where he was a panelist and was still exploring the African ecosystem at the time. I am sharing the excerpts from our conversation highlighting his thoughts about investments and plans to set foot in the African ecosystem.
So, Why Africa?
Anirudh’s very early investment, Tala, moved its operations from India to Kenya; that was the first time he came across Africa as a startup destination, Anirudh says. He would get insights into the African tech ecosystem through updates from Tala. At the same time, setting up the Artha family office was his key priority, so Africa didn’t really figure on the investment list.
The story took a turn when he was invited to a TiE Africa event in Mauritius in 2021, where he met some African startup ecosystem stakeholders. He also noticed the vast Indian diaspora involved in the African ecosystem. Similarities between the Indian and African markets started making more sense as he had about a decade of experience investing in a high-performing market.
Last year, Anirudh’s trip to Nairobi solidified Africa’s place in his investment mandate. One of the key factors that is very compelling for an investor is the size of the African population. Added to this are the cultural similarities that India and Africa share. Kenya already hosts fourth/fifth-generation Indians. It demonstrates how much cultural exchange has happened between the two continents; therefore, they are more closely aligned.
Anirudh maintains that investing in Africa is more crucial than ever before, as Indian investors are also looking at Africa. From a geopolitical standpoint, the Indian Government also realises that they need to start focusing on investing in Africa so that they can have a better presence.
“A billion people are sitting in Africa, and it’s very, very similar (to India) in terms of politics if you don’t just look at India as a country,” he said, adding that there was a point in time, maybe 10 or 15 years ago, that Indian states behaved practically like different countries, all under one union.
“Every state was very different in terms of its policies, taxes and all the duties. It was a very difficult place to do business,” the tech investor noted.
Because of these constraints, many startups came in to solve consumer problems. The rise of startups in India led to the creation of the venture capital ecosystem. There were also ecosystem-building startups like PayTM and Exotel that further fueled the growth of companies because startups could build on top of these solutions.
A similar story is now unfolding in Africa. Artha’s thesis or strategy for Africa is very straightforward. They would identify what worked in India and find a similar solution in the local context. They feel that ventures for which they have an Indian example would give them an already existing playbook on how the solution worked out.
“I think 2009 was, effectively, Africa 14 years behind where India was, for all intents and purposes. But it won’t take 14 years for Africa to get there probably will take them eight,” says Anirudh.
The African Playbook
As of now, the Artha family office is investing in Africa through its syndicate structure with AngelList in the US and its LPs. The investments are put under one name on the cap table, though. Anirudh is building an Africa-specific fund with his network and co-investors in the syndicate.
“We plan to invest in 100 African startups in the next 10 years. So by 2032, we should have had 100 investments in Africa. That’s a long-term vision,” he declared.
The statement appears quite calculated, perhaps because, in India, the firm made 110 investments in the last 10 years.
Artha’s African investments so far fall well within the lines of his investment strategy. Look for successful Indian startups and find ventures in Africa doing something similar. He feels this would be a successful strategy, as he has already seen the playbook play out in India. What he would need to do is to join the dots. Last year, he invested in the Kenyan Recommerce platform Badili’s seed round. He already has a playbook example for it back in India in a company called Cashify. Today Cashify’s valuation stands around USD 250 M.
Similarly, his other African investment GoodLoans, is a playbook example from Anirudh’s family office portfolio company Karza Technologies. Karza was bought by FinTech unicorn in 2022, Perfios, clocking an almost 90x return for Artha in less than 5 years. His most recent investment in the Kenyan ticket-booking platform BuuPass, where he made a USD 200 K syndicate investment, draws similarities with ConfirmTkt, which got acquired by Ixigo, delivering excellent returns for investors.
Anirudh is more inclined to participate in the late-stage seed rounds for his African investments, with at least some revenue in the picture. At this point, the team is not willing to take product risks. Perhaps, initially, he would look at investing in/via accelerators.
In terms of ticket size, he plans to invest in the range of USD 150 K to USD 200 K via the syndicate. The funding size would increase in the follow-on rounds. However, making money wiring easier is his most critical challenge at the moment.
Inside the Investor’s Mind
Anirudh firmly believes that the market is the biggest teacher, and even after a decade of investing in different markets and companies, he is still learning. He has devised his investment strategy over the years and kept it simple.
He sticks to 4 core principles while investing. The first is whether the company is solving a real human problem, and if so, for whom is it solving?
“You obviously start thinking larger questions like who is facing the problem? Why are they facing it? Is it getting solved? And are they willing to pay for that solution?” he shares. For him, these questions become pertinent because he has often seen young companies putting the cart before the horse.
His knack for numbers reflects in his second principle of unit economics. He says, “If consumers are willing to pay, what price they’re willing to pay? Can profit per transaction be made?”
