Technology investor and venture capitalist Sanjay Mehta, 50, has become somewhat of a star in the investing firmament thanks to some of the huge successes he has seen in his decade-long investing career. The most notable among them was the 280x return he pocketed when he exited the Ritesh Agarwal-founded OYO, after having been an early investor in the hotels aggregator which is currently headed for an initial public offer (IPO).
As a private investor, he has invested in over 150 global start-ups and has seen as many as four of his investments turn unicorns, the only angel investor to do so. OYO apart, these unicorns are crypto exchange CoinDCX, blockchain company Block.One and American space infrastructure developer AXIOM Space. Mehta’s portfolio performance has seen a 103 per cent internal rate of return on all funded start-ups, versus the industry average of around 30 per cent.
Now, having moved on from investing in his personal capacity, Mehta has set up 100X.VC, which is a Sebi-registered fund sponsored by Mehta Ventures Family Office, and which has an ambitious target of investing in 100 India-domiciled start-ups every year.
In a freewheeling chat with Business Today Mehta said it has been a “great ride working with entrepreneurs” and that he now aims to repeat his success as a private investor multiple times with 100X.VC which he is building as a multi-decade company, not just an ordinary fund.
Watch the full interview here:
Mehta said he had been investing for over a decade now and had enjoyed the great ride working with entrepreneurs and building businesses. “At 100X, we have already invested in 50 companies in two years. We have an ambitious target of investing in 100 start-ups every year and we should soon be able to touch that. India is in a great space, there’s a lot of momentum, a lot of capital. These are great times to become an entrepreneur. In turn, [we] become lucky investors.”
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The Midas Touch and his investment thesis
Mehta said he has been lucky to get as many hits as he has with his investments. “I am grateful to these amazing entrepreneurs who built these companies. We [angel investors] are a very small part of their journey. We give the first break, the first cheque, whether it is Ritesh at OYO, Sumit [Gupta, co-founder and CEO] of CoinDCX, to help them take their first baby steps and help them grow. I believe I am more of a friend or go-to person and I have treated entrepreneurs fairly. I think I have been a good VC for many of these entrepreneurs.”
Mehta said the thesis with which he comes in is that “it is the idea that fails, not the entrepreneur.” “I have always trusted all the founders who I have backed with capital. There is an element of luck which plays out in creating unicorns, and I have been fortunate to have four of those in my portfolio,” he said.
How does he go about selecting deals? Mehta said he first looks at the founding team – “Do they have the right to win, the domain expertise, can this team drive this company to scale, do they have the right hunger for capital and resources?” Beyond that, he looks at business models, the market opportunity, the unfair advantage, and the moat. “Internally, there is a compass which says, can we have a 20x minimum return? Your expectation is that every company you invest in should be a moonshot or an outlier hit, but you try to keep a rationale that 20x return should be the minimum,” he said. This, he added, is more of an internal calculation, but 60-70 per cent of his investment decision is based on what the founding team looks like. “Because this is early investing, and there’s no traction, revenue or data, what do you look at? You could look at the story of the entrepreneur, what problem the venture is trying to solve, and then we map that with the market opportunity. That’s the best we can do.”
Investing in OYO and the Power Law
When Mehta invested in the hotels aggregator with a group of investors in 2012, founder Ritesh Agarwal was very young. “All of us put in the first cheque in OYO. At that time it was called Oravel Stays, and Ritesh was a young kid. This deal came through Venture Nursery which was an incubator. We saw the journey and how Ritesh built [the business]. He got the Peter Thiel Scholarship, and he put in all the money he got from the scholarship back into the business. It was very heartening to see a young kid not blowing away money and being so committed to the business. Quickly, the Lightspeed investment happened and then it became OYO and then the Sequoia investment took place. Then came SoftBank and the huge unicorn story happened. That was a good beginning for my angel investing journey,” Mehta recalled. He exited OYO in 2015.
Mehta said he believes in the “Power Law in start-up investing”. “Most successful investors would have more failures in their portfolio, but their successes will be mega hits. You look out not for the frequency of success but the magnitude of success. That Power Law comes into play. You’re more often wrong if you’re taking the moonshot bets, but when you’re right it’s huge, it’s humongous.”
Even with 100X.VC, he said he is looking at interesting ideas and high performance entrepreneurs. “The learning of ten years is coming in very handy in terms of investing as we go about selecting these entrepreneurs and giving them the first cheque. When you invest sometimes, you may at first be ridiculed. Then as you go along, you realize maybe it’s changing the world.”
The Fear of Missing Out
Now that OYO is nearly a $10-billion company and is headed for an IPO, does Mehta feel he exited a tad early, despite the massive returns? Does he feel the same way seeing some deals he has let go which have turned into big successes? “The learning has been that you exit, and you move on. I’ve got enough and more deals which I had on the table and where I didn’t invest. If I had to look at all of them, living would be hell! You want to celebrate the successes with entrepreneurs and move on to create more successes with more entrepreneurs. I think I enjoy that journey of building companies very early. Yes, money is the byproduct. I engage with 1000+ entrepreneurs on a meeting basis and evaluate over 10,000 deals a year. This is really hard work where you spend so much time working with entrepreneurs.”
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