NEA-IndoUS Ventures is a venture capital firm that provides early and mid-stage funding to new or growing businesses in India. Prior to joining NEA-IUV in 2007, Kumar was the head of Intel Capital India, the venture capital group responsible for Indian investments.
As the Country Director, he drove Intel's India investments. Notable companies in the portfolio were NIIT, Subex Systems, Futuresoft, R-systems, IndiaInfoline etc. and past boards he has served on include Sasken Communications, Tejas Networks, Sharekhan, Nipuna, Deccanet and Real Image Media Technologies among others.
Kumar Shiralagi Managing Director, NEA-IndoUS Ventures
When was this fund set up and how many startups have you funded so far?
We are a $189.4 million fund, and a little less than two years old. NEA, the US investor, has partnered with us to invest in early and mid-stage companies in India. We invest in technology and technology-enabled companies that have a strong connection to India. Either they sell their products in India or if they have their business elsewhere, they should be predominantly focused on India. We would like to invest in a tech company beyond those in the BPO and KPO areas. If there is a new business model that has given rise to something because of a change in technology, particularly in computing and communication, then we would be interested in investing in those kinds of companies as well.
What is the minimum ticket size of the investment you make and how long do you plan to stay invested in a company?
We typically like to invest around $4-5 million in the first round of investment of a company. But we have made investments as low as $1 million and as high as close to $10 million. However, our sweet spot is $4-5 million, and we like to put around $10 million in the lifecycle of the company.
We look at four to five years as horizon for investments to have some kind of return options. We have made about 16-17 investments from the existing funds. Typical fund life cycle is about ten years. Some of the investors might invest in late stage, in which case, exit opportunities may come as early as two years. As we are an early stage investor, it is very unlikely that we will get an exit that quickly. But four years is when you start to look at an exit.
How has been the performance of your portfolio companies so far?
We are pretty happy with the performance of the portfolio. In some aspects it is a risky set of investments that we make. I cannot talk in detail of each company about their performance, as it would be unfair to them. In our business, it is always the case that bad news comes first. Companies that are not doing too well and if we do not want to invest more money or if they don't look like great prospects, that happens sooner. We might get out of the company sooner. But on the other hand, the companies that are doing great, we will end up putting in more money, waiting longer so that the company continues to grow. So the good news comes a little later. In that sense, overall, on a portfolio basis, we have a good set of companies that are doing well.
In view of the current slowdown, have you reworked on your investment strategy?
There are two aspects to this. One is about what we do with our existing companies and the other is about what we do with the new investments. I have been investing in India for many years now and I was heading Intel Capital before this. We had a strong portfolio from year 2000 that we were managing. In some respect, we are going through another downturn and the investment phase will slow down to some extent, but good investments will still happen. But in reality, we have stretched out a little bit on the time horizon of when those companies will become big and give us exits. That affects valuation to some extent because we are concerned about the internal rate of returns we make on an yearly basis. So that affects valuation because you need to get the right price to make sure that you can still get a good rate of return. When you take all this into consideration, investments will slow down a little bit, but good companies will still continue to get funded.
We are still looking to continue to invest in good companies. We have money out of the fund so there is no slowdown on that aspect. As far as our existing companies are concerned, they all raise money for a certain amount of runway. With the slowdown, their ability to raise money or go public, etc will get pushed out a little bit. Consequently, they need to figure out a way to survive longer or anticipate longer fund raising cycles. So they need to be really watchful about the cash flows in the company.
Despite the slowdown, are you still open to making new investments?
We continue to meet companies at the same pace. The bar is raised a little bit so we weed out more companies sooner but on the other hand, we continue to look at the same pace. There are good companies we are going to invest in.
How are your portfolio companies dealing with the slowdown?
We are three partners and all three of us have had entrepreneurial background. In some ways we do get closely associated with the companies that we invest in. Good days or bad days, we have periodic calls with them. In these times, we bring them some amount of market intelligence on what is happening.
The advice we give is specific to companies. For some companies, it is the best time to grow. For some BPO and KPO businesses, it is a fantastic time to position themselves for growth and it is going to come their way. For some of those that are in core sectors where the growth is going to be slow, they need to make sure that they turn cash flow positive.
How closely are you involved with your investee companies?
We get quite engaged with them. We help them on aspects they need help on; sometimes it may be introduction to some key customers. We get quite involved with the hiring that they do. When it comes to fund raising, we do a lot of help on the diligence as well as introducing other investors and helping them raise money, but usually on strategy and positioning. The earlier the stage, the more we are involved with them. It depends on the weakness of the company.
There is a perception that when investors come in, they try to call the shots. How do you allay such fears?
An entrepreneur should choose his investor carefully to look at what kind of companies they are involved in, what relationship they share. But many companies may or may not have a choice. You need to build a relationship with the key guys you work with.
When you work with the company, it is in the best interest of both the promoter and the investor to make the company very successful. If the company becomes successful, both of them win. But about how to make it successful, there can be different ideas. On a majority of the issues, there is alignment, for some of the things, there is not. As an investor, we are not involved in the routine operations of the company. We count on the promoter to build the company and we give whatever support that is required. There can be a divergence of interests at times, and when that happens there are conflicts, but on the other hand, there are ways to solve it. This does not have to be acrimonious.
Do you see some bright spots despite the slowdown?
In many ways, downturns are good for some companies because attrition goes down. Even for a smaller company, it won't be that difficult to attract talent, but in a booming market it is very difficult to attract people. It is good with respect to the development of the product and getting to some critical milestone stages — the time is right to do it. It is not like you have 20 other competitors who are doing it. Also, some of the sectors benefit. We are seeing it even in our portfolio.
Do you think entrepreneurship is going to suffer a setback during the slowdown?
In 2002-03, things did slow down a lot. Consequently money dried up at a lot of places and entrepreneurship suffered in the early and mid-stage companies. In this environment, there is some history of success in India for some of the funds. There are many who are new and for them this will be their first experience of a slowdown in India. But on the other hand, if you compare what is happening worldwide with what is happening in India, we are in a better position. Many of the Indian companies are still attractive to invest in.
Good companies still get funded. Those who believe their idea is good, the real strong ones and there is a compelling value proposition, I believe they will still continue to do well. People will have to come with creative ways to weather through the rough times.
What should an entrepreneur keep in mind while approaching an investor?
To an entrepreneur, his idea is the best idea. They have to be passionate about it — they are and they will be. But as far as an investor is concerned, he looks at a lot of them and something has to catch his attention or he has to feel that the area looks really good. An entrepreneur should do his homework properly before approaching an investor. He should figure out what would be of interest to an investor.
For instance, if someone approaches me with a real-estate deal, I would have zero interest in it.
Going through a referral is a good idea. One should send a brief business plan. If you send 20 pages, it will sit in the inbox. If it is a two-page summary, people usually look at it right away and then ask for some additional information or at least give some feedback. Most people send incomplete information or too much information.
written by casino virtual, October 14, 2010
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