Partner at Rocketship.vc, with fund size of $125 million shares her journey and how they crunch data to invest in startups

Madhu Shalini Iyer, Partner at Rocketship.vc

  • Madhu Shalini Iyer is the Partner at Rocketship.vc, an early-stage venture fund investing in companies through data science. 
  • She has always been interested in data science for the last two decades and in 2019 Madhu joined Rocketship.vc when they raised their second fund of USD 100 Million.
  • Madhu’s familiarity with emerging markets and developing economies has been accelerating Rocketship.vc’s investment strategy in India and, the SEA regions.
  • Here is how she began her journey as an investor. 

 

TFS: How did you get into data science and the business aspect of it? How did you get interested in the startup world? 

Madhu: I was born in India. My father was in the Indian Airforce, and so we moved all over India.

After class 10, we moved to Singapore and I did my high school there. Post that I went to the University of Sydney, which is where I did my computer science engineering.

I returned to Singapore and worked for a very little bit before I moved to the Valley in the early 2000s. It was here I did a part-time Masters in Applied Mathematics. And that's it, there has been no turning back. 

I joined Exponent, an engineering and scientific consulting firm, based out of Menlo Park, in the US. I was in the statistics and data sciences practice here. 

It was an eye-opening experience truly as I started getting exposed to a lot of business transformations that were happening with data. 

In the Valley, the startup world is well within reach.

I met several startups that were trying to bring a change in this world. It sort of made me interested in this whole startup world.

I moved to Intuit as one of the early data science members. I was part of the team which started QuickBooks Financing. It competed head-to-head with Ondeck, Lendingclub, and Cabbage. 

We grew that business very quickly to $50 Million and without any surprise, data was the front and center of that business. 

This motivated me to be part of more early-stage startups or start a company perhaps, and watch them grow. 

Madhu Shalini Iyer invests in emerging markets

TFS: The founders of Rocketship.vc come from a great pedigree of selling companies to Amazon and Walmart. How did Rocketship.vc happen for you? 

Madhu: After my stint at Intuit I returned to Singapore, which is where I had grown up. 

I was an investor, and operating partner in a private equity fund out of Hong Kong, building and investing in fintech startups around South East Asia.

I learned something important here. It was more essential to be an operator than an investor. This is 2015, so the South East Asia startup scene was at a very nascent stage. 

I jumped ship and joined Gojek - an Indonesian on-demand multi-service platform and digital payment technology group based in Jakarta. 

I started the Singapore Office, was on the Board of Directors and became the Chief Data Officer at Gojek. 

We went on to raise $550 million dollars which earned us the title unicorn. 

I was spending time in Indonesia, Singapore, and India. It was just a really intense time.

With the startup boom I saw I knew the time was right to be an investor and I relocated to the valley once and for all, and started a VC fund of my own. I advised a few startups here and there and my love for emerging markets continued. 

I met with my Rocketship partners, Anand and Venky when I was evaluating a company in LATAM (Latin America), and co-incidentally that company was on their list too. 

I loved their clarity of being able to use data to find the best startups, which is actually a very nuanced thing. It was actually our shared interest in data that pulled us closer together. and the rest is history. 

Anand, Venky, and Sailesh started the fund in 2015, with $40 million.

But when I joined them in 2019, it was about a $100 million fund. That fund was backed by US investors, including Vulcan Capital, Adams Street Partners and the family office of Marc Andreessen and Chris Dixon, co-founders of venture capital firm Andreessen Horowitz.

It is very rare to find investors who are data practitioners and at the same time operators and company builders. 

Fortunately, I and my partners were a combination of all those things, as we had been in their shoes before. We take our entrepreneurs very seriously.

TFS: What is it like being an outbound-only data-driven VC? In the VC world we don't usually see this kind of approach, so how do you approach the founders?   

Madhu: Most VCs are used to the deal flow coming their way which is an inbound process. Outbound VCs are indeed very rare.

We on the other hand find the deals and go after the founders. 

It was a  novel approach when we started, it is also a very complex AI problem. We have one of the largest startup databases in the world; 15 million global companies, and 1.1 million websites. 

To be able to take a lot of data and build algorithms on top, we train these algorithms to understand business cases.