He adds, “Because you may not profit at the company level when growing, you should at least be profitable at a per transaction level.”
Third is, “What’s your moat?” Anirudh says, clarifying that the lead time to competition is barely 6-12 months in today’s world. So, if a company wants to remain the leader in its category, how do they maintain that gap? He says, “And how can you extend that lead over a long period of time, because, after a particular inflection point, that lead becomes permanent, or at least semi-permanent if something revolutionary comes in”.
And the fourth pillar for investment is technology. He sees technology more as an enabler of a solution rather than being a product itself. “We strongly believe that just because you have great technology does not make it a great business”.
With a team of 35 people working on all three funds, Anirudh ensures that they analyse every business on their radar. This strategy, he says, has helped them understand investment opportunities well, especially the missed ones.
Anirudh A Damani, Managing Partner, Artha Venture Funds
As an investor, he believes in the long game. Very calmly, he puts across, “Building a company is not a sprint; it’s a marathon. You need to pace yourself. If you start running too fast, too early, you won’t finish”.
As an investor in various startups ranging from fintech to space-tech, he has seen many times many companies burning cash to gain market share but not necessarily focusing on the product/market learnings along the way.
What Anirudh finds interesting in his experience are companies that initially took longer to build their product and market. He recounts that some companies took 3-5 years to raise their Series A but worked very hard to ensure positive unit economics. And usually, these companies have experienced phenomenal growth after that because they knew where to deploy funding money to scale.
He points out that founders generally feel it’s better to burn investor money to achieve growth, whereas it should be invested in places where it generates better returns.
This mentality, Anirudh says, helps a lot, especially during the bull market, like the last two years. Because once the markets slow down, companies can use cash to scale. As he said, these slowdowns have built some of the best businesses.
He adds, “The next 100 unicorns will be built by the companies that survive and thrive during this winter. Therefore, these will be the best vintages to invest in.”
In parallel with this investment strategy, Artha is diligent about risk mitigation, employing a system of portfolio segregation for each investment vehicle. Their approach only permits a 0.75-1.50% exposure on a single seed round, limiting follow-on exposure to 1.50-3% in Pre-Series A and 3-6% in Series A rounds of the overall investible corpus. This measured strategy ensures that even in the face of the best intentions, some companies will inevitably shut down due to forces beyond their control. This risk management method prevents the entire portfolio from suffering due to overexposure.
After seeing a couple of business cycles in his past investments, Anirudh very confidently concludes, “These booms and busts keep happening. You have to, you know, keep your head straight and keep working. At the end of the day, funding cycles do not affect any business that customers fund. Always chase customer funding; venture funding will automatically chase you.”
Investment red flags
“Firstly, if a founder cannot explain his/her business in a paragraph or a minute, then he/she doesn’t understand it well enough, which is a red flag for me,” Anirudh tells me.
He says usually such scenarios occur because the founder probably does not have an experience in that business, especially for tech companies. Founders who start promising returns before explaining a business are the classic case for a red flag.
Secondly, he says that founders who do not wish to sell but offer a product for free without understanding the monetization of such products make him wary. For any company to survive, it should have paying customers, Anirudh emphasizes, and if it’s not paying with money, then the variable compensation should be very clear to the business.
Lastly, wonky ownership structures are something that he keeps his distance from. For example, a founder wanting to own a company through another company of theirs is a clear red flag.
When does Africa become a priority market for investors?
Anirudh emphasizes that periods of funding decline are part of every ecosystem, and the ongoing slowdown is almost over. He opines that things will turn around and look better for startup funding in the coming few months, but times like this also allow for building sustainable businesses, which must be addressed.
He compared the situation with India in 2016, when most of the foreign capital stopped flowing in, and the local funds were not big enough to keep startups afloat. These were tough times, but businesses survived. And he hands over the credit to 1 billion+ people. Only 3 regions in this world have this kind of population strength- Africa, China and India. Both India and China have been able to ride the growth curve because they have traditionally behaved as a bloc.
He feels certain fundamental things must happen before Africa hits the J-curve. One of them is the accessibility of the population as one market. Cross-border trade and transactions are the biggest limiting factors to the exponential growth of African markets, Anirudh reckons.
With projects like the African Continental Free Trade Agreement, startups will be able to scale exponentially. It is something like what GST did in India when it came into existence in 2017. Moving goods through borders has become reliably efficient across India nowadays. The situation has improved so much over the years that consumers can order products and get delivery from far-off locations (2000+ Kilometers) within 24-48 hours.
The moment Africa starts acting as a single block, it would automatically have better negotiating powers, which could lead to a large amount of investment in the space, Anirudh says.
He adds in the end, “I am very serious and excited about Africa as we look at building a team and more partners. And hopefully, over the next two to three years, we’ll have the base to start making 10-12 investments annually in Africa.
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