[Deeptech Investor] Jatin Desai of Inflexor Ventures on investment strategy and what makes deeptech attractive

Jatin Desai is the managing partner at Inflexor Ventures. Specializing in deep tech investment, Inflexor works with B2B tech companies with a deep tech play or a strong technology IP. Desai comes with a rich experience in the enterprise segment—CIO of Bank of America and DSP Merrill Lynch and was VP at Capgemini.

In conversation with DQ Deep Tech, Desai talks about the pull of deep tech for Indian investors and founders, the sectors that will be disrupted and most importantly, the investment strategy.

Edited excerpts:

What makes deep tech and SaaS attractive to Indian investors and for founders investing in innovation?

Most Indian investors lack access to such investments either in public or private market. Most large international funds—that have been leading deep tech and SaaS investments around the world--don't raise much in India. Relatively, NASDAQ has more options to invest in deep tech and SaaS, whereas in Indian public market we are not quite there.

For the Indian investors investing via deep tech VC funds is pretty much the only option available right now, barring a couple of things listed in the Indian market. That is where we find many Indian investors coming in for deep tech and SaaS.

Last year, pre-pandemic too, the focus had started to shift toward digitization and automation. Innovators in India are undergoing a huge shift. As with Y2K came a huge inflection point for the Indian services sector, India became a de facto software services provider. Today, we witness a mindset shift among Indian founders. The younger generation is taking more risks, there is an increased focus on entrepreneurship and innovation. Also, another advantage with deep tech and SaaS is it’s possible to create solutions in India and sell it to the world.

What is your investment strategy?

My partner Venkat Vallabhaneni and I have been working together for 20 years, were technologists and entrepreneurs. Therefore, we are comfortable with technology.

First, we are aware that the is not perpetual academic project and ahead of its time. A continuous R&D without any sense of commercial viability is definitely a trap with deep tech investing.

We define deep tech as technologies—be it AI, ML, Blockchain, IoT, etc.—with deep impact on the society. In the coming days, quantum may reach that point. What constitutes deep tech at that point of time changes every three to five years.

We also generally avoid pre-revenue companies and that way ensure the product market fit is off the ground. As IP protectionism is still dicey in India, we look for two-three years of lead time in tech IP. With our background in tech, we are comfortable looking at the design, architecture, in some rare cases, go to the code level.

We also consider market size potential—anything that will have a global potential. While initial clients and revenue can be India focused, we want solutions to be built for the world. Generally, our portfolio companies will have a global potential.

Finally, we evaluate the exit potential. Exits have been particularly a challenge in the Indian VC. Things now have gotten a little better, especially with cash exits, but we still have a long way to go. The potential exit routes at the time we come in is an important factor for us.

At an early stage startup the most important factor is the founding team. We spend three-four months with them and get a review of how they behave with us, each other, and handle tough questions, among others.

What sectors will be disrupted because of deep tech?

There is both a vertical and horizontal use case impact. There isn’t a single major vertical that won't be impacted. The major verticals: Finance, healthcare, FMCG, manufacturing everything will be impacted globally. For instance, even traditional manufacturing companies have come to rely on computer vision, IoT, etc.

Also, blockchain, AR, VR, etc span use cases in multiple verticals. There is also resurgence of big data as exponential amount of data gets collected as computing becomes cheaper and a lot of crunching will happen via machine learning and artificial intelligence.

Inflexor also invested in Bellatrix, a space tech startup, with potential for a lot of innovation in terms of tech IP, engineering, even before India opened up space ecosystem for private or commercial participation. As India moves to a model where there is collaboration among public, private, startups, there will definitely be room for potential.