CXOToday has engaged in an exclusive interview with Mr. Prateek Tosniwal, an angel investor, financial advisor, and co-founder of IVY Growth Associates.
How do you see tech-driven businesses transforming traditional industries?
Ans. In my experience, tech-driven businesses have evolved in the last decade, catalyzing change in traditional industries. Today, many companies are embracing technological innovations to optimize their operations. This strategy is right on time, as more venture capitalists and angel investors seek businesses that keep up with innovations. It shows that companies are willing to evolve to cater to changing market demand, which adds to their competitiveness.
More startups and established companies are adopting Artificial Intelligence, Big Data, Machine Learning, and IoT to automate processes or enhance customer experiences. In addition, digital innovation is helping them scale growth and expand to new markets. E-commerce and quick-commerce are some of the best examples of how technology has transformed the consumer market, especially the FMCG sector. Seeing this transforming potential, I along with partners at Ivy Growth created a Rs. 250 crore startup fund earlier this year focused on agritech, generative AI, consumer brands, fintech, cleantech, and SaaS.
Can you share examples of how technology has created new investment opportunities in your portfolio?
Ans. Technology has helped me identify several niche investment opportunities in the last few years, which have added value to my portfolio. Leveraging advanced tools has become the norm for market analysis and research. However, I rely on these tools to refine my manual research findings and dissect real-time trends. They help me identify potential business ideas that could progress over time, allowing me to add them to my watchlist in due time.
What are the top factors you consider when evaluating tech startups for potential investment?
Ans. I usually do not follow a hard-and-fast rule or a fixed set of parameters when evaluating startups. However, a few factors often help me gauge their potential better, such as their market opportunity and competitive landscape. A startup’s target market, size, and growth potential can offer insight into its revenue-generating potential in the long term. Similarly, the merit of a startup’s differentiation strategy is vital. It tells me whether a startup can withstand the competitiveness. This is most applicable for startups that operate in the D2C, Edtech, Fintech, and healthtech spaces, which are increasingly becoming saturated.
How do you assess the scalability and market potential of tech-based startups?
Ans. For me, the size of a startup’s target market is critical to assessing its scalability. Besides learning about the target market, I try to gather more insights into the ongoing trends that could suggest the trajectory of future demand.
In this regard, a startup’s business model is also key to understanding its scalability and profit-generating capability. Typically, I rely on certain metrics, including user growth rate, customer acquisition cost, and market value, to assess whether a startup could scale growth targets within its promised timeframe.
We already know that a business’s ability to adapt to new technology plays a role in sustaining growth, especially amid intense market competition. This is more crucial for tech-based startups, as their business model is centered around tech innovation. For instance, EV battery manufacturing companies that are quick to integrate advancements in battery technology have an upper hand today.
In your experience, what role does innovation play in differentiating successful tech startups from the rest?
Ans. Startups that are open to innovation have an edge over their competitors. Such companies, irrespective of size, are quicker and more adept at tailoring their offerings according to changing demand and emerging trends.
This is why they can cater to the unmet demand for unique or in-trend products and capture a significant market share. I have seen companies that are more agile in adopting innovation are better at attracting new customers and retaining existing ones. Their approach often keeps their products and services fresh, which keeps their customers and investors hooked. However, companies that embrace innovations are aware of potential threats and lags associated with such upgrades and are better at risk management.
For instance, innovations like AI are excellent for automating processes and understanding consumer preferences. However, could AI systems introduce new vulnerabilities in the absence of suitable security measures? Absolutely. Yet, being aware of these risks enables companies to implement necessary risk management solutions and mitigate associated threats.
How are technologies like AI, blockchain, and automation reshaping the venture capital and startup investment landscape?
Ans. In the last 4-5 years, I have noticed an increase in integrating these technologies in the investment space. For instance, more investors and VC managers are using AI for data analysis to evaluate startup performance and market trends. AI is an effective tool to enhance risk assessment and identify niche investment opportunities that can become profitable over time. For instance, AI-powered automation tools are enabling venture capitalists to streamline dealmaking and lower repetitive tasks, which further helps ensure quality analysis.
