Sunday, March 3, 2024

Meet Mr.Ankit Kedia – Founder and Lead Investor, Capital A

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Welcome to today’s interview, where we have the privilege of sitting down with Mr Ankit Kedia, the visionary founder of Capital A, a renowned investment company. With an illustrious career in the financial industry, Mr Kedia has established himself as a respected figure, known for his keen insights, strategic thinking, and exceptional track record in navigating the complex world of investments.

As the driving force behind Capital A, he has successfully led the company to new heights, earning a reputation for delivering exceptional returns and fostering financial growth for clients. Join us as we look at Mr. Kedia’s journey, his investment philosophy, and the invaluable lessons he has learned along the way, offering a glimpse into the mind of a true industry trailblazer.

An introduction about the founder and his background in the investment industry by himself.

I am a native of Bangalore, where I grew up, attended school, and completed my education. I studied at Bishop Cotton School, followed by Christ College. Later, I pursued my undergraduate studies in Michigan before returning to Bangalore. I briefly worked in the US before enrolling in SP Jain Institute for my postgraduate studies. In 2006, I joined my family’s business, Manjushree Technopack Limited, which specializes in manufacturing rigid plastic packaging. I started as a trainee on the shop floor and gradually worked my way up within the company. I did not have any fancy offices or other luxuries during my training. Although I hold a business degree, most of my engineering knowledge was acquired through practical experience on the shop floor, which continued until 2018.

During my tenure, I collaborated with other family members to develop the family business. We achieved significant milestones in the packaging industry, such as manufacturing LED bulbs for the Ujala scheme initiated by the Indian government. These accomplishments brought me immense satisfaction. In 2018, we decided to divest the company and sold it to a private equity fund. Over the next couple of years, I explored various ventures. In early 2021, I launched Capital A, a $25 million fund (equivalent to 200 crores) with the objective of investing in early-stage startups focused on climate tech, the new age economy, the creator economy, fintech, and enterprise businesses.

What motivated you to pursue a career in investing? What motivated you to start Capital A?

As second-generation entrepreneurs in the family business, we eventually come to realize that we cannot do everything on our own. This is when external investors become necessary since they can bring significant value and connections, and help us grow the business in ways that may not be possible organically. We experienced the benefits of such investment through a private equity fund. Reflecting on my years of operational experience, I believed that I could provide similar support through my own investments. Many companies and startup founders possess incredible ideas about businesses they want to build and cutting-edge technology. However, sometimes the core principles of business can become somewhat hazy. This is where experienced operators like myself come into play. This realization motivated me to get involved, get my hands dirty, and actively work with founders to make a meaningful impact not only for them but also for their target audience. It became a powerful driving force for me to start Capital A.

What specific areas or sectors do you focus on while investing?

Investors often face the question of sector preference and are often asked about the reasons behind their choices. Initially, when we decided to be sector agnostic at the start of our journey, it became quite overwhelming due to the constant need for context-switching in investment. One day you are examining a consumer business, the next day it is a B2B business, and then you are looking into climate or fintech-related ventures. The range of options can be extremely daunting. As we ventured into the early stage of investment, we realized the importance of focusing on a few sectors. The first sector we chose was one that is already proven and continuously generates interest among startup founders. The second sector we focused on was visionary or progressive in nature and still in its early stages. We began by investing in subsectors of electric vehicles (EV) and mobility within the climate tech space, which encompasses various areas such as energy, EVs, mobility, and manufacturing industry 4.0. Gradually, we expanded our investments to include sustainable packaging, innovative cooling solutions, logistics with a climate angle, and auto parts for EVs.

Our current focus is on developing a thesis on leveraging technology to reduce carbon footprints. We are particularly interested in startups that aim to measure and reduce carbon emissions through advanced technology. Similarly, fintech, especially in the wealth tech and lending sectors, is a strong area of interest for us. In lending alone, there are several categories, including B2B lending and lending for blue-collar segments. Additionally, we are open to opportunistic investments when we encounter exceptional founders building B2B startups, as that aligns with our primary interests. However, we tend to steer clear of direct-to-consumer (D2C) and crypto-related ventures or ancillary sectors, as we believe our ability to add significant value to founders in those areas may be limited.

What criteria do you typically look for while evaluating potential investment opportunities?

In early-stage investing, excessive analysis paralysis or delving too deeply into Excel sheets based on the data provided by founders becomes futile. Instead, we focus on a few key factors. First, we assess the size of the addressable market (TAM) and whether it offers significant potential for the founder to execute their vision. Additionally, if there is existing competition, we scrutinize why the specific founder is best suited to succeed in that competitive landscape. Addressable market size is our top consideration.

