Alok Mittal is an entrepreneur turned Venture Capitalist. He co-founded JobsAhead.com, which was acquired by Monster.com. He was a private investor and a founding member of the Indian Angel Network before joining Canaan Partners as Managing Director to lead the India operations. Previously, he led the technology practice at Baring Private Equity Partners India.
|Alok Mittal |
Managing Director, Canaan Partners
You were one of the first investors DARE spoke to for a story (How to tap private equity, October 2007). That was exactly a year back. A lot has changed in the last one year; at that time everything was looking great, now there are clouds in the horizon. what has happened in the last one year from your perspective?
By and large what we were doing then is what we are doing now. So, in that sense, there is consistency in what we think are opportunities. If you look at the overall trends that are driving investment in India, those are unchanged. India is still growing at a fast pace. India’s labor cost advantage remains unchanged. There are concerns about the dollar appreciating and inflation. But even after we factor all that in, it is still an attractive geography to provide services from. There had been concerns about slowing down of the credit market this year, and a possible slowdown in consumer spending. But the trend remains unchanged. Consumer spending is increasing. Growth of interactive media, Internet and wireless is as strong as it was last year. If you look at the basic drivers of why we got into the market, those have not changed. In the short-term, there are challenges that have come up. Some sectors have become more attractive because of that and some sectors have become less attractive. In short there is a fine-tuning. But the overall case as to why we are in the market, what opportunities we think exist; that remains.
From the entrepreneur’s perspective, has anything changed?
For the early stage entrepreneur, I do not think a lot has changed. It is equally easy or difficult to raise money as it was a year back. From the VCs point of view, if you look at investment amounts and the number of firms in the market, there was a sharp increase from 2005-2006 in 07. This was because a lot of us were doing our first investments (in 2007). 2007 vs 2008 in my view was more of consolidation. Last year, the industry invested somewhere between $800 million and $ 1 billion. I think, this year it would be a similar amount – may be 10% more or 10% less. Again that it is not going to be trendsetting in either direction.
The next phase of growth from a capital availability standpoint is a couple of years down the line when we look at our portfolios to see where we have reached.
So, as far as entrepreneurs are concerned they will see steady availability of capital this year.
As far as valuations go, I agree there was frothiness in the market last year as far as series B was concerned. Series A valuations have been more stable.
There is talk of a US recession. Will that have an impact on venture investments in India?
Technically there is no recession right now. Some also feel that the cost of letting the US economy slip into a recession is just too high to let it happen. It is then a question of who gets to exercise what degree of control. The fact that the mortgage crisis is there and that it is expanding into a full-grown consumer credit crisis is now very well known.
I don’t think the Internet and mobile companies particularly in the early stages would get affected that much. I think the secondary impact will be on later-stage companies. India is still a high-risk high returns market. Offshoring businesses, including software services and BPO, and on the higher ticket side, I anticipate some liquidity crunch. But I don’t see the domestic set of opportunities which are not very capital-intensive including Internet and wireless getting affected.
Do you see any new types of entrepreneurship streams opening up? There was talk of biotech, mobile software. ..
In Biotech I see more of incremental growth. Clean tech, I see more as an incremental growth. If there is policy support on clean tech, it might lead to discontinuities and opportunities. Internet, I see, as incremental growth. There are a couple of discontinuity points on the mobile data side, which can lead to disproportionate increase in usage.It is always hard to predict which way they lead but the discontinuity is visible.
In energy deployment I see some significant jumps happening. But they might not necessarily translate immediately into clean technology.
Switching to an entrepreneur point of view: There is a serious debate amongst entrepreneurs on when should they approach a investor. Should they come at the project stage, idea stage, should they come with a prototype?
These are two aspects to this. On one side, when does an entrepreneur need a VC? On the other, when does an entrepreneur look attractive to a VC. The first question is very old. It varies from business to business depending on capital requirements . We do more than just capital, but capital is still 70-75% of the reason why an entrepreneur comes to a VC. If the needs of capital are such that banks are going to meet it, I don’t think people will take venture capital as venture investment is costlier.
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