The millennial investors

Forty-year-old Kashyap Deorah is a serial entrepreneur. HyperTrack, which he started in 2016, is his fourth venture. Developers use its location-tracking application programming interface to build applications for companies in on-demand delivery and logistics, and improving the productivity and efficiency of “giggers”, or freelancers that make the gig economy.

Based in San Francisco, Deorah is also the author of the book The Golden Tap, which tells the story of hyper-funded Indian startups. He has first-hand experience of the phenomenon: He himself has funded 25 startups. But there is a hint of wonder when Deorah recalls his association with Rohan (31) and Arjun Malhotra (29), co-founders of Investopad, a facilitator for startups in India. First off, the brothers were as excited as Deorah about the opportunity in dynamic location tracking. The three had met sometime in mid-2015 to explore investing in a startup in the last-mile logistics space. In a blog for HyperTrack, Arjun would write that what followed was a “deepening kinship”.

The Malhotras were looking to spot a winner. So Arjun was excited when Deorah said he was onto something that focussed on tracking. Arjun wondered, just tracking? Deorah said firmly: “I’m focussed on doing just this one thing and doing it well.” Arjun thought tracking was “a fairly small problem”. But after considering expert inputs, the brothers realised dynamic location tracking would be needed in various industries, and HyperTrack could supply mountains of data—something no firm could do without. So, in January 2016, Arjun parked a tidy sum in HyperTrack. Investopad was only two years old then.

In the days that passed Deorah would marvel at the reach of the brothers’ network. “I’m a guy who has worked in Silicon Valley for more years than they have. Yet, they connected me to an investor in Silicon Valley who wrote an angel cheque [for HyperTrack],” Deorah tells Fortune India. “This investor also happened to be on the investment committee of a large fund, which in turn wrote a cheque. Now that angel investor’s co-founder happens to be on my board because he was very relevant to the space we are in.”

That’s not all. The Delhi-based brothers liked Deorah’s book so much that they became “evangelists” for it. Deorah found his book had ended up in the offices of a global fund based out of Dubai and a venture capital (VC) firm in Silicon Valley. He also learnt that a serial entrepreneur who has built three billion-dollar companies had a copy. The brothers’ latest bet is Good Capital, a VC fund focussed on pre-seed to Series A investments. The $25-million fund will invest in consumer startups with a focus on “Bharat”, or nonmetro regions, and in enterprise tech startups looking to build for a global audience.

One would think the brothers’ calling lay with the army. Their grandfather was a veteran of three wars. Their father, Anil Malhotra, was an officer, too, but left the forces when he was quite young after suffering a head injury in a polo match. What their father did after that guided the brothers about what they wanted to do in life. “At the age of 23, our father started a fascinating IT-education business,” explains Rohan, adding it has benefitted more than a million students. Informatics Computer Systems (ICS), set up in 1983, built and operated computer labs at over 1,000 schools across India. ICS completed a majority of its contracts with schools in 2000. Both sons were never groomed to take it over, but they saw what technology and entrepreneurship could do. “We were able to see the impact that technology had created at scale in our country... that’s what inspired us to do what we do and build a platform to support and invest in entrepreneurs,” says Rohan.

The brothers had always planned on doing something together. “We have been incredibly close growing up together,” says Rohan. They studied at New Delhi’s St. Columba’s School before heading out to Malvern College, a boarding school in the U.K. Both finished college at the University of St Andrews, Scotland.

Rohan began his professional life with the well-known global sports agency Wasserman. Arjun, still in college, interned with Silicon Valley-based VC fund Capricorn Investment Group. The fund mainly managed the wealth of Canadian entrepreneur Jeff Skoll—the first president of eBay—and was the first to invest in companies such as Tesla and SpaceX. “It was not a typical VC that had a timed fund life cycle and would have to make a certain amount of investments every year. It had an evergreen capital pool—they could do what they wanted,” says Arjun.

