SaaS Interviews with CEOs, Startups, Founders
The YC of India Writes 47 Checks at $100k each for 5%, $2.5m Valuation
07 Feb 2023
Chapter 1: What is SaaS Open and why is it important for SaaS leaders?
Guys, SaaS Open is our next big event in New York City. March 16th and 17th, we'll have 1,000 SaaS leaders all sharing how they built their companies. Our keynotes are Henry Shuck, Marie Martins from Tally.sao, Serby from Symbol, Christopher of DocHub, who had a big exit. Again, hundreds of speakers, 1,000 plus attendees.
And we've got folks bringing their entire executive teams because we have stages for founders, founders, heads of product, head of finance and BD, CMOs and CROs, and then people in HR stage. It's going to be special. Prices are increasing every week, so you don't want to wait. Go to sasopen.com right now to see what the ticket price is and lock in your spot today.
Again, that's sasopen.com, March 16th and 17th in New York City. Tickets are almost sold out. You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom. If you'd like to subscribe, go to getlatka.com.
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Prasanna, they've backed over 110 or helped over 110 SaaS companies. They've written checks into 47. They put $100,000 check in in exchange for 5% of the business. That company can then go raise another equity round, and then they don't have to pay back any capital.
Or if they want to say, you know what, I don't need more money, that founder will then is required to start paying back at one year between 3% and 7% of their monthly revenues, paying back a 3x cap on 100k investment from Prasanna to buy back 4% of the equity. APECA will still keep one for that long road Hey folks, my guest today is Prasanna. He's with a group called Apeka based out of Bangalore.
They're helping B2B SaaS startups grow faster. And he's a very humble guy from that intro. They're really behind some of the fastest growing startups in India. And India really right now is a hotbed of some of the smartest founders, whether that's Saravana, the old Netcore crew, the Freshworks crew, you name it there in India, something special is happening.
So we're very privileged to have Prasanna on the show today. Prasanna, are you ready to take us to the top?
Absolutely.
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Chapter 2: How does Prasanna's group, Apeka, support B2B SaaS startups?
They don't want to get into the rat race. And they're growing 50% year on year.
Well, so how do you guys make money? Most VC firms will say, listen, we're putting 100K checks. We need one or two to return the fund and become a billion dollar company. So when you say the fund, the money you invested, 47 checks, 100K up, so 5 million deployed in 2022 is a BDC. What do you mean by that? What's your return profile?
So out of the first 10 startups that we worked with, Nathan, we now have six startups of a million dollars in ARR. Out of that six, there are three that have crossed a $5 million ARR. So think about this from a fund perspective. We are investing in something like a $2.5 million kind of evaluation.
If they get to a 5 million, and even in today's time, let's say they're at a 5x kind of a multiple, they're at a 25 million valuation, right? So we have a 10x in a valuation jump in about 30% of our companies. So that takes care of a lot of the return.
But culturally, these are founders that don't want to exit, right? They love cash flow. They're not searching for growth at all costs. So how do you actually turn those paper gains into real yield? Or do you not need to do that because this is a BDC?
Right. So two ways, right? One is, so we are not like, we are not holding that equity forever, if that's the question, right? We do have to return. And the two ways that we return is one, if they are never raising any capital, then they can buy back just like in the Indie VC model.
right number two uh we are finding that there are funds now who are coming in and saying hey we'll just pick up secondaries from these founders or from us right and they're not looking at a primary infusion or a small primary infusion and they would love to pick up equity in a sas company that's actually profitable and growing i mean are you seeing sequoia in india excel in india are they are they approaching you and saying hey we'd love to buy up that five percent you own in that five million dollar sas company
No, no, not yet, right? Because they are more in the traditional model of, hey, show me a billion dollar TAM, show me how you can get to a billion dollar IPO and stuff like that. But there are so many search firms and so many PEs and mini PEs in the US who are now like, if it's a SaaS company, they're like throwing an email at it.
And all of our founders who cross a certain level, they have like an email a week in their inbox saying, hey, can we talk to you?
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Chapter 3: What investment model does Apeka use for startups?
So think of the top 2% of companies. They're going to get hit a million and then raise 2 million or 3 million or whatever it is, right? And so those folks, we will stay as equity.
Mm-hmm. Mm-hmm. Yeah. You're either staying as equity if they decide to raise, or if they don't raise, they're forced to start paying you back after one year, 3% to 7% of their monthly revenues. That's right. Interesting. I mean, so... I mean, I thought you guys were really representing that founder that wants to bootstrap and not raise, right?
