Better Capital, a fund run by Silicon Valley entrepreneur Vaibhav Domkundwar, has closed its debut fund of $15.2 million to invest in pre-seed stage startups. The fund reflects a new trend of solo founders-turned investors being able to raise funds amid an epic technology-funding boom.
In the last three years, Better has invested in startups such as gold loan platform Rupeek, neobank Open, education firm Teachmint and online bookkeeping app Khata Book among others, being their first investor in some cases.
While it so far raised money from external investors (Limited Partners) on a deal-by-deal basis, a dedicated fund gives Domkundwar--the fund’s founder and General Partner (GP) more ammunition to pursue the hottest deals and allows him to invest deeper in best-performing companies. Domkundwar said Better had interest to raise a $100 million fund or more, but such a large fund would by design put its strategy outside the pre-seed space, something Domkundwar didn’t want.
LPs in the fund--entirely foreign--include founders, senior executives and investors at companies such as Meta (Facebook), Google, Uber, LinkedIn, Tiger Global, TPG, and The World Bank.
“We want to be the best fund by all parameters, and want to be a real partner to companies. Being a solo GP also gives me flexibility and the speed needed in this environment. It also helps me build the real conviction that founders respect,” Domkundwar told Moneycontrol.
Better mirrors Silicon Valley entrepreneurs such as Elad Gil, a former Twitter employee who is now single-handedly running a $620 million fund and Lachy Groom, an early Stripe employee who is running a solo $100 million fund. These ‘solo capitalists’ often promise easier terms that traditional large venture firms cannot offer, are flexible on cheque sizes and valuation, and move faster than others by virtue of their small size.
Domkundwar is well-regarded by founders for finalising an investment after one meeting or one call. While that sounds fast and perhaps hasty, Better invests in pre-seed, often pre-product startups, where the only thing an investor has to judge is the quality of a founder’s idea and their background.
Better plans to invest in 35-40 companies from this fund, with an average cheque of $300,000, which can go upto $1 million across rounds for its best performing companies. Domkundwar is looking to invest in the cryptocurrency space, creator economy and climate startups, among other sectors.
“Brainstorming with Vaibhav and articulating what Rupeek is at different stages of our journey from 're-imagining the front end of asset-backed lending' in the early days to 'unlocking India’s net worth' now has been greatly valuable to me. I highly recommend Better Capital to mission-oriented founders going after big problems,” said Sumit Maniyar, co-founder and CEO of Rupeek.
In the early 2000s, Domkundwar co-founded mobile roaming firm Roamware (now Mobileum), which was later acquired by Audax Private Equity. He then founded two more startups, ReadyContacts--a marketing and sales intelligence firm, and PicBackMan--a photo and video backup firm.
Founders are increasingly flocking to older founder-turned investors who come with a wide network, understand business realities and are quick to cut cheques. The personal brand of these founder-turned investors sometimes supersedes the brand that even established venture funds carry. Rather than be part-time angel investors, founders are either becoming full time investors or moonlighting as investors with external commitments- making a serious business and taking it a notch above angel investing.
Small pre-seed funds can also generate outsized returns, even over 10 times the fund in many cases if the portfolio does well. While LPs in larger funds are expecting an Internal Rate of Return of over 30%, pre-seed and micro funds can deliver even higher returns, especially if as a company’s first investor--they invest in a few more rounds and hold on until the company is worth $5-10 billion or more.
“When $100 billion is the new outlier outcome, the math completely changes for investors as well as founders and we are seeing this play out. Growth will continue to get rewarded with high valuations and I don’t expect that to change,” Domkundwar said.“You could call the current situation frothy or the new normal. Time will tell,” he added.