In 2012, when Arjun graduated, Rohan quit his job and both moved to Silicon Valley to work on creating an equity crowdfunding platform for retail investors to invest in tech startups. They also wanted to get a bird’s-eye view of the innovations happening in the tech world, spend time in the Bay Area, network, and meet startup founders. In 2013, they spent the summer in Toronto, helping run a cohort for Extreme Startups, a startup accelerator, which was an initiative of Xtreme Labs. A year later, with their personal savings of $250,000 they set up Investopad. Their idea was to offer founders a space to work, help them get access to capital and customers, and connect them with strategic advisers. It also allowed early-stage entrepreneurs, CXOs of large technology firms, and investors to connect and do business with each other.

In four years they set up Investopad studios in Gurugram, Delhi, and Bengaluru. “What started happening was that some of these startups [at Investopad] which we had been working with started picking up momentum, and we had a good pulse of the ones that were showing promise. So we jumped at investing in them,” adds Arjun, who played the role of Alia Bhatt’s fiancé in Highway, a Hindi film. Rohan, too, had a cameo role in it. In all, the brothers invested in 11 startups, exited from six, and continue to be invested in three; two shut down. Their three portfolio firms are social commerce platform Meesho, now backed by Facebook; Deorah’s HyperTrack; and Silicon Valley-based prefab builder Katerra, in which Japanese tech giant SoftBank is also an investor. “We invested our personal savings in the businesses we backed.

The fact that it was all our savings really helped define our investment model—we simply could not afford to lose our money! We were fortunate, our IRR [internal rate of return] on that corpus of $250,000 is 138%,” says Rohan. He adds the fund multiple on the total invested is about 12.6x now.

Nearly 60% of the companies they invested in came out of Investopad. There are many in the Investopad ecosystem in which the brothers are not invested. “The market is so nascent in India that you can’t invest in all the companies, but you really want to have the most exposure because that’s how you will find the best of them,” says Sundeep Madra, vice president, Ford X at Ford Motor Company.

Madra, with whom the Malhotras worked at Extreme Startups, was instrumental in getting them to start Investopad. A founding partner at Extreme Venture Partners, Madra sat down with them and sketched the plan out on a piece of paper, saying, “This is how it works.” Madra is proud of his protégés. “They have done great work to develop an ecosystem [for startups in India], create a pipeline of business, and build relationships. Now what they need to have is a vehicle to fund those things and take meaningful ownership stakes,” says Madra, who is now a limited partner in Good Capital.

In September, Rohan and Arjun started Good Capital. “Earlier we were leading seed rounds ranging from $200,000 to a million dollars—we were leading them in principal by investing $25,000-$50,000 and then would do a lot of heavy lifting in aggregating the rest of the money. Today, we will be able to do 70%-80% of these rounds by ourselves and keep 20%-30% room for a bunch of strategic people that we would want to bring in on a deal-by-deal basis,” explains Rohan.

Good Capital has already invested in Silicon Valley-based augmented reality firm Spatial; New Delhi-based simsim, a video-based e-commerce platform; and Kerala-based edtech startup Entri. “They are not just connected in the investor ecosystem, but in the entrepreneur ecosystem. It’s so easy to call them up and get information about someone who has solved a similar problem at another company,” says Amit Bagaria, co-founder, simsim.

“They have a strong network of people in Silicon Valley, in China, in New York, and in London... very unique for an early-stage investor,” adds Vidit Aatrey, founder and CEO of Bengaluru-based Meesho, which allows merchants to sell through social networking platforms such as WhatsApp. It’s a business that the brothers say they fell in love with as it resonates with their “Building for Bharat” theme.

Once that happens, Deorah says, they become the mouthpiece in their entire network. “Then you start seeing these benefits where the world is sort of conspiring to make you successful,” adds Deorah, who is also an investor in Meesho. “All because these guys spread the word to the right places and planted the right seeds.” Deorah says the brothers are in a way following the family tradition. “Their father was in the education business—educating people with tools that made them successful which at the time was computing. For them, the tool is investing and giving space where a community can gather and express itself, like Investopad.”