Arkam Ventures’ Bala Srinivasa on the parameters he checks while investing

Bala Srinivasa, Managing Director, Arkam Ventures, is greatly focused on identifying and investing in ‘category creators’ for Middle India–those companies that take the riskier bet and create an entire category.

Prior to starting Arkam Ventures in 2017, Bala was part of the founding team at Vistaar, which helps companies like Cisco, Dell, GE, Ford, and Hitachi make better, faster, and more profitable business decisions.

After that, Bala became one of the founding members of Amba Research, which was acquired for $100 million by Moody’s. After Amba, he was with Kalaari Capital for over three years, post which he co-founded Arkam Ventures, a venture capital firm with a focus on ‘category creators for Middle India’.

In this week’s episode of 100x Entrepreneur Podcast with Siddhartha Ahluwalia, Bala talks about the key ingredients for building a category creator, solving the pricing problem in SaaS startups, taking SaaS to the mass audience in Tier III cities and towns, and more.

Investing in category creators

Bala says that when Rahul Chandra and he started Arkam, they saw a lot of second-time and third-time founders who were done with building products for the top portion of the pyramid in India. There were a lot of founders who were trying to solve fundamental problems with products and challenges.

From day one, they saw an increase in the number of consumers in certain companies, which led them to invest in them. These include KrazyBee, Small Case, and JumboTails, which Bala describes as “category creators”, as they are taking a new digital solution that was previously not available for that given category.

“While investing in these companies, we found that there are about five or six key parameters that these founders and these companies have managed to solve–which gives them a turbocharger to their product and creates a lot of very deep moats for them. What these companies have managed to do is solve for two, three of these areas in a way that really makes their product take off,” explains Bala.

He goes on to describe each of the parameters. The first one is the ability of the company to reduce the friction in the adoption of their product. The second parameter is how the product is a small-ticket high frequency that can align with the middle class.

“The problem with Middle India is that it is a very diversified set of consumers in small towns. And if you’re going to put up brick and mortar, you’re going to have heavy logistics going in and out. You are going to do feet on the street, you can’t make money. But if you’re going to go digital to make money, you need to understand the psyche of the consumer and build certain flows that allow you the stickiness and the retention, and all of a sudden it’s a great business.”

The third parameter is the way the founders spend their money and the way they earn daily and weekly.

The fourth one is around trust, which means that if a company is going to have a product that scales in Middle India, with people who are just beginning to understand how digital apps work, they need to definitely build a lot of trust in that. The fifth parameter is the need to build a multi-product platform.

“In all of these themes, we don’t go in with a checkbox saying ‘hey, there’s the company checking on all’ but we’re really looking for the founders insight into why something does not work today in this category and what are you doing differently that will allow you to make it,” says Bala.

Focus on SaaS

Bala points out that large enterprises in India are increasingly understanding the value of technology and digitisation.

“We have not found too many SaaS companies in India at a successful healthy pace in terms of variation of Saas companies to crack the Indian small market with the SaaS model. And the reason for that is very much the fact that you can acquire a lot of customers. We have seen companies with over 60,000 customers, but the propensity to get the customer to pay is very, very low,” says Bala.

And, as a result, these companies then need to pivot to fintech lending or other ways. Hence, according to Bala, if one wants to be a true SaaS company in the mid-market, they need to be a part of the transaction and show value as part of every transaction on revenue and cost and price, accordingly.

To know more, listen to the podcast here:

02:01: Intro

04:05: Essential ingredients to build a $10-million ARR company

06:29: Why focus on category creators for Middle India?

18:38: Zoho Sponsored – Prashant Ganti on where founders struggle with payroll and how they can fix it

20:08: Evolving from a single problem statement to a platform with multiple offerings

22:23: Razorpay’s game plan for trust building for small-town customers

24:06: Bala’s thesis around investing in enablers like Signzy and Spotdraft

30:26: His thoughts on India-focused SaaS with regard to pricing

33:24: Themes and thesis which didn’t work out

38:42: What gave him an edge in the Middle India consumer