Is It Too Early To Talk To Sequoia?BloombergQuintOpinion
It’s a question we get a lot. Our answer: “It’s NEVER too early.”
“Wait,” you’re thinking. “They all say that.” Well, we have decided to publish some data on Sequoia India’s early stage activity for the first time ever. The results might surprise you.
Let’s set some context first. Sequoia India invests across stages, but the larger investments attract more press attention. Additionally, many of the early stage rounds are not even announced. Some early stage investments are in ‘stealth mode’ for years so as to not attract copy cats. So it’s natural that the early stage investments are less widely discussed than the later stage ones.
Partnering early is core to our philosophy.
You may be surprised, but many of Sequoia India’s early stage investments barely resemble the business models that eventually made them large companies.
Go-Jek had not launched a single other service when we started to engage in discussions around a platform strategy. Pine Labs didn’t yet have a PoS-based payments platform. Druva wasn’t yet a cloud-centric company. And Zilingo had not set sights on Asia’s fashion supply chain. OYO had a partial inventory model and no owned properties at the Series A.
These companies all had rapid iterations of their product and go-to-market approaches in the early stages. (I’m a bit of a broken record on business model ‘mutation’...)
But back to the data.
Sequoia India has led or participated in (well, mostly led) 91 early stage investments (less than $20 million pre-money valuation) over the last 10 years across a wide range of industries, from mobile internet to payments, SaaS to healthcare as well as consumer brands and ed-tech.
For this analysis, we have arbitrarily chosen $0 to $20 million pre-money valuation as ‘early stage’, which excludes many early stage investments at the firm including notable ones like Go-Jek and recent Series A investments where the pre-money valuations are higher than $20 million even for companies that are truly early stage in our view.
(Oh, I know you’re going “but my Series A is not so high!” But that’s a discussion for later :-))
For the 91 early-stage investments across a 10-year period from CY2009-2018, we found:
- Over 64 percent of these funding rounds were done at a pre-money valuation of under $10 million. In more recent years however, the valuations are drifting higher, no surprise.
- 34 percent had fewer than 10 employees at the time of investment. This data could be noisy but please consider this as directional. We think companies are at a special stage when the team can sit around a table and so we went back to do the best analysis we could.
- 18 percent had not yet launched a product or service. Again, this is very relevant because we have had multiple successes with companies we partnered with when there was only a team and some ideas. Nothing else. Zippo. Prizm Payments, Citrus Pay, Scio Health, Zilingo, Koye Pharma, Cred, MPL are all examples of these. We are doubling down on this stage.
We were also able to extract some quantitative insights on how much capital these companies were able to access, how many of them were able to scale revenues, and so on.
How Much Capital Can Companies Access?
This scatter chart shows how much funding these 91 early-stage startups have since gone on to raise from a variety of sources. The dotted box highlights 73 startups backed during the eight-year period from CY2009 to CY2016, and excludes the companies backed in the last 24 months which, on the whole, are too young to have done later-stage rounds.
This data highlights the capital raised by our early-stage startups:
- 30 out of 73 companies i.e. 41 percent have gone on to raise over $25 million.
- 15 out of 73 companies i.e. 21 percent have raised over $50 million.
- 8 out of 73 companies i.e. 11 percent have raised over $100 million. The range is $100-$1 billion plus.
A few qualifications though.
Raising capital is not success. It does, however, show what access to capital founders have had over the years.
It’s also helpful to re-iterate this excludes some scale companies like Go-Jek because of the arbitrary 0 to $20 million pre-money as the classification for early stage investments. There is another limitation with this data – it is based on ‘point in time’ analysis. As time progresses, many companies that Sequoia India has partnered with will go on to raise more capital, and these percentages will trend up.
How Many Companies Get To Meaningful Revenue Scale?
It’s time for #GetReal. Tough question, right? Companies in India take a while to scale revenues. Again, for this analysis, we considered the 73 investments made between 2009-2016.
- 29 out of 73 companies i.e. 40 percent have exceeded $10 million annualised revenues.
- 10 out of 73 companies i.e. 14 percent have crossed the $50 million annualised revenue mark.
Oh by the way, we considered net revenue, not GMV or other fun metrics. Again, we expect these percentages to go up over time.
But It’s Not Just About Numbers
It’s about the pitfalls, failures, tears and scars and the character building journey that every founder goes through. It’s about the sense of purpose and commitment, leadership and teamwork from dozens or thousands of team members, that carries the best start-ups to success. And the sense of eternal optimism, vision and ambition that enables mere mortals to act like super-human founders.
We’re insanely fortunate to have shared these roller coaster journeys with some of the most special founders; whether it is the multi-billion dollar fundraises and price wars faced by OYO and Go-Jek or the blistering growth of Zomato and Tokopedia, or the frugal, profitable payments platform of Pine Labs or the sales & marketing machinery of Byju’s and Freshworks, we have a chance to learn from the best.
For the first time, we are attempting to codify some of this tribal knowledge into a series of workshops that we think will be valuable for early stage founders. Stay tuned for what’s to come.
Shailendra Singh is Managing Director at Sequoia Capital. This article was originally published on his LinkedIn profile.
The views expressed here are those of the author and do not necessarily represent the views of Bloomberg Quint or its editorial team.