What is common between unicorn startups Twitter, Medium, Dollar Shave Club, Affirmand Air call? All of them were built in “startup factories,” along with multiple other companies that grew from a simple idea to a VC-backed startup.
A start-up plantalso known as startup studio Where risk lab, is not a new concept. In fact, Bill Gross’ IdeaLab was one of the first and most successful, predating the rise of accelerators and incubators, and later, start-up platforms.
Although they all seem synonymous and are often used interchangeably, there are some differences in how they work, what they offer, the level of involvement in the project and how far they choose to stay in the course. of a startup.
India is home to a series of incubators, accelerators, startup programs, and startup studios. But the concept of a Entrepreneur (VB) or one business building platform doesn’t have the opportunity to fully unleash its momentum overseas.
Among the very few,is one of India’s VBs that identifies, develops, launches and scales startups by providing a centralized combination of services including capital, in exchange for equity. It starts right from validating ideas, business modeling, creating products to display product revenues and investments.
The platform is releasing after an average “venture capital building” period of 15 months as the startup continues to raise its next seed rounds.
Founded by a serial entrepreneur Pranav Chaturvedi, Nishaiy Pradhan, and Damn Joshi, Favcy was incorporated in 2015. VB, headquartered in Delhi, houses up to 26 startups, asset management Assets under management (AUM) of around Rs 50 crore.
A hand holder
Having worked in finance for more than five years, Pranav began his entrepreneurial journey in 2008 with International Institute of Financial Markets (IIFM) and start of test preparation Pratham (co-founded with Ankit Kapoor and Satinder Sood).
Since 2014, Pranav has taken a step back and played a passive role in the startup, but continues to be active in board meetings and owns his stake in the company.
During his time at Pratham, the co-founder had donned the investor hat, as the startup sought deals in the edtech space.
Taking a paranoid view, Pranav encountered a particular problem where many founders were burning angel investors’ money due to their inability to understand the nuances of the ecosystem and their subsequent failure to enter the market.
“The problem is more prevalent among founders with a non-technical background who are building digital first businesses as they struggle to understand digital paradigms. These are typically service-minded founders who are unable to s “adapt to the product mindset that digital-focused companies need. In the end, the angels end up facing the brunt,” he says.
The issue called for a dedicated organization that would establish a standard format or business building assembly line to help digital startups get from stage zero to stage one, and beyond.
Having already gained traction in the West, Pranav decided to launch the business building concept in India with the launch of Favcy in 2015. The co-founding trio was later joined by three other co-partners–Yamika Mehra, Ashish Ajmani and Milapsinh Jadeja.
How does Favcy work?
The first part of the process is to evaluation and selection. The pre-term sheet stage can range from 25 to 60 days, where founders must complete an in-house development course, while their business/product idea is checked and validated by the team of analysts at favcy.
The startup uses its own “Idea Validation Tool” called DREK which uses founders’ contributions to analyze the market and check the differentiation and relevance of a particular idea.
“The tool helps us find timely insights that have less competition. The level of accuracy continues to increase as more data is fed into it,” says Pranav.
Once basic controls are in place, founders are offered the terminology record and officially integrated.
The handling process then begins. First comes the idea validation and business modeling where the team works with experts to come up with the most suitable business model. The investment and compliance team also validates the assumptions used in the model.
Then comes the product assembly where the customer life cycle (CLC) of the product is mapped, and based on this, the technical team chooses relevant apps to assemble the product and integrate it into a front end. These applications are provided by Favcy’s internal platform, FavcyXas well as a shared technology platform, FavcyOS, which allows for a quick digital launch. Founders also have the option of bringing in their own developers.
The team gauges the traction in addition productionization and help with engineering and team building. The VB also gives founders office space (via partners), as well as other supporting resources.
“We have our own checkpoints and have built a great team of partners who independently look at the different facets of the business builder,” says Pranav, adding that the VB does not play an active governance role in a startup until what it is asked, but help in scouting co-founders.