Second, we place great emphasis on the founding team. Through our experience, we have learned that building a startup is a journey filled with various situations and challenges. Having a co-founder or a cohesive team is invaluable as it provides support and shared expertise. Therefore, we thoroughly evaluate the founding team’s composition, past experiences, and other relevant factors as part of our investment decision.

Third, we consider the investment horizon, whether it spans five or ten years and the potential returns for our limited partners (LPs). As investors, we have a fiduciary responsibility towards our LPs, and we assess the potential for generating favourable returns within the specified timeframe.

By considering these three key aspects, we make informed investment decisions in the early-stage startup landscape.

Can you share any notable success stories or investments that you have been involved in?

Certainly! One of our early investments was in a company called Chargeup, a battery-swapping company catering to e-rickshaws in the NCR area. They have developed a model to replace old discharged batteries with fully charged ones through a swapping mechanism. We made this investment a couple of years ago, and the company has thrived since then. They have successfully raised two rounds of funding from other investors, and their revenues have grown significantly, nearly eight times higher than their initial. Moreover, they have expanded into new geographical regions. We are incredibly excited about the progress they have made.

Another notable investment in the fintech sector is Credit Fair, a buy-now-pay-later (BNPL) platform. They offer BNPL checkout solutions for various domains such as solar, education, and home-related products. The company demonstrates strong underwriting metrics and consistently achieves impressive milestones each month.

Additionally, we have recently made investments in promising ventures, including Tan 90, a company specializing in advanced cooling solutions. This particular investment has sparked considerable excitement within our team. While we have complete conviction in our entire portfolio, these are just a few success stories that we wanted to highlight. We are eagerly looking forward to the growth and success of all our investments, and we believe that these examples showcase the potential of our portfolio.

What are some common challenges you face as an investor?

That is a billion-dollar question! Investing capital is just one aspect of the journey. The real challenge lies in ensuring the success of that investment, from the moment the funds are transferred to the eventual exit. This journey is truly fascinating. The key challenge lies in aligning your vision with that of the founder, establishing common goals, and navigating the path together to generate returns for both the founders and the investors. Managing a portfolio poses its own set of challenges, as it involves dealing with different individuals and striking a balance between fulfilling, satisfying experiences and the occasional hurdles that arise.

Another significant challenge in the investment space is the constant influx of deals. Careful consideration is crucial when selecting which opportunities to invest in. The sheer volume of options can be overwhelming, and it becomes a daunting task to respond to each opportunity and identify the right ones. Despite choosing wisely, there are instances where anticipated returns may not materialize. Conversely, there are missed opportunities, which is simply a part of the norm in this industry.

Do you have any preferred investment style or philosophy that guides your decision-making process?

Our investment approach is typically hands-on. When we invest or engage in discussions with founders, we inquire about their expectations of us. If they are looking for passive investors who simply provide capital, we tend to avoid such investments. Instead, we prefer to be active board members and actively participate in the operations alongside the founders. Even if our percentage of ownership in the business is not particularly high, we aim to unlock value for the founders by offering them the necessary support, connections, and networks to advance in their entrepreneurial journeys. However, we also recognize the importance of drawing a line. We refrain from getting involved in the micromanagement of businesses. We understand that founders are typically the best individuals to navigate their own ventures. Even though we engage operationally, we know when to step back and acknowledge that founders are capable of figuring out the intricacies of their business on their own.

What does your experience say about being a passionate angel investor?

As mentioned earlier, Capital A operates with a distinct investment thesis. We allocate investments of up to $500,000 half a million dollars into climate, fintech, and enterprise businesses. For sectors outside of this thesis or very early-stage opportunities, I explore personal capacity investments. However, my experience as an angel investor has taught me the importance of considering this asset class seriously. It is not sufficient to invest in just a couple of companies and expect them to perform well. Building a portfolio is essential, including a pool of funds that you are prepared to lose in case some investments do not yield desired outcomes.

To excel in angel investing, effective deal sourcing and networking are crucial. Engaging with founders, understanding their strengths and weaknesses, and continuously learning from their experiences are essential aspects of the process. Making mistakes along the way is inevitable, as they serve as valuable lessons in the investment journey. In essence, learning to invest comes from actively investing and gaining practical knowledge.

How do you manage risks and rewards?