Our fund is geography and sector agnostic because we have realized that we can’t really have any themes for our investments. 

We were also one of the first ones to realize that, there was a lot of activity happening, outside the Bay area. Which was sort of the reason why we leaned more towards India in 2017 when the global VCs reached out to them only in 2021.

Our first fund and the second fund have performed phenomenally well. Thank goodness because those returns are what LPs are essentially looking for.  

We did not physically meet most of the founders in our first fund.  

The second fund coincided with the pandemic and not meeting the founders offline became normal practice. This is what happens when your team understands data way better than anyone else. 

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TFS: How do you convince both the founders and the LPs of your data-driven investing approach?

Madhu: It was the hedge funds that were using that approach previously, so we thought if the public funds are doing it, why can’t we?

That’s where the complexity of the problem was, in addition to the big data. 

But now more and more VC funds are doing it and the landscape has become competitive.

It’s very difficult for a VC fund to have a presence everywhere in the world, plus things change. 

For example, South East Asia is flourishing, but MENA, the Middle East and North Africa are one of the best places to be in right now. Then there is Africa, and LATAM which keep getting hotter and hotter in terms of investment. 

It’s very difficult to scale the team if the environment keeps getting changed. So to be nimble and to be able to do it, really requires the utilisation of data.

Because of that most global VCs now want to have that data advantage. Wait! not just them, I think everybody wants to have that advantage now.

As a result, more and more folks are investing a lot of money in data themes. 

I think that is a wonderful thing for us because what was once novel is not novel anymore which made it easier to have conversations with LPs. The reason is simple, more people now understand data, and more people understand investing over zoom.

So all of the things that we were trying to disrupt quietly with LPs, now have become mainstream. 

But that doesn't mean that it is a 100% remote process. We obviously catch up with the founders after the deal is finalised. After all, that is a very important part of the investment process;  getting to know the founders.

TFS: How did your portfolio startups perform during the Covid 19 crisis? 

Madhu: Rocketship, which has made 20 investments in India so far, has backed startups such as NoBroker, Khatabook, Moglix, Apna, Teachmint, Quizizz, Jar and Animall. 

To be precise, Covid-19 actually affected sectors and not stages of investment. 

There were certain sectors that were really badly affected during Covid-19. Hospitality was one of them and we have had certain startups that had a lot of headwinds.

Those sectors seemed to hunker down. The teams had to sit down on what they had raised, build the product, go back to the drawing board and just keep building the product to perfection.  

Noticeably edtech and fintech saw a lot of investments and had great tailwinds. 

At Rocketship our real-time and robust data immediately gave us a 360-degree view of what sector was profitable and what was not.

The data is still very reactive, you can see it in the valuation. 

Rocketship is in the business of finding alphas and we found ourselves in a very advantageous position during the pandemic. 

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TFS: Do founders need to focus on the fundamentals of the business, rather than the narrative, and selling that narrative for their product? 

Madhu: This narrowing of the narrative and the fundamentals of the startup has become very real in current times. 

When capital is tight, the narrative is not as important as the operational metrics and the fundamentals of the business.   

So that is what you are going to see more and more now. It doesn’t matter which space you’re in, be it crypto or Web 3.

Fundamentals are always going to be necessary. 

I do think that it would be difficult to sell a narrative without having solid fundamentals in the business. Even if you don’t have the metric, you really have to be thoughtful about how you are going to build something.

We look at startups that have traction. So on one end, good narratives are going to win, on the other end I think a lot of good fundamentals, good operational metrics, good business building, and good margins, are also going to win.    

TFS: Usually early founders take on the role of a CEO, or CFO themselves. Should they hand over the role to somebody else?  

Madhu: I think hiring a good founding team is one of the hardest problems in any given startup. 

Folks who are able to do it well, are the ones that end up going miles ahead of others.

There is really no ‘one size that fits all’ answer here, that’s the beauty of how startups are built.

I have seen so many stories where there are great CFOs, extraordinary product officers, CTOs and CEOs. 

But I want to keep my answer open to say that there is no one sure-shot way to greatness. So my advice to founders would be “Keep an open mind”.

The dynamics of what works best in these startups depend on the team that founders are able to hire. 

Video by Ritvik Sachdeva

 

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