The average business is “built on venture capital” for at least 15 months before it breaks up with Favcy and “leaves the nest”. Startups are supported in the transition in terms of office space, servers, etc.
The Fairness Game
Favcy claims about 15% of the capital of a startup just at the beginning of his journey. As angel investment comes in, it liquid part of its own funds (generally 2 to 5%) and keeps the rest.
It’s like any other typical venture capital builder who gets some of their subscribed capital from a group of angels to provide these expensive but organized services. Additionally, angel investing is done through SAFE Notes (simple agreement for future equity).
Favcy has its own investment network—1st check, which is managed by one of its partners and Chief Revenue Officer (CRO), Yamika Mehra.
The team claims to manage a network of approximately 3,000 angel investorsincluding Sumit Gosh (Founder, Chingari), Akshay Sarma (Financial Director, Floating Capital), Soujayath Ali (Co-founder, Shop Up), Sumit Mehta (MD, Arrow Capital), Hrishikesh Thite (Partner, 10Club) Rohit Talwalkar (MD, Everstone Capital).
Beyond that, the VB has partnerships with various independent funds such as OpenBook VC, which actively invests in Favcy’s portfolio companies.
Commercial traction and projects
Favcy remains independent of the sector. It is important to note here that during the first years (2015-18), Favcy did not operate as a full-fledged VB platform, but offered its assembly line (FavcyX) and platform shared technology (FavcyOS) as an asset to help companies digitize their existing business.
The offer was taken advantage of by The IPL teams like KKR, Pune City, Kerala Blasters and media groups, including Hindustan Times, Dainik Bhaskar and Network18.
In 2019, Favcy launched its full-fledged venture capital building platform and started operations. It also continues to offer its shared services.
Of the total 26 startups integrated to date, three have passed away, eight have successfully raised funding rounds from angel investors, while six are seeing organic revenue growth. The others are either in the testing phase or between processes. The 50-expert team platform claims to receive up to 300 incoming requests from founders per month.
Some of the top startups in its portfolio are PalateMkt, OfExperiences, SkillsKonnect, UrjaBolt, GoodGood Piggy, Majig Capital, LeagueUno, CallXP, CompassTot, and Qthrill.
“The biggest challenge of all is identifying the unique assembly line for each startup in addition to evaluating the founders,” says Pranav.
Not an incubator or accelerator
While the idea and genesis behind incubators, accelerators, startup studios or VBs are quite similar, they are extremely different in their approaches and stages.
While incubators (mostly public institutions) guide early-stage startups by providing mentorship, recommendations, shared resources (including space), and networking without capital or execution, accelerators work with larger startups. mature and invest a small amount in exchange for minor capital. .
Third, Starter Studios, which somewhat resemble how VBs work.
Same Venture capital companies As Sequoia’s Surge, 100X.VC, Where antler operate as “quasi-enterprise creators”. However, venture capitalists continue to follow a capital-driven model versus the operator-driven capital model of AVs, Pranav explains.
Of all the support organizations in the world, VB generally takes the most hands-on approach and provides the most support of all the groups mentioned, he adds. At the same time, VBs also tend to take the most equity from their portfolio companies.
Some of the popular global names include internet rocket, which holds up to 90% of the capital and acts as a quasi-private equity firm. The most popular local name in space is—growth story, which has been a great success with the likes of, , and . Platforms like Anthill and Smile Group also follow somewhat similar patterns.
“The concept of business building has been around for a while now but never really took off in India. There are startup studios but they charge a service fee. This kind of model has to be operated through funds own and we are very lucky that our network of angels trusts us and participates by buying us start-up capital.This allows us to do what we do best and keeps us cash positive,” says Pranav.
Sensitization is another major challenge that Pranav believes will eventually be overcome as strong startups emerge from VBs and experience long-term growth.