I think the second point is more interesting: when does an entrepreneur become interesting for a VC? The most significant parameters are simple ones. Is there a large market? And is there momentum behind the company - which can be team-driven or market-driven,?
Where a lot of confusion happens is in defining what is a large market? If it is a 50 million dollar market, which might go to 300 million in the next five years, it is interesting. An existing market of a billion dollars where there are some discontinuities; is that a large opportunity?
India is more of a growth market. We are mostly in 40-50 million dollar markets and till we go to 300 million, we can be an early mover.
The second is momentum. Many entrepreneurs think, ‘let me get momentum and then I’ll get capital’. The hard part is sometimes you can’t get momentum without capital! From our viewpoint, there has to be something exciting in a company for us to get in. Either it has to be a great team, or there has to be some structural barriers to entry that an early mover can put across. Or it has to be a model which is globally proven but has not happened in India. 80% of VC investing is based on a proof of concept. 20% is "I love this team". I would be willing to make a bet without the proof of concept if I am sufficiently excited by the team.
So you don’t wait for the product to mature?
Investors like me are definitely not late stage investors. So to that extent we are not looking for a company to build their products and client base.
That means an entrepreneur should very clearly know whom they are targeting for funding?
Absolutely. There are clear early stage players, seed stage players and late stage players in the market. By and large most of the players are not shy of saying what their focus is. I am for example, very clear that 80% of what I want to fund is early stage. I will do a few seed. The confusion happens when we say we’ll do an opportunist Series B investment. People might hear it as we’ll do Series B all the time. I think people need to read those words a little carefully.
The second is the sector preference. Within the Internet sector, for example we are not very hot on advertising oriented projects. We are more for transaction models. For example if I were to see a project for online education or personal finance, I would be excited about it. But if you want to be the next portal for the advertising professional, I might not get excited. Some other fund might be. The good part is that all funds are marketing savvy these days and they like to talk about what they want to invest in, what are the areas they are concerned about.
Do you use intermediaries?
We don’t proactively engage intermediaries, but we do receive proposals and we are happy working with them.
Who are these intermediaries?
Investment banks mostly. CAs and lawyers have also started acting as investment intermediaries, but it is an early trend. In more developed markets, they play a more significant role but certainly not in India right now.
Would a recommendation from an intermediary have more weight? Do they do some veting before they send it to you?
Depends. Over time an intermediary gets multiple opportunities and we get a sense of how much their recommendations are aligned to our business. From our process standpoint everything that lands on my desk, I look at it and figure out if I am interested or not. The place where weightage comes into play is where the intermediary comes in and says it is a great team, and I trust that intermediary. In such a case, whether or not I like that plan I will meet with them.
Typically, investors are shy of talking about what they do, what they are interested in. You have been fairly visible and vocal about what you want to do. You have even done things like entrepreneurial challenges to get more opportunities. Is this planned or did it just happen?
It is definitely planned. We are focused. I don’t have a risk in saying I am early stage. I am not excluding stuff that by the way I want to look at. If I am genuinely focused about what I want to do, I don’t have any problem articulating it. That only helps us. I don’t want to do infrastructure and I am very clear about it.
Firms that tend to be more diversified obviously cannot make such a statement because they do not want to exclude deals in other areas by saying that I do only this. We realize that there are very few funds in the market which have that focus, and we want to make sure that we are known as a fund which has that focus.
I think that the second level of this whole thing is investment themes. Saying, within the internet, is it the ad-oriented model that you are going to back, or is it the transaction oriented model that you are going to back; you think e-commerce is hot or not. We have been seen articulating our preferences to insure that entrepreneurs who are interested in these spaces know that we are looking for them.
Let me finish with a question that we discussed 12 months back…over the year has your involvement with your investee companies changed or has it remained the same?
The issues change, the time spend does not necessarily change. At an early stage, for example, we are thinking about what will we do with the product so that it gets most sticky. Once you establish the product that issue goes away and you are trying to see what control processes need to be in place. So the issues change over time but our degree of engagement with entrepreneurs by and far, remain the same.
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Kolkata, India,
(M) +919874545880,
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