Inventus is an early stage investor in companies that leverage technology to deliver products and services. There are four partners — Samir Kumar and Parag Dhol in India, and Kanwal Rekhi and John Dougery in the US
You made two qualifiers there – early stage and companies that leverage technology. What exactly
does that mean?
Early stage means companies that are just six months to three years old. They not be fully established yet. By leveraging technology, we mean that these companies are not necessarily developing new technology but are using technology to differentiate themselves in the market. If you look at our investee companies - Telibrahma, Redbus, InstaHealth and ViVu, you will understand what I mean.
An offside question, if you will. How much time does Kanwal Rekhi actually spend with Inventus investees?
Kanwal spends quite a lot of time with investee companies. He does it whenever he is visiting India, which is quite often or over video conferences and telephone calls. He is also available whenever an investee company has a specific need for his advice.
You invest in companies as young as six months old. Does that mean that you will fund a great idea?
Ideally, no. We come in when a product prototype is ready and there is at least one customer. For a services company we definitely want to see at least one customer. That does not mean that we will not fund a great idea at the idea stage itself. Only, that is very unlikely.
Are you currently looking for investments?
We are hungry for investments right now. During the life of our current fund, we expect to invest in about 15 companies. Out of that, we have done four so far. So, you can comfortably say that we are hungry for good opportunities right now.
What is your investment time frame?
Ours is a ten year fund. But given that investments happened over the years, we are looking at staying invested for about four to six years.
And the size of investments?
Typically we are the first venture investors in a company. You may have had angel investors or your own funds deployed before we come in. Our ticket size is anywhere from one to two million dollars initially. Depending on the companies performance and needs, we could go on to invest as much as ten million dollars.
What is your preferred exit route?
Like all other VC’s we would love to exit through an IPO. But as early stage investors, we understand that our may not be ready for an IPO at the time of our exit. So M&A (mergers and acquisitions) becomes the next preferred option.
Are entrepreneurs open to selling their companies so early?
Today, entrepreneurs are open to selling their companies than they were before. They also understand that they have the option of staying on with the new company to grow their product further. They could also move on to their next passion. Indian entrepreneurs are changing fast. I don’t think that they are looking forward to their grandchildren inheriting the company one day. They are interested in unlocking values much faster.
What do you look for in a potential investee?
The team.
That is what all VCs say. Given the team, what are the other deciding factors?
We look for four factors in a investment opportunity. Given the team, the other three are exit opportunity, market served in terms of size, growth, competitive intensity and finally the differentiators - technology, business model, etc. that the project is seeking to leverage.
Going back, what do we look for in the team?
Actually we look for passion and commitment. We look for a team that can pull through hard times and disagreements. That said, we look for a balanced team when it comes to skill sets. If all the core team members are developers or all of them are business development guys then that team will score less than say a team that has developers and sales people and finance guys.
What do you look for in a business plan that comes to you?
We look to the business plan to answer six questions. They are
a) Who am I? (Team related)
b) What problem am I solving? (product / service offered)
c) Who am I solving the problem for? (target customer, size of the opportunity, etc.)
d) Who else is solving this problem? (competitors)
e) How am I different? (Differentiators / value propositions)
f) What do I need to realize my goals? (resources - money, people, etc.)
We hear that VC s get a lot of business plans from unknown entrepreneurs that they just ignore. Will you look at a business plan that lands from an unknown entity in your inbox?
Actually we do look at every business plan that lands up in our inbox. Like I said earlier we are hungry right now and are looking for good investments. So we look at every plan that reach us.
Do you accept proposals from deal makers, like investment consultants?
Yes we do. We look at all proposals that come to us.
If you decide to fun a proposal that came through a consultant, who pays their fees?
The fees is paid by the entrepreneur. But ultimately that gets built into the investment itself and so we end up funding that indirectly, but as part of the equity.
So, if the actual requirement is one hundred rupees and the deal makers fees is two rupees, then you end up funding Rs. 102?
Something like that
Does familiarity with you help in clinching an investment?
In theory we are dispassionate, but in reality we are human. So, familiarity does help. If not direct familiarity, then being introduced by some one who is familiar helps.
I remember your once mentioning that you are not in favor of the entrepreneur taking a handsome salary
‘Handsome’ is a relative word. Relative to the market value of the entrepreneur as an employee, that is. We would definitely want him to take a salary less than his market value. We are investing into the future of the company. We get our value when the company grows big. We would want the entrepreneur to share the same objective – to get value when the company grows big. So, we would like to see the entrepreneur taking salaries lower than his market values. That does not mean that we want him to spend his time worrying about how to pay bills at home. He should make a reasonably comfortable living while building the value of the company.
Assuming that an entrepreneur does not have access to some one who can introduce him to a VC, how does he build familiarity?
He can do it in many ways. It could start with a be a brief meeting at a conference like TieCon or BBNWalk the talk where cards are exchanged to an interesting idea is talked about. Subsequently, when you meet a VC with a business plan, if there is something that jogs the memory, it definitely helps.
If you reject an investment proposal once? Does it make sense for an entrepreneur to approach you again later?
If a project does not fit our investment area, we clearly tell them that. In such cases, it does not make sense to approach us again. If it fits, but we decide not to invest for other reasons, we always tell the entrepreneur to keep in touch if there are changes that make the project interesting.
Is the keep in touch message just for solace or is it for real?
It is very much for real. We have a portfolio company (that we have invested in) where we declined at at first meeting. But when the entrepreneur came back to us after some time with some changes in the business, we actually went ahead and invested.
Given that you invest in early stage companies, is it safe to assume that their books may not be properly presented. What should the entrepreneur do in such a case?
We are not a large team. We are just the four of us. Once we see a potentially interesting business plan, we talk to the entrepreneur, we talk to customers, potential customers, etc. we run the numbers. Finally an investment decision is a consensus decision. All four of us have to agree to invest in a company.
Is it wise for an early stage company to get multiple VC s to invest in them?
In fact we advice entrepreneurs coming to us to get at least one more like minded VC on board. That gives him access to a larger network and more sounding boards if nothing else.
Are you hedging your risks by recommending that?
That too. And our returns also get hedged.
You talked about mentoring being one of your key differentiators. How does that play out in real life?
Most of it plays out during regular board meetings. Some times the entrepreneur comes to us for help in specific areas where our previous operational experience helps. For example, recently one of our investee companies had an interesting dilemma. He had the option of tying up with a large firm as their exclusive partner. The opportunity was huge, but he had to forgo tying up with any other similar partner. Or he could tie up for a small part of their business as non exclusive partner. He talked over the pros and cons of the decision with us, including a call with Kanwal. Finally he took a decision. The decision was his, but we mentored him through previously uncharted territory.
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