It is a VC firm whose name has come to symbolize technology investing. Name the most successful technology companies of the world and it would be difficult to pick out the ones Sequoia Capital failed to spot and invest in, before the rush.
Apple, Google, YouTube, Yahoo, Flextronics, Oracle, Cisco, Paypal, etc—Sequoia’s investments are a virtual roll-call of who has been successful in the technology sphere globally.
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| Mohit Bhatnagar Operating Partner, Sequoia Capital India |
The firm had dedicated about $1.8 billion out of its total $10 billion to India, but has invested across the spectrum. Among the most prominent of its 55 investments in India are Cafe Coffee Day, Idea Cellular, Bharti Telesoft, Edelweiss Capital, GVK Biosciences and SKS Microfinance.
DARE catches up with their India operating partner, former entrepreneur and telecom industry veteran Mohit Bhatnagar. Bhatnagar has worked with Bharti Airtel and Ericsson, before his stint at Sequoia.
The recent market uncertainty has seen a lot of sources for funds dry up for companies. Are you still actively investing?
We are indeed. In fact, out of the $1.8 billion (Rs 8,000 cr), $725 million is in a new growth fund that we have hardly started investing out of. Considering that we have been making investments of anywhere from $2 million to $5 million for early stage companies and $50 to $80 million for growth stage, we are looking at quite a few more investments to come in the future.
Globally Sequoia Capital is known for its successful bets on the technology industry. Yet in India, you seem to be everywhere.
In India we have invested in many companies, both technology and non-technology. We have invested in companies ranging from SKS Microfinance, which is into the Grameen model of micro-credit and also into Cafe Coffee Day, which is into consumer retail. We love to take contrarian bets, in both these; we were the first institutional investors. Today, both are the leaders in their sectors. It will be wrong to say that we make investments into one, two or three sectors; there is a wide variety of sectors we invest in, in India.
So, what has been your investment strategy in India?
These investments were not done through open market; they were done through relationships, through people and entrepreneurs we know. In both cases, we knew the entrepreneurs for many years before we made the investment. You will not find us making standard commodity investments. We make early stage investments, early in the sense of being in the sector and early in the company.
We basically look for four things when we invest. The first is growth. It is very important for us that the company has exhibited a strong growth or has the potential for strong growth in the triple digits in the early stages of its life. To us, that is the best indicator that we have been able to take the lead in the market.
The second is a fantastic team, third is a large market and the fourth is a well-differentiated product. If you have all this, it almost doesn’t matter which sector you are in.
What do you mean by ‘large market’?
What we have found is that if you are a young company, it is very hard for you to spend enough money to create a market. There are, of course, good exceptions like Google, but in general, it’s tough. But if there’s a booming market, say like telecom in India; it’s much easier to ride the wave. For example, if you are a supplier to the operators, the sheer force of telecom as it explodes will also pull the company. So, by ‘large market’, we mean markets that are not at the height of their saturation, are under-penetrated, there are other strong players in the market and the general eco-system is strong. And then, if there’s a company with a great team that can solve a problem in that marketplace, they grow very fast.
To take an analogy, look at a boat at sea. We need a fantastic team to point the boat in the right direction, but you also need a high tide to carry the boat out to sea, which is like the momentum in the market that I spoke of. In addition to these, you also need a very good boat, which is different from everyone else. That will be your product. Of course, finally, you need the ocean itself, which is the market.
Is there something, perhaps something technical, that you look for prior to investing?
We are not rigid on what we look for, in terms of technicalities. We just need a fantastic team and a good business model. If there’s a little bit of pilot and growth, so much the better because we don’t invest in ideas, we invest in businesses.
If someone says, ‘Hey, I just thought about this, what do you think?’, it doesn’t make sense for us. If, on the other hand, someone says, ‘I have thought about this, I have spoken to these 15 customers, here’s a company that has got done like this in China, here is someone who is saying good things about me..’, I am interested. So we are looking at all the other things, beyond an idea, which make a business.
How do you decide how much to invest?
It’s very hard to answer that generically. For example, if it’s a technology company, you would not need a huge amount of capital. If you are a consumer finance company, then you need larger amounts. Typically, the company raises only as much money as they would need over the next 18 to 24 months. If a company needs funds for five or six years, there’s no point in raising all the money on day one, because the valuations will not be that favorable... less than 18 months also does not make sense since the company needs to focus on its business and not on raising capital.
What is your biggest learning as an investor, something that you picked up after joining Sequoia and doing full time investing?
The biggest learning has been about the importance of people. Markets are important, but I have realized that investing is a people business. Another reason to be extremely careful about the quality of initial team is that good people always tend to attract good people and vice versa. What I have figured out is that if you invest behind the right team, they will figure out a way to make the business work—give me an ‘A’ team and a ‘B’ market any day over a ‘B’ team in an ‘A’ market.
What are the areas that the entrepreneurs you have evaluated so far seem to always fall short in? What is the biggest turn-off for you when assessing a prospective investee?
The most common mistakes by entrepreneurs that I have seen are two. First is that they try to do too many things at the same time. Instead of doing a hundred things, it’s better to pick one business idea and put all your resources behind it. The second mistake that we have seen a lot of entrepreneurs make is to hire family members to do critical functions, to ‘control’, the company. It is important to have an open attitude towards hiring the best professional talent you can into your company if you want to make it as an entrepreneur.
How do you see the opportunities in the telecom/communication sector evolving in the future? Do you expect more Bhartis to come out, if so, in which sub-segment?
In this segment, we believe that mobile advertising has the potential to revolutionize the telecom industry. Of course, we are constantly looking for those companies that can get traction in this sub-sector.
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