Not give up equity and go to 5 million in revenue and profit 2 million a year and build a great business. That sounds to me like that kind of founder would not be a good fit for you because they'd be forced to either raise money to get rid of the payback or they'd be forced to start paying you back at one year.
I mean, if you're taking money, I'm assuming, Nathan, that when you give money out to people, you want a return too. The terms are the terms, right? So we are saying we get no equity.
We take no equity.
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Chapter 4: What is the process for founders to buy back equity from Apeka?
Our whole model is we want to support founders that understand that giving up equity can be a big detriment to the business for a variety of ways.
And if you talk to any of our founders, and if even a single one of our founders tells you that giving equity to Upega and having Upega as a partner in their long-term journey was not a good thing, then we'd change our terms. But that's not the case. The kind of support that we're providing to our founders, they can't get anywhere in India and maybe not even anywhere in the US.
Because we are taking founders who have sold only in India, who have never even gone outside of India. We are helping them build a business that's global and get revenue that's global. So many of them, it's literally we are a partner who's helping them do things that they cannot do before. We're not dumb money.
We're literally handholding them to change their website, the language on their website to sound better. more global, for example, right? So those are the kind of things which I believe, right? And, you know, you can correct me if you think otherwise. We're literally changing the DNA of the business, right? So we have folks who have India revenue, but have struggled to get global revenue.
And we are helping them make that first dollar of global revenue. Is that worth equity or is that not worth equity, right?
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Chapter 5: How does Apeka ensure founders maintain control of their companies?
I think that's the question that founders need to ask themselves, right? So I have folks who have built services business. They've tried to build product businesses and they've struggled to build product businesses because when you're trying to build a product business, you need to make different decisions than when you're building a services business.
And so somebody has to literally sit with them and tell them, look, this is how you're making decisions. And this decision was okay in a services business, but this decision is not okay in a product business. And you need to rethink how you do that. You may have made the wrong hire because the person you hired as a developer in a services business, that was okay.
But that same person is functioning in a product business in a way that is detrimental to the long-term health of that product business. So that's the granularity at which we work with founders. and to transform their business, right?
So when I'm helping- You sound much more like a venture studio. I mean, when I bring on folks that are building venture studios like Turtle, which popped out with Phil Libin, I mean, you sound way more like a studio than you do a VC fund. Right.
So we spend literally, you know, dozens to almost a hundred hours per founder, uh, from our, from me and my team, right. To help them cross that, uh, kind of an initial.
And when was, just put this on a timeline for us. Cause folks might be new. They might be learning about you for the first time here on the show. When did you guys write your first check? What year?
Just one and a half years ago. So 2021 is when we wrote our first check.
Okay, 2021.
Before that, we were only an accelerator. We were only helping folks with actually building the business.
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Chapter 6: What are the financial expectations and return profiles for Apeka's investments?
I see. Any exits so far? We've had four exits so far.
Most of them have been strategic acquirers, not too large.
Okay. Okay. But you've got a couple you're excited about that you think can more than return the fund, huh?
I think so, because one of them just doubled last year with very little capital raised. Actually, three of them, like I said, three of them crossed $5 million in ARR. Out of that, two of them have not raised a single dollar. We are the only outside equity holder.
How many total portfolio companies today?
So we have a total of 110 companies, but I would only look at the first 20 companies because that's the ones that have been around for three years, right? Because the others are like last year and a year and a half.
But you've written checks into 110 companies since you started, SaaS companies. No, no. That's the accelerator. Okay. How many have you written a 100K check into? About 47. 47. Okay. Interesting. Interesting. Well, we're rooting for you, Prasanna. If people want to learn more about this, where can they find you?
Upeka.io and I'm very active on LinkedIn and Twitter.
Guys, that's U-P-E-K-K-H-A.io. And Prasanna, what are the next two events you're going to if people want to meet you in person?
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Chapter 7: What challenges do SaaS founders in India currently face?
Or if they want to say, you know what? I don't need more money. that founder will then is required to start paying back at one year between three and five, three and 7% of their monthly revenues, paying back a three X cap on a hundred K investment from persona to buy back 4% of the equity. A PECA will still keep one for that long road with the founder persona. Thanks for taking us to the top.
Thanks, Nathan.