In 2016 we announced our investment in Alternative Financing startup, KredX, led by a terrific founding team.

This blog should give entrepreneurs a ringside view into the thought process of an early stage VC like us, and hopefully will share some useful insights into fundraising in 2019. 

Alternate Financing - a quick domain background 
A young Bill Gates once said - "Banking is essential, Banks are Not" - he couldn't have been more prophetic.

Alternate financing and lending platforms are going to transform the way businesses and individuals gain access to capital. In particular, in India, as IndiaStack, GSTN, Aadhaar and UPI emerge, the time is ripe for significant innovation in financial services in India. This sector will see significant new activity and innovation in on-boarding of new customers, service delivery and ongoing support and operations. Specifically, the area of Alternate Financing is one we see as an area that can leverage technology to provide financial services in a cost effective and scalable manner.

KredX is using technology to solve an obvious pain point for over 36 million MSMEs in India with more than $100B in unpaid invoices, annually! Invoice Discounting is a well-documented global business problem - but KredX is solving it with a refreshingly (technology-based) differentiated approach. KredX aims to solve the cash-crunch for millions of MSMEs while providing an amazing short-term ROI for retail financiers.

How we Evaluate & Decide

We look at three areas - some subjective: 

1. Rockstar and hungry founding team
2. Category-creating & massive opportunity
3. Tech-based product where we can add value

KredX checked all the boxes for us and here’s why.

1. Rockstar Founding “TEAM”

• Smart Founders don’t always make a great founding team! Being able to work well with each other, handle, disputes constructively, not be hierarchical, take feedback well, be open to experimentation, overcome each other's weaknesses, and appreciate their, strengths, listen extremely well and make decisive calls - all of these are necessary requirements in a founding team.
• Most importantly founders must have conviction without being cocky. They must be confident - not insecure.

The founding team at KredX is intriguing. The two business founders; Manish & Anurag are graduates from IIT-Kanpur and have worked extensively in banking. On the other hand, CTO Puneet’s passion for software development is evidenced by the fact that he followed up his BCom by an MS in Computer Science from Stanford University, and then worked at Google in Silicon Valley and India for 10 years! All three founders are amazingly articulate and have great track records. Manish in particular was clear he was going to build a big company from the get-go - with or without our help!

2. Category creating solution to a BIG problem

While I have tremendous respect for ALL entrepreneurs, not all problems they aim to solve are fundable by Venture Capitalists. At Prime Venture Partners, we only look at the answers to the following three questions:

• Is the problem worth solving? Is the prize worth winning? It takes 7 years of slogging to build a big company, so it better be worth winning!

KredX is solving one such massive problem and there is every possibility of building a company that will create great value for its customers.

• Is this a Vitamin or an Aspirin? Startups succeed despite all odds because the problem they are solving is a major pain point. This comes back to knowing WHO your customer is.

The more we engage with KredX, the more excited we are that they are solving an important pain point for a large customer base - and are very clear about who that customer is.

• Why you can solve this while others can’t? IP is not always a patent, in fact it rarely is. What is interesting to us is whether you have a nuanced understanding of the problem, unique access to the customer and/or a differentiated solution to the problem.

With their background in banking and risk, Manish know the business extremely well, Anurag has domain knowledge and the sales hustle that is critical for such a business. Puneet’s focus is to build a world-class product - combining a delightful user experience with a product that differentiates via machine-learning algorithms, artificial intelligence and much more.

• Validation of a solid business model that can scale. Most early-stage VC's are aware that the business model of the company will need some price discovery and will change over time. However the earlier you have validation, the better.

In KredX's case the team had a clear idea of how and why they would make money and had validated it quite well. A few things have since changed and will in future as the value proposition strengthens, but it was reassuring to us that they were counting on something that was likely to happen.

3. Can we as investors add value, and is the team receptive to it?

• At Prime, ours is a deep involvement model. We’d be stupid to claim we know your business better than you, but we will discuss, dispute, disagree, debate and challenge you to the hilt. We are in your shorts, we are a pain to deal with sometimes but we have only one goal; to help you build the best company possible.

• Entrepreneurs working with us need to welcome that kind of involvement and you can’t be sensitive, protective, defensive. At the same time we need you to push back, fight with us, and in the end make your own decisions! Our weekly reviews are interactive, incredibly animated and meant to be provocative as they are not 'board reviews'. It’s important for us to know that the entrepreneur values and listens to our opinions, even if they disagree and do the exact opposite.

From the first meeting with the team, it was clear that we would have intellectually stimulating debates and discussions on how to build the company further but were confident that Manish, Anurag & Puneet are going to be receptive to working with us.

Ultimately it boiled down to our belief that “Incredible founding teams that take on Large Business Problems with a Unique Solution” will make great things happen!

Manish, Anurag, Puneet & the KredX team, we’re excited and privileged to be part of your journey. Here’s welcoming you to the Prime family and wishing you the very best!

The journey will be exciting and as far as the outcome is concerned, who knows?

About the Author - 

Sanjay Swamy is an Entrepreneur & Early-Stage Fintech Investor! #DigitalPayments & #Financial Services Fanatic! #IndiaStack_Evangelist!

This article was originally published on Linkedin