Sameer Arora, the founder and fund manager at Helios Capital, is known for his contrarian investment strategies, and his approach to loss-making companies is no exception. While many investors shy away from firms that haven't yet turned a profit, Arora sees potential in carefully selected businesses that are disrupting industries and demonstrating strong growth prospects. His logic is rooted in the belief that short-term losses can pave the way for long-term gains, provided certain key factors are in place.

One of the primary reasons Arora bets on loss-making companies is their potential for high growth. These companies are often in their early stages, investing heavily in expansion, product development, and customer acquisition. This focus on growth, while impacting immediate profitability, can lead to a dominant market position and substantial returns in the future. Arora looks for companies with innovative business models and the ability to disrupt traditional industries.

Arora emphasizes the importance of unit economics. He looks for companies where each individual transaction or customer is profitable, even if the overall company is still operating at a loss. This indicates that the business model is sustainable and can achieve profitability as it scales. He also considers companies that are self-sustaining due to the cash they have.

Another key element of Arora's strategy is identifying companies with a strong competitive advantage. This could be in the form of proprietary technology, a strong brand, or a unique distribution network. A competitive edge allows these companies to fend off rivals and capture a larger share of the market, accelerating their path to profitability.

Furthermore, Arora focuses on companies where the shift in usage from one to another is likely to occur in the next one or two years. By that time, the end demand will hopefully become higher and spread across different segments.

Of course, investing in loss-making companies comes with inherent risks, and Arora mitigates these through rigorous due diligence and careful portfolio construction. He typically allocates a smaller portion of his portfolio to these higher-risk investments, balancing them with more established, profitable companies. He also conducts thorough research to assess the company's management team, financial health, and long-term prospects.

Recent examples of companies in which Arora has invested include new-age platform businesses like Zomato, Swiggy, Paytm and Policybazaar. He bought them at the right time. For instance, he added to his position in Paytm when it had fallen 50-60%, and is now up 80-100% in that investment.

It's important to note that Arora doesn't advocate blindly investing in all loss-making companies. He avoids companies that have disappointed in the second quarter, even if the stock has fallen by 5-10%. He believes that these things don't improve in five-six months. He also avoids sectors such as microfinance and automobile.

In conclusion, Sameer Arora's strategy of betting on loss-making companies is a calculated approach based on identifying high-growth businesses with strong fundamentals and disruptive potential. While it's a higher-risk strategy, it can also generate substantial returns if executed carefully.