She is one of the few women in the Indian VC world. DARE catches up with Seedfund’s Bharati Jacob in a free-wheeling interview on being a VC, the current economic turmoil and its impact on the Indian entrepreneurial ecosystem.
|BHARATI JACOB, Managing Partner, Seedfund|
Seedfund is India’s biggest seed-stage fund, with around two-thirds of its first, Rs 70 crore fund already committed to ten companies. Before Seedfund, Jacob was associated with Infinity Venture Fund which invested in companies like Indiagames, Indiabulls and agencyfaqs.
What is your background? It’s not often that you find women in the VC world.
I have what you can call varied experience. I have worked in marketing, HR and investment banking. I have worked in consumer-focused roles; I also have [played] some selling-focus [roles]. In investment banking, I was in sales and business development. I enjoy being with startups and entrepreneurs. I knew the founders of Infinity. So, one day [in 1999], they were talking about setting up a fund. Their desire to have an office in Bangalore and my desire to work in this sector matched. I thought I could help create the Infinity brand in the South.
What are the essential skills of a VC?
There are two-three legs on which VCs operate. One is the ability to raise funds from investors—the ability to convince people with money that ‘hey, give me money, I will invest in startups’. That’s a big challenge.
The second is the ability to get a proprietary deal, deals others don’t see. You want to get the best deals in the market, which means you have to create a strong branding, know where and which sectors startups are in. You have to create a wide network of people; people you know from your business school, from your under-grad, your neighbors, neighbors’ neighbors, your ex-colleagues.
How important is entrepreneurial experience as a pre-qualification for being a VC?
If it’s an entrepreneur who has become a VC, you tend to have greater entrepreneurial empathy, you understand some of the execution challenges some of them face compared to if you are coming from a large company. But it also depends on the attitude of the person—do you want to come down to the level of the startup and understand its issues.
In 2000, I was very bookish in my concepts about what an entrepreneur does, but over the years, I empathize a lot more. Now I am a lot more sensitive to the issues of a startup. An important aspect of being a successful VC is the ability to build relationships.
You joined Infinity in late 1999. Soon, there was the dot-com bubble burst. Is it all sounding familiar now?
We all made mistakes. One learnt a lot of lessons [from the dotcom burst]. However, the reasons behind the dotcom bubble and today’s troubles are different. The 2000 bubble was more restricted in some sense to Internet and technology. This time it’s going to be wider in terms of the number of sectors affected because of the involvement of the banking system.
However, I don’t think you can compare the two. What has burst today is more than a bubble. Bubbles burst and you can rebound quickly. It’s more than a bubble that is bursting today. The fundamentals of banking system are being questioned, like how much of regulation should be there. My only concern is how it impacts India, but I don’t think it will be as bad, since the banks here are better regulated than elsewhere.
But there are other sectors with huge exposure to the US. A lot of the mortgage banking business came here and a lot of that will go now. Another fact is that banking and financial sector will not spend as much on technology as they used to, for many quarters. The financial sector has been among the early adopters of technology. So offshoring and outsourcing will get affected. The size of the business will go down and some of the jobs will also go away.
Would you say that wannabe entrepreneurs should shelve their plans for starting out for some time, till the mess is sorted out?
Not at all. If you search the Internet today, you will find a lot of voices, many from Silicon Valley, saying ‘guys, get down to basic expenses, re-evaluate your business plans.’ But these warnings are focused on the US market, which is heading for a recession. But India is still a growth market. The GDP growth rate may come down marginally, but it’s still growing. What we have is a strong internal demand.
Yes, an entrepreneur cannot ignore the macro-economic situation. The question of how depends on the sector he is in. For example, if he’s in financial services, he may need to re-look at his numbers. People are going to be risk averse. If he was banking on selling 1000 loans, he may not be able to sell as much.
However, at the end of it, I don’t think anybody should shelve or postpone their plans. If you want to be an entrepreneur, be one. Business cycles will come and go, the ups and downs will come and go, and that’s part of life. Sure, it’s going to be tougher, but why should you shelve your plans. Just rework them. If I were going to get ten million dollars, fine, I might get just four million. On the basis of ten, I had expected expenses to be six million, now it’s four, so the expenses have to come down. Preserve cash.
Any startup should have a strong value proposition. It should be strong enough to survive good times and bad times. If it doesn’t survive, then probably it’s not a strong value proposition. It’s like you are starting out for a meeting. Whether it’s raining or sunny or it’s snowing, you will still go. It’s just that you will take a different gear with you. Rain or snow is not going to stop you. In fact, this is a good time to start a company. It gives you more breathing space, everybody’s not expecting huge returns. It just gives you that much more breathing space and time to figure out your business model better.
What are the lessons from your own experiences that you try to convey to your investees?
At Seedfund, Praveen, Mahesh and I are from the 2000 era. We started investing in that era. So, we have incorporated the lessons from that bubble burst into Seedfund. For example, all our companies must achieve break-even. So, if we commit to invest a million, the company must break-even within that period. We know we can bring in that million, but we don’t know what will happen tomorrow. It was the learning of 2000, when suddenly the market dried up and there were no funds, even if the business model was very good. So we always say, conserve your cash, figure out your business model before you scale, before you expand. If you have raised a crore, you had better figure out how dependent your business is on extra funds. If it is, you had better raise more cash right now, because you don’t have control over the macro environment. Some business plans look very straightforward, because you have done a cut-and-paste from a US model. But often it doesn’t work, because there are institutional challenges in India. So you need to test it out in a smaller market and see how it works before you expand. Ideally, you should have that much money, to test out the fundamental business model that you have. In 2000, everybody assumed that tomorrow, there will be more capital available.
How vulnerable are some of today’s Internet and telecom-based companies to the US downturn?
A lot of such Indian companies are domestic-demand driven and often, in India-focused models, you don’t have pure online models. For example, redBus and Carwale [both invested by Seedfund] are not exclusively Internet. Net is an enabler in their case. They are smarter about funding now; they realize that macro-economic conditions are something they don’t control and funds availability is dependent on macro-economic factors. Even among VCs, we are more mature and we advise them to achieve cash-flow break-even within the funding they have. Today, if there’s no funding, many companies may not be able to expand, but at least, they won’t have to shut shop. Also, if, for example, new car sales drop, someone like carwale.com may have to look at second sales or two-wheelers.
Where does early stage fund money originate from and what has been the impact of the downturn on the sources?
We raise funds from India and overseas, both institutions and individuals—pension funds, endowments, fund of funds, trusts, family offices, individuals. Everybody has an allocation for different asset classes. As such, the allocations may not dry up entirely, but they may reduce in proportion to the overall size. Right now, we haven’t seen any impact. As far as we are concerned, we are in constant touch with our investors. They are committed to remaining with us.
When are you launching your next fund?
We have plans to raise Seedfund II, but we have not announced any dates yet.
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