Dhama Apparel is one of the companies in your portfolio and it comes from an incubator at NID. Do you actively scout for potential investment opportunities in incubators?
Yes. We do. We are opportunistic. We are stage-agnostic, sector-agnostic and geography-agnostic. We believe that ideas can come out of the most unusual places at times. So, we are on a lookout for ideas anywhere, whether it is an incubator or whether it is from a direct contact with us or whether it is through one of our referrals in our ecosystem. The key thing that we look for is the idea, and the way in which the company comes about.
As far as Dhama is concerned, what got our attention was the fact that Kranti Vistakula, the CEO of the company, is a graduate from MIT. He holds the patent of the technology in the US. When we spoke to him, he was ready to relocate here to India and then put himself into the NID incubator. So, we have been in touch with him from that point. When he did the transition, it was along with our guidance and encouragement, because the company that he is the CEO of, has the combination of technology as well as apparel design. So, we have best of both the sides.
| Harshal Shah
CEO, Reliance Technology Ventures
Most prospective entrepreneurs wonder what is the best way to grab the attention of a VC, who is flooded with business plans. What's the way out?
We do have lots and lots of plans that come in from all different sources. If you ask me in terms of KRAs of every single person in the team, one of the big KRAs is the ability to do quality deal screening. It is our job to make sure that we go through every opportunity that comes our way and be able to go ahead and take a call in the first instance whether it is a prospective deal or not. If it is, then we continue with our next step. So we look at all the deals.
On one side there are deals that come directly to me as well. I am responsible for deal generation as well as deal analysis, due diligence, and deal management just like everyone else, but at the same time when it is about taking the final decision, what captures my attention is the following. One is the quality of the management team, number two is the quality of the idea, and number three is the prior experience as well as the potential startup and deal execution. I also look for the sanity of the business and the financial plan, and the willingness of the entrepreneur to work together in a team. We believe that we are able to offer an edge that nobody else can offer. We also believe that we can bring the entire Reliance ecosystem to the need of the entrepreneur so that instead of taking a company from level one to level two, we can take it from level one to level 100.
How big is the fund? How many companies have you invested in so far?
We are working out of the blank cheque book of the Reliance ADA Group. There is no set fund over there. We have invested in 11 companies, and this does not include the companies that we have advised upon.
Have you set a target on the number of investments you would make in 2010?
No. We don’t go about doing that. It is a fruitless exercise to go about doing something like this. That sets you up for failure from day one itself because then you are chasing numbers, not quality. The way I look at this is when we are doing a deal we don’t consider ourselves as an investing company. The culture that I have created within the team is to believe that we are in a customer servicing business. We look at investee companies as our customers. When we decide to invest in a company, we try to see whether we can keep our customer happy or not. By looking at it from that perspective, we are setting our entrepreneurs for success with our help.
What kind of mentoring comes from your side along with the money?
It depends upon the stage of the company and also on the need at that point of time. For example, Yatra.com was a seed-stage investment from our side. We practically invested into the idea, even prior to investing into the share-purchase agreement. Once we did that, we partnered with them in every aspect that they needed help for. This included anywhere between 15-20 calls a day from their side to us and from our side to them. We also supported them across other functions like getting office space, hiring, marketing plan, etc. As the company grew, they started moving up the value chain in terms of various kinds of advice and contacts they needed. That is where we brought in our network, and we even started providing them higher value-added services.
What is the typical size of the investment that you make?
We have been opportunistic and also stage-agnostic. We invest anywhere from $1 million to $15 million in a deal. In the life cycle of a company, we could invest up to $15 million in case the company needs that amount of funding; and we are there at the fair market value that the company is being pitched across to other outside investor as well.
How much stake do you take?
Stake-wise we don’t have any numbers that we work out. It could be anywhere from 5 percent in a company to even a majority stake in the company. We are not bound by that. Normally we don’t end up insisting that we want a board seat. It usually comes from the entrepreneurs themselves if they want us to be there to add value to their company. In a way it is something that has automatically happened across all of our companies, where either we have a board seat or we have a board observer seat, depending upon the stake in the company and the investment. Sometimes we have both, and sometimes we have more than one board seat as well.
Do you reconsider proposals that have been rejected by you once?
We would do that. Very often we end up finding that in certain startup that we have spoken to, entrepreneur has unrealistic expectations and once they have gone out into the market and they have realized that the reality is something else, they come back to us. We are happy to talk to them provided there is willingness at their end to come to realistic expectations.
We are India’s first venture capital fund which is going abroad. We are seeing so many firms from abroad coming to India but how many firms from India have gone abroad and have established themselves among the top firms? So when we got ranked among the top 100 firms and that too at number 30 among a total of 1800 VC firms that they looked at, our key message was that we are open to discussing business 24 hours of the day, seven days a week, and 365 days a year. And at the same time we are willing to work with the entrepreneur where we respect the entrepreneur and ensure that they end up getting fair value.
We realized that India is not the only country in the world which is an attractive market. So very often as part of the discovery process, many companies would end up evaluating multiple markets at the same time. We are quite open to their going ahead after talking to us, possibly looking at the Chinese or the Brazilian market in terms of capital efficiency. They may come back to us again and if we see that our expectations match, we are happy to continue talking to them.
How were your investments affected during the economic slowdown?
There is a reason why we got ranked at number 30 among all the venture capital firms of the world. This was because we ended up getting such phenomenal IRRs last year that we are at this point among the top ten venture capital firms of the world today, this is in returns terms. There are other things as well like legacy of the company, etc but unfortunately we don’t have two decades of history behind us but within the last five years itself, we have created a phenomenal track record that we are among those top 30 firms. Returns-wise we are among the top ten. Now in addition to that, last year when the markets were down, we had already got all our companies tremendously well-funded. So we went aggressive instead of going defensive, and captured the market share from a lot of our competitors. As a result of that, if you look at the period between 2008 and 2010, the valuations of all of our companies have gone up manifold. Everyone is now going even more aggressive because of the efficient capital utilization. We want to tell everyone in our team that we loved downturn, and it has been a great opportunity for us.
What’s the focus on innovation?
Innovation is very important in any stage in any company’s life. Innovation cannot be defined narrowly. A lot of people end up looking at innovation as incremental innovation but this kind of innovation happens in our daily lives as well. For a company, incremental innovation is a given fact but what happens along with that is the out-of-the-box thinking, so innovation can happen around business processes also. It can happen in terms of management skills or finding newer markets.
To give an example, when we chose to invest into Dhama, which calls itself an apparel innovation company, where we were creating jackets which maintain a standard temperature, the key markets that popped up in front of us were the defence and the sports markets. Interestingly, when the CEO of the company was visiting the Amul Cooperative Society in Gujarat, he found that one of the reasons why the productivity levels of the cows over there was varying dramatically was because of the temperature gradient that happens over the course of the years. So he thought of putting the jacket on one of the cows and found that the yield got stabilized and at an increased value of 40 percent. Now this is a new market and what a brilliant innovation to have.
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