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| - Nikhil Khattau Managing Director, Mayfield Advisors |
Do you invest across sectors or are you focused on some?
We invest across three themes. The first is infrastructure ancillary. We are not going to invest in roads, ports and bridges. But we very much believe in investing in the shovels business, the builders behind all that. So we have done that. We have invested in Geodesic Techniques, which is in the infrastructure ancillary business.
The second area we invest in is consumer. In this we will not look at big-box retail; we will look at niche specialty retail and we look at consumer services. We have invested in Genesis Colours, which is specialty retail and we have dome Paymate, which is a mobile-based payment platform. We have also invested in Bharatmatrimony.com, which is the consumer sector.
The third area in which we invest in are globally competitive Indian companies. We have invested in a a company called Servomax, which has power-saving and power-conditioning equipment. We have invested in Tejas Networks, which has an optical fiber network. These are the areas we invest in, also because we had experience investing in these areas, and we understand them.
How much of the US$ 110 fund is still lying waiting to be invested?
We have only invested in three deals. So the bulk of the fund is yet to be invested.
How have you reworked on your investment strategy given the current economic slowdown?
We took a very hard look at our investment strategy, given what is going around in the world right now. The conclusion we came to is that India still continues to grow. The rate of growth may have changed, but if you look at the two of the three deals we have, they are infrastructure and consumer. Companies that are in infrastructure ancillaries will do continue to grow. Consumer companies still continue to grow. We think our basics are pretty much intact. We are looking to do as best as we can and its business as usual.
Are you still getting business plans and are you open to investing in the current economic scenario?
We are seeing more deals today than we have in the past. We are still looking to invest. The reason we are seeing more deals is because more and more entrepreneurs are seeing this as an opportunity, that while people are waiting and can raise money, there is an opportunity for great business in a downturn. When there is a slowdown, it is always the best time to invest.
Isn’t it true that during this downturn you are able to get a larger pie for less money?
If it was purely that, then fewer entrepreneurs would be showing interest. The way we look at this is that it is got to be win–win for both the entrepreneurs as well as for the VC, and if not, then the equation is not there. We are looking to set a value that is fair for both sides, and where we can build a long-term relationship with the entrepreneur and create a value over a period of time.
What stage of companies do you invest in?
We are a venture growth fund. We look at businesses that have got traction in the market and now need money to grow.
How are your investee companies dealing with the slowdown?
We have invested in three from the Indian fund. We also have four other transactions in India from our global fund. I think, by and large, what our entrepreneurs have done is remain careful. From October last year when credit became difficult, everyone started managing their cash very carefully. We have seen tremendous growth across the portfolio which reflects the underlying situation. If you look at large public-listed companies in India, you have seen growth in the sectors I have been talking about and that is reflected very strongly in the size and scope of the companies that we have invested in.
Have you pumped in money in any of your portfolio companies?
No, we have not. At the moment, the businesses are doing alright.
What is the minimum ticket size of your investments?
Our sweet spot is anywhere from US$5 million to15 million. We will do smaller than 5 million if we think we can put 5 million in a period of time.
How long do you plan to be invested in these companies?
We would want to stay invested for three to seven years.
What kind of returns do you look at?
We don’t have a fixed formula. Depends on the company, growth, stage and potential return. We are a venture fund. We do look at venture-type returns. The benchmark for venture is typically 3x cash-on-cash return for the fund. On the deals, it has to be higher.
What kind of exits do you look at?
As a VC you look at this question right in the beginning. We look at IPO, strategic, financial and secondary. We also work very closely with our portfolio companies and entrepreneurs in trying to decide what the exit should be.
Isn’t IPO the preferred exit route?
Not necessarily. You might find strategic exit preferable. Depends entirely on the business. For example, if you have a business that is highly profitable but relatively small, you may never get an IPO for that, but there may be lot of people who may be very keen to buy it and are willing to pay top dollar for it.
How much focus do you lay on the management team that is running the company?
That is probably the single most critical piece because we are minority investors, the quality of the management team and the entrepreneur is critical. They got to have the vision. They got to have the ability to scale the business and have execution capabilities.
How much time does it take on an average from the discussion stage to the closing of the deal?
Of the seven deals that we have done in India, I think the quickest has been a month and the longest has been five months. It depends on the company, whether it is ready with the information, the stage of the company, how familier we are with the industry, how ready the company is etc.
How closely are you involved with your investee companies?
We are pretty much involved. We get involved with strategy, hiring decisions, financing decisions, all of them.
There is a perception that when investors come in, they try to call the shots. How do you allay such fears?
This is why the quality of the management team is very important. This is because we would never know business better than the promoters. We do not get involved in day-to-day business. Where we get involved is typically five areas. One is strategy because we get involved with so many companies on a strategic level that I think this is one area where we can add value. Second area is hiring. Three we get involved with opening doors with relationships. Four we get involved in M&A situations. Finally we get involved in mentoring. Day-to-day running of business is not where we get involved in The best way to allay fears of prospective investee companies is for them to talk to our portfolio companies.
What are some of challenges that you face in your role as an investor?
I think the biggest challenge in an emerging market like India is that it is a highly dynamic market, both fast growing and also fast changing. You suddenly get to see competition that you did not initially think of and get the management team to change things accordingly. India being a dynamic market is both an opportunity as well as a threat.
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