It's not just scale but sustainable scale that is the true differentiator

“You don’t build a business, you build people, then people build the business”

–Zig Ziglar?

Entrepreneurship in India is at a pivotal crossroads. With digitisation driving both access and affordability, and smartphones bringing commerce to people’s fingertips, the country has become a fertile ground for groundbreaking digital products and services. The approximately 500 million smartphone-savvy millennials have led to a consumption boom and created near-limitless avenues for non-discretionary spending. And ever-increasing productivity for small and medium-sized businesses.

Gone are the days when Indian entrepreneurs simply aped Silicon Valley’s successful strategies. Instead, they have imbibed the spirit of self-reliance and are now forging their own path—building in India for India and the world. Empowered by advanced technology, these entrepreneurs have transformed their ideas into reality, effecting grassroots changes throughout the nation and Bharat and serving as shining examples for the world to follow.

At Z3Partners, we believe in the transformative power of technology. With a ringside view of some of India’s early entrepreneurial success stories (MakeMyTrip, BigBasket, OfBusiness, etc.), we have experienced firsthand the profound impact that change can bring. These visionary entrepreneurs have repeatedly placed their trust in us and our ability to reshape startups. What we’ve achieved together with these founders has only further reinforced our dedication to India's startup ecosystem.

As a consistent early-growth stage investment platform, we, at Z3Partners, remain bullish on entrepreneurial India. We believe that tech-enabled startups will serve as catalysts, propelling India toward a $1 trillion digital economy. The prospect of helping build these businesses—which are Indian at heart but global in scope—is what we’re all about.

Our strategy

With a combined experience of over 70 years in investing and operating companies, we understand that India's entrepreneurial landscape differs structurally from that of the West, presenting unique investment opportunities as a result.

And while the space has seen something of a gold rush — with a lot of lustre but not much investment reward — where the afterglow of 2021's capital influx remains fresh and even seasoned founders find it challenging to resist the allure of "hot money" — we believe in making investments with a slightly longer-term view of building equity value but staying extremely disciplined on timely exits.

We typically make eight to ten investments over a four to five-year cycle, focusing on sectors such as B2B commerce, e-commerce, fintech, agritech, data analytics, SaaS, and tech-enabled businesses.

Z3Partners places particular emphasis on data-driven companies, but we’re also profoundly aware of the intrinsic value that founders bring. This informed our decision to become involved with e-commerce, B2B commerce, and social commerce platforms like DealShare in November 2020, OfBusiness in 2016, and BigBasket in 2015. These businesses have since entered unicorn territory.

“We spend over 50% of our time with our founders, the question you have to ask yourself is whether the founders want to spend time with you?”?

-Gautam Patel, Z3Partners?

Our thesis

Our investment thesis centres around leveraging a digital-first and digital-enabled strategy to identify opportunities based on long-term market developments in India; use cases that can also apply to the rest of the developed world in the future. With our extensive leadership expertise in finance, operations and sales, Z3Partners prioritises the promotion of building quality at scale. We pay little attention to superficial factors such as generational wealth or founders’ Ivy League degrees. Instead, we seek to align ourselves with entrepreneurs who share our values and vision of building great businesses in India.

With every investment opportunity we evaluate, we assess the startup's potential for market expansion and its ability to address prevailing pain points. This informed our early investment in BigBasket since the company successfully combined a marketplace model with a private label strategy, revolutionising the grocery business by significantly improving the sector’s wafer-thin margins. BigBasket also empowered customers by enabling them to conveniently purchase their monthly groceries from the comfort of their homes or the convenience of their mobile phones. Furniture marketplace Pepperfry, another startup that piqued our interest, digitised the high-touch segment of furniture retail.

While growth and quality at scale lie at the heart of our investment thesis, we ensure that these do not come at the cost of regulatory compliance and ethical business practices. Principled founders are the ones who ignite our enthusiasm the most. Recent cases of even the most well-heeled startups seeing their best-laid plans unravel as a result of poor corporate governance have only validated this approach.??

At Z3Partners, we place great importance on forging long-term partnerships with startups. We invest in early-growth companies that have been operating for three to five years, generating monthly revenues of $100,000 to $500,000. Consequently, we devote approximately five to six critical years to supporting these companies in building great businesses.

Collaborating closely with our founders and gaining an in-depth understanding of their needs has enabled us to refine and evolve our investment thesis over time. For instance, in the past, Z3Partners primarily focused on vertical e-commerce rather than horizontal e-commerce, emphasising specific products for a broader customer base. Today, we understand the importance of identifying niche opportunities in Bharat to service consumers and small and medium-sized companies.

With digital products and services as our core investment theme, we are particularly excited about four key segments: SaaS, e-commerce and B2B commerce, fintech/financial services, big data and analytics, and tech services/agritech/consumer tech. As market opportunities continue to evolve, our investment thesis will adapt accordingly, identifying newer technology-led businesses across sectors with high growth potential.

Identifying potential

Identifying promising investment opportunities is at the core of our business. Before making any investment, we meticulously review the management information system (MIS) of a startup for a period of 12 to 18 months, searching for patterns, attention to detail, and transparency.?

We also gauge the tenacity of the entrepreneur by examining their track record in navigating challenging periods. Understanding the founder's character and the cultural dynamics they cultivate within their organisation is of utmost importance to us. The following markers guide our discovery process:

Execution-focused mindset: Unlike the innovation-focused approach prevalent in the West, India values execution. Founders who possess exceptional execution skills pay meticulous attention to detail.

Customer-centricity: Placing the customer experience at the core of every decision ultimately contributes to building a successful organisation.

Commercial acumen: While technological prowess is valuable, founders must also possess a strong commercial sense to establish a thriving enterprise. An entrepreneur who can develop exceptional products while operating within India's value-conscious mindset is poised for long-term success.

Team-building and organisational vision: Being a collaborative team player with a clear vision for building a cohesive organisation is an underrated skill that greatly contributes to the creation of outstanding companies. Recruiting talented individuals is a crucial aspect of this process.

Pricing strategy: The product's pricing should be calibrated to ensure its viability and sustainability in the short, medium, and long term.

To truly understand the founder and their potential for success, we engage in candid conversations that go beyond just gathering information. This might involve seeking insights from people who attended school with the founders, allowing us to grasp behavioural patterns the wider market isn’t privy to.?

We strive to establish as many touch points as possible, which can range from participating in customer calls and call centre interactions to speaking with distributors and even former employees. The more comprehensive our understanding of the founder, the more informed our investment decision becomes.

Sure, a "gut feeling" is good to have. Its glorification, however, is unfortunate because it isn’t rooted in sound reasoning. Businesses are non-emotional, and information is the single most important thing that keeps founders and investors honest.?

Why Z3Partners is your growth partner

For founders who choose Z3Partners as a co-pilot on their growth journey, we are unwavering in our support. We stay by your side, offering not only capital but also our expertise and extensive network of connections. We encourage founders to consider the following pointers to make the most of this relationship:

• Treat the money raised from investors as your own, employing it judiciously.
• Maintain a relentless focus on the customer and ensure the repeatability of your business model.
• Stay intimately connected with your customers and competition to stay ahead of evolving market trends.
• Prioritise commercial considerations, as sales margins directly impact the bottom line in the long run.
• Respect and reward your employees when the company outperforms, acknowledging their contributions to the organisation's success.

Our aim is to build successful businesses that stand the test of time. Z3Partners strives to be a partner to each of our investee companies, nurturing relationships beyond signing funding cheques. That is our raison d'être, the true purpose that drives us every second of every minute of every day. Let’s build together.

For more on Z3Partners and our investments, click here.