W95: Gateway is back
In conversation with Vatsal Kanakiya: 100X thesis, AI and Crypto.
Hi Folks,
Before I dive into this edition, I want to give a shoutout to Himansu, who ran The Venture Folks Newsletter for 94 weeks. He’s done an incredible job building this platform, and I’m beyond excited to continue building on the strong foundation.
In the newer avatar, we are launching TVF Beacon. Beacon is our interview series where we pick brains of India’s top investment managers across asset classes and stages.
In this edition, I chat with Vatsal Kanakiya, the CEO and founding member of 100X.VC. With around 130 investments under it’s belt, 100X is one of the most active pre-seed investors in India and has been an early backer of exciting startups like Kerala Banana Chips, Data Sutram, Fyllo, and Abcoffee. By utilising iSAFE Notes1 for it’s investments, 100X aims to simplify, streamline, and expedite the investment process for early-stage startups.
Having worked with Vatsal, I know him to be a huge nerd about everything tech (and non-tech) which is why I wanted to get his take on AI, Crypto and the 100X thesis.
Hope you have fun reading it.
Sincere apologies for this long delay. Regular programming will continue going forward bimonthly.
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TVF Beacon: Conversation with Vatsal Kanakiya
“Our goal is simple: To be top of the funnel and the feeder for the rest of the ecosystem.”
– Vatsal Kanakiya
What role do you see 100X playing in the VC ecosystem, and how has your thesis evolved after 11 cohorts?
From day one, our philosophy at 100X has been to be the discovery platform for the rest of the ecosystem. We’ve always aimed to curate credible, early-stage deals and invest in founders with immense potential. What we've realized is that the way we invest allows us to spot promising startups a lot earlier than they would otherwise have been discovered- take Kerala Banana Chips, Data Sutram or PensionBox for example. We try to support founders early and work with them to help build businesses that are scalable and ready for the next stage of growth.
Beyond that, we’ve managed to pre-empt certain trends in the market. We invested in companies like Vitra and Kroop AI in the Gen AI space well before AI became a major focus in the industry. .
Broadly, the hypothesis and our role in the ecosystem has remained the same. We want to be top of the funnel and we want to be the feeder for the rest of the ecosystem.
You mentioned spotting trends in the ecosystem. How do you identify great founders while pre-empting these trends?
When it comes to trends, we often connect the dots in hindsight rather than spotting them in advance. We have always sought to invest in great founders and later realized we’ve tapped into emerging trends, where we backed founders who were already ahead of the curve. Ultimately, we trust these founders to guide us toward the future.
Identifying great founders can be challenging. It’s easy to fall into pattern matching, assuming that someone from a top school or a well-spoken individual is automatically a great founder.
Through experience, we’ve realized that what truly stands out is radical ownership. Great founders don’t blame external factors for setbacks; they take full responsibility and strive for improvement.
We also value focus. Founders who can balance short-term goals with a long-term vision are essential. They know how to execute immediate tasks while keeping the bigger picture in mind.
I know that 100X doesn’t double down on its portfolio. How do you see your fund's economics change because of that, especially considering that many funds allocate part of their capital to maximize returns by doubling down on winners?
It’s an interesting question and something we've debated internally. Our focus as a fund is to be the first check investors. We believe in concentrating our efforts on pre-seed investments, which is where we excel. Our goal is to dominate this space, making 150 pre-seed deals each year, and we want all seed investments by other investors to be exclusively in our portfolio companies.
One downside of doubling down on winners is that it can send mixed signals. If I have 20 companies in my portfolio and only choose to follow on with 2, it could lead future investors to question why we’re not backing the others we’ve been involved with for a long time. This creates a tricky situation even if we believe in those founders.
Maybe once we've dominated the pre-seed landscape, we'll revisit our strategy.
When do you foresee an inflection point for AI, and how does the current AI bubble compare to the early days of the Internet? Where do you see AI on the Gartner hype scale?
I believe we haven't reached the peak of the AI bubble yet. The euphoria is still lingering, and until we see some rationalization of NVIDIA’s stock, that excitement will likely persist. It definitely feels reminiscent of the 2001 Internet bubble.
