You have raised money from high-profile investors such as the LN Mittal family. What is the mandate that you have from them?
The mandate is to look for businesses that are scalable, there is large opportunity in the market and there are clear differentiators in the business, where it is not very easy to go and replicate the business. This would ensure sustainability in the margins. If you do something where there is not much differentiation, everyone will eventually do it if it is profitable. The idea is to invest in companies where there is clear differentiation, there is scale to be achieved and there is a market that is large enough, so that the company can keep growing. So when I exit the business, even then there should be scope for the company to grow, otherwise the other people coming in the business whether it is a strategic investor or a purely financial investor will not come and buy my stake. Most importantly, work with the team of people who have strong ability to execute and strong business acumen.
Usually investors identify certain sectors that they understand very well and that is where they invest. Isn't being sector-agnostic quite a challenge for you?
It's not so much of a challenge, it is being opportunistic, given that we have not seen massively big-bang exits in technology. Businesses in education, healthcare, rural development could be more scalable. When we came in and started looking at these areas, we thought there are opportunities almost everywhere.
There is a broad canvas on which you want to work, but have you identified a few sectors on which you are bullish?
We are bullish on education and healthcare—we think there is probably a lot of business models emerging out of these two areas. Also, sectors like rural development, where the government is allocating a lot of money. There are going to be a lot of companies that would be benefiting from this, especially smaller companies, if they come up with business models to develop supply chains which reach these places.
What about stage?
Ideally I come in at an early stage. It is where the company has established a proof of concept, started generating revenues. So let's say they have about a million dollars in revenues already. And they have got a pipeline of orders, which may not be contracted, but which may be in various stages of being contracted, and the company is looking to scale up. But if there is a seed opportunity where the team is very experienced in a particular sector, I don't think I would dismiss it.
Besides the business plans that you get, do you actively search for businesses that you can invest in?
We do go out and visit incubators. Let us say I like the clean energy space, and If I come to know of an interesting company in this space, I pick up the phone and try to talk to them. I do go to the incubators to see what the companies there are doing and if they are right for us to invest in.
How much money do you plan to put into a deal?
Typical investment ideally would be $2 million but we do anywhere from $0.5 million to $3 million.
How long do you plan to stay invested?
Typical investment horizon is about five years.
Your plans on exit?
You ideally want a company where it has the ability to go public on its own strength. I think that is the most ideal scenario because that mean you don't have to rely on somebody else to come and buy you out. But if there is a good exit available as an acquisition or another company or an investor wanting to come, that would be great as well.
Is there a time-frame during which you have to invest the entire fund?
We would like to invest these funds in the next two years but we have not agreed to any time-frame.
Is there enough awareness in the country about the availability of venture capital?
India is one of the most entrepreneurial countries in the world. People have the will to do something on their own, and they go and do it, even if it is a small business. But the knowledge that is lacking is how do you recognize this better to make it a large business. There is not enough knowledge about how venture capital works. There is a lot of knowledge about entrepreneurship. The lack of knowledge is about how you organize your business to make it scalable.
How much stake do you plan to take in a company you invest in?
The idea always is to invest if we can get a board seat. The stake depends on the stage of the company, the sector, valuations, etc. Our minimum threshold for a shareholding in a company would be that we have a say and the board seat in the business. For some companies might say that below 10 percent they would not want to give a board seat while the others might say that with even 5-6 percent they would want to give a board seat. We don't look at it in that sense. We look whether we are getting a fair deal and are we getting a deserved return on the investment in the next five years or so. On this basis we decide whether we should invest and on what value we should invest.
written by animal rubber bands, July 01, 2010
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