On the other hand, blockchain has played a notable role in shaping innovative funding models such as tokenization and initial coin offerings (ICO). ICO in particular is a faster means of obtaining capital for start-up activities. Meanwhile, more traditional investors and companies are using the technology to increase the security and transparency of their transactions.
The fact is we are still unaware of the full potential of these technologies and what they can do for the startup investment landscape. It would be interesting to see how things unfold in the next decade.
In what ways do you believe these emerging technologies disrupt traditional investment models, and how do you adapt your investment strategy accordingly?
Ans. Judging by the current trends, emerging technologies have come a long way when it comes to introducing innovations, enhancing data analysis, automating decision-making processes, and improving risk management strategies.
I believe that investors who have successfully adopted these innovations are more attuned to market demands and better at identifying opportunities. This is because technologies like blockchain and artificial intelligence make investments more efficient.
As an investor, my ability to track emerging investment trends and technologies has helped me adapt and plan my strategies accordingly. It is often challenging to keep up with all the innovations that take over the market all at once. So, I try to focus more on trends and technologies that could benefit me in the long term.
How important are sustainability and ethical practices when deciding to invest in tech startups?
Ans. Today, most consumers acknowledge climate change as a significant threat and are switching to sustainable products. For instance, a recent survey by PwC found that 13.1% of Indian consumers are willing to pay more for sustainably sourced products. This clearly shows that sustainability and ethical practices have become a deciding factor for consumers when purchasing products or services. Contrary to popular notion, this is not a mere trend, and I think it will continue to influence investors’ decisions.
As an investor, these factors are increasingly becoming important for me when evaluating the merit of tech startups. So far, I have noticed that tech companies embracing sustainability and ethical practices have been more successful in positioning themselves favorably in the market. Additionally, they have increased their brand value, which aligns perfectly with the changing regulatory standards. Now, I consciously seek startups with strong business fundamentals but who are well-versed in sustainability and ethical practices.
Can you give examples of startups you’ve supported that prioritize sustainability and have succeeded due to this focus?
Ans. Throughout my investment journey, I have had several opportunities to collaborate closely with companies that focus on sustainability. Recently, my experiences with startups like Indeanta EMobility, EMotorad, and Zypp Electric have been particularly noteworthy. These startups primarily operate within the electric vehicle sector and provide innovative e-mobility solutions. Given how India aims to become a global leader in this field, it is incredibly fulfilling to be involved with firms prioritizing this vision.
What are the main challenges currently faced by tech startups when it comes to securing funding?
Ans. Market saturation is one of the most prominent challenges in the tech space. Many promising tech startups are finding it challenging to stand out in the market, which is hampering their ability to raise funds. Despite the evolving startup culture, many techpreneurs hesitate to take risks in their business approach. On the other hand, others are comfortable chasing safer investment options, which often take longer to pan out. Similarly, some miss out on funding due to their focus on short-term returns or for having an unproven business model.
How do you, as an investor, navigate these challenges while still identifying opportunities for growth?
Ans. I have always been clear about what I want from a company. For me, companies that focus on their long-term growth objectives and build strategies to sustain profitability are more lucrative for investments. In addition, I also prefer companies with a proven record of profitability and scope of business model. This helps to evaluate their long-term potential and understand how they fit in a saturated market. Besides these, I enjoy working with entrepreneurs who think outside the box and know how to create a unique identity in their target market. These tactics have helped me identify growth opportunities and allowed me to utilize the potential of companies that have what it takes to become market leaders.
What advice would you give tech startups to overcome these funding challenges?
Ans. My advice is to focus more on enhancing your products and services and ensuring that you know your target audience. This will help develop a suitable business model that addresses consumer needs. Similarly, learn how to sell solutions instead of mere products; this will help you create a unique identity in the market. Lastly, ensure that your focus is not limited to generating short-term returns or chasing market fads. Instead, focus on sustainable growth and building connections within the industry. This approach could be an advantage at a time when investors favor sustainable business models and revenue outlooks.
The post How Tech-Driven Businesses are Revolutionizing Traditional Industries: Insights from a Venture Capitalist appeared first on CXOToday.com.