Thirty Years On Both Sides Of The Cap Table · Madhukar Bhatia, Pentathlon Ventures

What we talked about.

In this episode, Sunny Ray talks with Madhukar Bhatia of Pentathlon Ventures about three decades spent as both founder and investor. Bhatia recounts building several companies, including Sapiens Analytics, and explains why he and fellow tech founders launched a venture fund in Pune, a city rich in product companies but lacking an accredited VC firm. He reflects on the mistakes first-time founders make, especially treating a technical problem as a substitute for understanding the customer, which he says contributed to the shutdown of his first startup after eight years. He describes how the firm decides on deals, with two lead partners and an investment committee requiring 80% approval, and what he learned about choosing limited partners while closing his second fund. Bhatia also discusses how Indian B2B SaaS buyers now pay far larger subscription fees, why he mentors young founders at a Mumbai business school tech studio, and how his view of liquidation preferences and drag-along clauses changed once he sat on the investor side of the table.

A serial founder turned VC explains why term sheet clauses that felt unfair as a founder make sense once you back a hundred companies.

The questions, and the answers.

What made you move from building companies to backing them?

After I stepped back from day-to-day operations at Sapiens in 2019, a few friends who had also built companies exited around the same time. Pune has many strong product companies, including some of India's early unicorns, but no proper accredited VC firm. We decided to build one and help grow the Pune ecosystem.

What do first-time founders get wrong that you got wrong too?

Especially with a tech background, founders think technology is the biggest hurdle and that a cool technical solution will sell itself. Outside deep tech, that is rarely true. My first startup was shut down after eight years because we never asked who we were selling to or what value proposition would satisfy them.

What can you spot in a founder within the first 10 minutes?

I quickly sense whether founders truly understand what they are trying to do and have their customer profile sorted out. We struggled with that ourselves, treating our work like a college project. I also feel I am good at judging a founder's technical depth.

What did closing your second fund teach you about which investors to take money from?

In our first two funds we raised almost exclusively from people with tech backgrounds, because they understand that some companies fail and some succeed. After fund two, I learned that to raise larger amounts faster, we need to look beyond them. Family offices and others understand the tech space better than we first assumed.

What does Pentathlon look for before writing a first check?

We look at how well the founder understands the market they are solving for, and whether they have a unique insight, often from having worked in that area. Technology is a problem that can be solved. What matters is seeing something missing that is not obvious to everyone else.

How does your team decide whether to close a deal?

We have five partners, and every deal is led by two who must be completely sold on it. The other partners talk to the founders and flag risks to dig into. Then it goes to the investment committee, which includes one external member, and 80% must vote in favor.

What is the biggest shift you have seen in Indian B2B SaaS since you started investing?

When we started investing in 2020, the wisdom was that Indian companies paid very little for software. That has changed a lot. Several portfolio customers now pay two to three crore a year, and as companies grow it can reach a million dollars. Some customers are also asking for outcome-based pricing instead of pure subscriptions.

What is one thing founders misunderstand about investors?

As a founder I was convinced my company would succeed, and liquidation preferences and drag-along clauses looked unfair. Now I understand that only a few companies succeed, and everyone remembers the hundred-X return but not the hundred companies that returned nothing. These terms are required, and they are nothing personal.