At Capital A, we prioritize governance as a critical aspect of our operations. Amidst numerous news stories highlighting governance issues and ongoing audits, building trust with founders becomes paramount. Once a foundation of trust is established, the process becomes smoother. Since it involves financial transactions, there needs to be a certain level of checks and balances in place. To ensure compliance, we conduct quarterly audits or internal reviews to verify that all necessary paperwork is in order. Sometimes, unintentional oversights can occur due to the multitude of tasks that founders handle. As investors, it is our responsibility to ensure that both their paperwork and ours are appropriately documented, adhering to the legal requirements of the jurisdiction. Thus, there is always a certain level of capital risk involved. However, by assuming responsibility, maintaining transparency, managing the burn rate effectively, and nurturing a relationship built on transparency and trust with the founders, we can mitigate some of these risks.

Are there any industries or sectors that you find particularly promising or exciting for future investment opportunities?

Certainly! We have identified numerous untapped areas within the climate sector that offer significant potential. One such area is energy management, which remains largely unaddressed. Additionally, there is substantial work to be done in the field of EV battery chemistry. Although the discovery of new lithium reserves in places like Kashmir or Rajasthan generates excitement, the infrastructure required for harnessing these reserves is still underdeveloped and will take time to establish. Therefore, it becomes crucial for us to take action now. We also recognize the importance of lithium processing and battery recycling, as these areas are largely unexplored.

There is a growing buzz around carbon tracing, where efforts are made to measure carbon footprints and achieve ESG compliance. However, this field is currently rife with uncertainty, and numerous startups are emerging in this space. We need to carefully evaluate its investment potential. On the solar front, we are particularly excited about solar financing, water management, digitization of water supply systems, and strategies to reduce energy consumption. Additionally, integrating Industry 4.0 and 5.0 through both hardware and software presents smart solutions to address climate-related challenges. Lastly, cross-border payments within the fintech sector hold immense promise and capture our interest.

Overall, these are the areas that excite us the most as we strive to make impactful investments in the climate and fintech sectors.

What advice would you give to aspiring investors who are looking to enter the field?

Investing requires full-time dedication and is not something you can simply pursue on the side while engaging in other activities. Even though you may engage in angel investing alongside your primary business, it is important to recognize that investing is a distinct and comprehensive asset class. Responsible investing entails supporting founders and structuring the allocation of capital towards startup investments. For aspiring investors, my advice is to be proactive and stay informed about current news and trends in the startup ecosystem. Rather than getting caught up in excessive analysis that can lead to delays, it is beneficial to establish a pool of capital specifically designated for startup investments. Taking that first step is crucial—start investing, attend pitch calls, participate in events, and immerse yourself in the practical aspects of the field. Through active engagement, you will gain invaluable insights and hands-on experience that surpass mere theoretical knowledge.

How many startups have you invested in till now?

We have allocated approximately $5.5 million across 25 startups. If we exclude the investments made in my angel capacity, we have made around 15 investments. Our plan is to make an additional ten investments and fully deploy the initial round of funding by the end of 2025.

What are your learnings as the founder of Capital A?

One of the most significant insights I have gained is the immense potential of people, particularly the entrepreneurs within our ecosystem. There is a vast amount of capital available, and what is needed is effective matchmaking. Unfortunately, deserving entrepreneurs sometimes struggle to secure the right funding, and that is where we aim to make a difference through Capital A.

Unlike other businesses where tangible outputs are easily observed, investing in human beings involves placing faith in their business ideas. It can be a unique decision-making process, but it is also incredibly fulfilling. Witnessing our founders succeed and make a meaningful impact is truly gratifying. These are valuable lessons I have learned at Capital A, and every day presents new opportunities for growth. We continuously learn from our founders, who generously share their expertise and enthusiasm about their respective domains. Rather than solely guiding or mentoring them, we often find ourselves gaining knowledge from their experiences.

Our interview with Ankit Kedia, the founder of Capital A, has shed light on the remarkable achievements and expertise that have propelled him to the forefront of the investment industry. Through his visionary leadership and unwavering commitment to delivering outstanding results, Mr. Kedia has not only established Capital A as a trusted name in the financial realm but has also created a legacy of success and prosperity for his clients. His profound understanding of market dynamics, coupled with his ability to identify lucrative opportunities, has consistently set him apart from his peers.

As we conclude this interview, we extend our appreciation to Mr Kedia for sharing his invaluable insights, and we eagerly anticipate witnessing his continued impact on the investment landscape, shaping the financial future for years to come.

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