Currently, the most prominent Gen AI product is OpenAI’s ChatGPT, which is generating significant revenue—around $2-3 billion—largely through API calls. Instead, companies like Accenture are capitalizing on this with substantial consulting revenues, but many others are still catching up.
On the Gartner hype cycle, I don’t think we have peaked yet. Similar to how the Internet had its standout applications like Yahoo, Amazon, and Google before truly mainstream adoption, we’ll see some companies scale to $20-30 million in revenue, but those that truly endure will take longer to emerge, likely after the first wave of businesses settles down.
What is 100X’s thesis on AI?
When it comes to AI, foundational models typically require large datasets and significant computational power, making them a tough investment for micro-VCs like us due to their capital requirement.
However, we’re really excited about the potential of small language models (SLMs). These models, which target specific use cases and need much less capital, could unlock new avenues for innovation. For example, if a startup focuses on a model with around 80 million parameters in a particular vertical, it could still achieve meaningful depth and understanding. If a startup cracks the code on SLMs, we’re eager to dive in.
In today’s zeitgeist, AI discussions often centre on Gen AI models. At 100X, we also keep an eye out for startups leveraging reinforcement learning, computer vision, and various applications of general machine learning and data science.
For instance, our portfolio company Deep View uses non-generative AI to enhance fintech decision-making, allowing businesses to analyse and act on customer data at scale. This approach delivers actionable insights that can be incredibly valuable in the financial sector.
Similarly, we have Fyllo in our portfolio, leveraging ML in Agritech. They help farmers determine the best times for irrigation and fertigation based on soil conditions and crop health, leading to water savings of up to 60%.
While researching you, I noticed you follow several crypto trading signal pages on X (formerly Twitter). Are you a believer in cryptocurrencies, or you’re riding the hype?
Honestly, I just invest. I don’t trade, and I don’t plan to divest for the next 15 to 30 years. This is more about savings for me. I have a strong belief in Bitcoin and Ethereum.
With Bitcoin, my thesis is rooted in the idea of the fraying petrodollar ecosystem2. I’ve learned how to read Bitcoin’s code and attempted to contribute, though I wasn’t successful. The Bitcoin developer ecosystem is laser-focused on making it a hard currency—hard to mine, hard to store. It's not meant for buying a coffee; it's envisioned as a global store of value.
Plus, with the U.S. government’s interest payments surpassing defence spending, it’s clear that the current dollar system isn’t sustainable. We’re starting to see a shift, and Bitcoin could be part of the solution. It has the potential to act as a digital treasury, offering a way to hold value that isn't tied to traditional fiat currencies. This provides a hedge against inflation and geopolitical instability, allowing countries to manage their reserves without solely relying on the dollar. Few countries like El Salvador have started exploring adopting the Bitcoin standard.
As for Ethereum, I see it as a world computer, not just a monetary competitor. It’s like the cooler alternative to cloud services like AWS. With innovations like Layer 2 solutions, such as Polygon, it’s getting cheaper to compute on-chain, and we’re even seeing groundbreaking use cases, like running neural networks entirely on-chain. This decentralization brings a level of reliability and interoperability that traditional systems just can’t match.
Both Bitcoin and Ethereum are long-term plays for me, and I think Ethereum is about five years behind Bitcoin in its evolution as a world computer.
I know, I know—these are tall claims and long shots, but hey, I've got my theories, and like to be a little delulu3 about it.
Finally - I know you love to consume knowledge. Are there any interesting books, papers, or podcasts you're currently reading or listening to that you’d recommend?
Right now, I'm reading Masters of Doom, which explores how two engineers created the game Doom, if you’re around 23 or 24, you’ve likely played it. I'm really excited about the gaming space and the advancements in game technology.
Another book I’ve enjoyed is PayPal Wars, which explores the journey of PayPal and its founders. It’s interesting how the rapid pace of innovation and the challenges they faced seem to echo what we’re currently seeing in the AI landscape, especially in the US.
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iSAFE stands for India Simple Agreement for Future Equity. iSAFE notes are based on the Simple Agreement for Future Equity (SAFE) document, which was originally created by Y Combinator, a US-based fund. 100X.VC introduced iSAFE as an adaptation of the SAFE document in July 2019.
The Fraying of the US Global Currency Reserve System- by Lyn Alden
Slang meaning delusional