Most of the thousands of investors and entrepreneurs descending on New Delhi this week for the Sankalp Global Summit are looking to beat out their competitors.
Dave Richards and Will Poole, managing directors of Unitus Seed Fund, are looking to create more competition for themselves, by seeding additional funds like their own.
Fresh off their success in raising $23 million from some of the most prominent names in both India and the U.S. — including Bill Gates, Ranjan Pai, Mohandas Pai, Vinod Khosla and Gururaj “Desh” Deshpande — Richards and Poole are thinking bigger, much bigger.
The Unitus team is in Delhi this week to meet with angel investors, startup accelerator operators and young private-equity fund managers who may be interested in forming their own seed investment funds. Their goal is the establishment of up to 10 new seed funds around the world to boost the amount of capital available to promising startups that profitably provide vital services to low-income customers.
ImpactAlpha caught up with Will Poole to talk about his ideas for a “launcher” fund for new seed funds — and for scaling social impact.
ImpactAlpha: Unitus Seed Fund is about two years old. What have you learned about seed investing in India?
Will Poole: We think it’s a massive and underserved market. There’s an opportunity to build large and valuable companies and have a positive social impact at the same time.
We have 16 companies in the portfolio to date. Our two largest sectors are health care and education and we also have mobile-on-demand companies and retailers and distributors. We’ve looked at north of 600 deals to get to those 16.
Our focus is on positive impact to the low-income population of India, that is, families living on roughly $10 a day. We call it “the masses,” because it’s five out six Indians, or about a billion people at the base of the economic pyramid. Our companies focus primarily on those customers. The things they’re doing have to have positive value, such as education, health care or livelihood enhancement.
There is no shortage of businesses being created that can make money and do good, and there are more new ones coming out every day. There are a plethora of accelerators in india, populated by good entrepreneurs helping to create these companies.
ImpactAlpha: Why focus on seed stage?
Poole: We’re looking for early-stage companies, but ones that have shown the ability to create a product or service and has at least completed a proof of concept — they have been paid some rupees from some customers. We look for a great entrepreneur at the helm of that company. We look for companies that have a high degree of scalability and profitability. They must also pass a screen for having a high degree of social impact.
There is a well-documented problem, not only in India, that’s called the Seed Gap, Pioneer Gap, or sometimes “the Valley of Death.” The very early, or idea stage, can get covered by friends and families — or the third ‘F,’ fools. Then there’s plenty of money for Series A financing, from $1 million and up. But the lack of seed funding is significant. In Silicon Valley, that gets filled by angel investors. But in markets where there is less angel capital, there is significant risk for entrepreneurs. This gap creates a good financial opportunity for us as venture investors, and at the same time we and other seed investors address a structural deficiency in the market that has been impacting the entrepreneurial economy.
ImpactAlpha: You’ve been successful at raising a decent-sized first fund, including from some well-known investors. What’s next?
Poole: The obvious thing is to create Fund Two. That’s what your traditional venture management fund would do, and we are planning that.
But my partners and I have aspirations to extend the impact we have had with Unitus Seed Fund and to look at the broader need for seed capital. We said, “What could we do to help other potential seed fund managers create seed funds anywhere else in the world that there’s need to address this global seed gap?”
Venture accelerators take a business and help that business get going, find customers, define a value proposition and hit the ground running. We might be thought of similarly, as an investor in and an accelerator of first-time fund entrepreneurs.
ImpactAlpha: Instead of incubating companies, you would be incubating funds?
Poole: Exactly. We would be a combination of an anchor investors and a provider of expertise and back-end operational services to help an aspiring first-time seed fund manager get their seed fund launched in under a year — a year from the time of their idea to actually be investing.
We have found three archetypes of potential partners for this. First, an entrepreneur who has become a successful angel investor and now wants to create a fund to increase the quantity and quality of their investing. Second, accelerators who are creating a fund to leverage the dealflow they already have going through their accelerators. And third, a principal or junior partner in a larger fund who wants to strike out on their own.
ImpactAlpha: What are the obstacles? What problem are you solving?
Poole: The challenge for any first-time fund manager is getting started. We had the benefit of being incubated by the Unitus Labs (part of Unitus Group) and it still took us two years.
For a first-time manager, even to get to the point where you can make a pitch to an investor is hard. Building up the plan for a fund. Showing you have investments to make. Building dealflow. Getting connected to investors in the first place. All of those things are quite challenging.
Then, everything that a new fund has to do and get up and running is a big lift. Picking the right attorney. Getting a private-placement memorandum and limited-partner agreement. That’s compounded when doing a global fund where you have the complexity of being an offshore fund with an onshore entity also. It’s a heavy lift to get going.
Investors have two big areas of anxiety with new fund managers. One is that the fund manager doesn’t have a track record of investments. Two is how difficult it is to put these administrative pieces in place in a high quality way. We’ve spoken to large institutional investors who have said, “We’re looking at these three funds, but we’re not moving forward because we’re not confident they have the administrative capabilities to be successful. Could you de-risk this for us by providing those services?”
And every financial services entrepreneur is looking for their first investor, a significant, material investor who can put a seven-figure check on the table. We’re just that – we’re entrepreneurs investing in entrepreneurs who are investing in entrepreneurs.
ImpactAlpha: Why hasn’t this been done before?
Poole: We asked ourselves the same question. It seems obvious. Financial services entrepreneurs need investors just like Web services entrepreneurs do. This should have been happening. The examples are few and far between. In the hedge-fund world, there’s an established ecosystem of creating new hedge-fund managers. In the venture-capital world it seems they don’t want to create their own competition, as there’s little upside for the hard work in doing so.
ImpactAlpha: So why are you willing to create your own competition?
Poole: We don’t worry about that too much. There’s such a giant gap in the impact seed area. We’re not a philanthropic venture, but there’s plenty of room for many more actors.
Our goal is not to back just any financial entrepreneurs, but ones who are investing in impact. Our impact is going to amplified 10-fold. Rather than just create Fund Two for ourselves, we’re going find 10 more like us, help them be successful, and each of them can go and create multiple funds themselves. It’s an exponential increase in social impact.
Our working thought is we could help create 10 funds over six to 10 years. That’s 250-300 seed investments in companies. And you can expect them each to create two if not three funds over 10 years. That’s 500 to a thousand companies.
And it’s not just those companies being created, it’s the impact we’d have on the entire entrepreneurial ecosystem. Breaking the logjam in seed funding, bridging the Valley of Death, will encourage more entrepreneurs to create companies. As those companies get created, it will cause more downstream investors to come in as well, because they’ll see good companies being created, scaling up and receiving more capital.
That’s what we’re thinking now, but we’re only just beginning. We’re hoping to hear from potential investors and potential fund managers to hear what they think.
Note: Questions and answers have been edited for clarity and conciseness.