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Issue Date: April 2013, Posted On: 4/16/2013


Romulus builds on success with $50M fund

By Martin Desmarais
Gupta
The founders of Romulus Capital truly believe that the world's next great companies are emerging out of the efforts of students at top universities — and they should know as their venture capital firm was started when most of them were still in college. Krishna Gupta, Anantshree Chaturvedi and Cankut Durgun co-founded Romulus Capital in 2008, while Gupta and Durgun were at the Massachusetts Institute of Technology. The firm launched as a seed-stage venture capital firm raising a $1 million fund to invest in startups, particularly those launched out of MIT and Harvard University. Now, more than a dozen companies later, Romulus is raising a second much larger fund of $50 million to continue the firm's work, which has clearly struck a rich vein in the startup world.

According to Gupta, Romulus' success in mining entrepreneurial ambition from the college environment has necessitated raising a much larger fund. For one, the model of backing seed-stage technology companies from some of the brightest young minds in the world has proven to work and, for another, the firm wants a way to continue to back some of its initial investments and help the startups continue to grow.

Romulus started raising money for its second fund last summer. "We've raised a significant portion of the fund and our fund-raising is going well," said Gupta. He added that the goal is to close the fund by this summer.

The firm has already started investing out of its second fund — making four follow-on investments in its portfolio companies, including a recent $2 million investment in a company called El la Carte, in which Romulus was the first investor.

Gupta said that the new fund will be used to fund more startups in Romulus' portfolio, but should, ultimately, lead to investments in 25 to 30 new companies.

Companies that the firm has already invested in include: Allurion Technologies, Crocodoc, Dashbid, Gyft, Placester, The Tap Lab and Zigfu.

Gupta believes Romulus has struck a nerve in the investing industry because there are not many firms looking to help companies launch out of university ecosystems. Though he admits more and more firms are starting to pay attention to this environment, in 2008 when Romulus kicked off it was a pretty novel idea.

According to him, the Romulus founders just saw so much innovation at MIT leading to student startups, but a lack of capital and support to really get them off the ground.

"The large VCs they don't exist in this space," Gupta said. "Angels put in money but they can't do anything behind that — they can't provide support."

This is what Romulus has done in its first four years of business — put in seed money and supported startups to help them grow.

Gupta said that the new fund will not change that, but will allow the firm to continue to be involved as startups continue to mature.

"As they grow and need more capital we will be able to be there and invest more money. ... You need to continue to support with capital over time," he said. "For us, we are business builders. We want to be there right from the beginning to help them build their business.

"We were always focused on business building ... when it comes to actually following up with additional capital we had not been able to do that because the fund was too small ... but we always kind of planned that we would grow as a firm. And the timing just made sense now," he added. "We have invested in some great companies. ... If you look at the companies in our portfolio a lot of those companies have raised additional money from top tier firms."

Now with its second, larger fund, Romulus can also play in the additional investment game.

Romulus will also continue to focus on the university ecosystem, which is its bread-and-butter. "We are still very much connected to the academic environment ... We look at universities as key incubators for us," Gupta said.

Headquartered out of Boston, Romulus will also focus on New York, and while it may consider some companies on the West Coast, it will be mostly be East Coast focused, according to Gupta.

Chheda
Romulus has brought on Neil Chheda to run the second fund. Chheda joined the firm about a year ago from Zynga and while there worked on the massively popular online game Farmville. He previously founded and sold a health-care company. He also founded and managed a small private equity firm that invests in health-care markets and worked for McKinsey & Co., as well as Kleiner Perkins. Chheda is a graduate of Yale University and has a MBA from Harvard Business School.

Gupta believes that the key to being a good seed-stage venture capital firm is helping startups build teams with both business acumen and technology savvy, helping young entrepreneurs balance between being strategic versus just opportunistic and having as much a passion as the founders for working hard to make the company succeed.

"We are young, scrappy. We hustle the way these guys hustle. It is really like we are just coming onto the team," he said.

Overall, Gupta has not been very impressed by the competition in the seed-stage venture capital market. "I think a lot of venture capital firms have turned into investors, where they are really betting on companies versus building them," he said. "There are very few good seed-stage firms."

While Gupta has a bachelor's degree in materials science and engineering and management science from MIT, he wasn't tempted just to latch on to one of the good ideas he saw coming out of the school and ride it as a startup entrepreneur.

"Rather than just latching on to one particular technology I thought it would be great to help build multiple companies over time," he said. "I didn't really want to be that guy who latched on to a tech guy ... instead I wanted to be repeatedly involved. I want to show that we can do this consistently. ... We want to be viewed as a firm that can consistently build great ideas into big companies in partnership with highly intelligent people."

But the 25-year-old Gupta, who has also spent time as a management consultant at McKinsey & Co. and as part of the mergers and acquisitions advisory team at JPMorgan, greatly credits Chaturvedi for bringing experience and know-how to the founding Romulus team.

Connected through long-time family associations to Gupta, Chaturvedi is president of Flexfilms USA and director of Uflex Industries, which includes one of the world's largest polyester film companies and India's largest flexible packaging company. He has led Uflex's entry into the United States, spearheading a $250 million investment into a greenfield manufacturing facility. He has previously led large projects in the United Arab Emirates, Egypt, Mexico, Russia, Poland, Brazil, Israel, Nigeria and Gambia. He also has experience as a management consultant at Accenture and was involved in the early days of DuBiotech, a major life sciences cluster in the Middle East. He has a bachelor's degree in entrepreneurship from Babson College and is a graduate of Institut Le Rosey.

"I could not have done it alone. I needed to have someone like Anant to help me raise that capital," Gupta said.

According to Chaturvedi, Romulus' ability to raise a second, larger fund is very significant, considering there was a lot of skepticism about what the firm was trying to do backing startups out of the academic environment.

He said that most critics said Romulus would fail, but he believes the firm's due diligence and dedication to helping the entrepreneurs is what proved the doubters wrong.

"Even now in Romulus we don't really have a single failure ... we haven't had a single one that has closed up shop and said, 'We can't do this anymore,'" Chaturvedi said.

From his view, the larger fund will allow the company to have more investing success with its proven savvy. "The first fund was really our calling card, but we wanted to play with a smaller amount of money," he said. "Now that the fund is proven we want to be able to do that much more."

Deeper pockets will help the firm become even more relevant in the venture capital industry, he added. But he stressed the firm has no intentions of messing with the formula that has worked.  "We go out of our way to support our entrepreneurs. ... We put them first," said. "As long as we stick to our moral code and stick to our foundations ... size of the fund doesn't matter."

Chaturvedi does take comfort in Romulus' track record so far and believes it sets the stage for the future.

"We have our ups and downs, initially the amount of patience and perseverance it took the first two years was quite difficult and quite tough but over the years we have seen what our portfolio companies have done and worked with some great investors," he said. "It was a very interesting journey and I look forward to what is going to come."

Gupta is equally as optimistic.

"We are big picture thinkers and certainly we have ambitious thinkers ... Romulus was the founder of Rome and Rome was an entity that stayed relevant till today. That is why we picked the name Romulus. We are building a firm that will stand the test of time and build other firms that will do the same," he said.
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