Sandeep Murthy is focused on investment opportunities in India. He also evaluates and manages investments in India for Kleiner Perkins Caufield and Byers (KPCB). Sandeep is the Chairman of Cleartrip Travel Services, and serves on the Boards of Info Edge India Pvt. Ltd.
(the company that runs the websites Naukri.com, Jeevansathi, and 99Acres), Cleartrip, PayMate, MapMyIndia, FutureBazaar, ZoomIn, StudyPlaces Kotak Urja and inMobi.Before moving to India in 2005, Sandeep worked in the Internet space in the US. He holds an MBA from the Wharton School as well as a Bachelor of Science degree in Systems Engineering from the University of Pennsylvania and a Bachelor of Economics degree from the Wharton School. DARE speaks to Sandeep about his stint in the US and his VC experiences in India.
|
|
| Sandeep Murthy Sherpalo Ventures |
How is the VC ecosystem in the US different from India?
One of the basic things is that the VC environment is in the early-stage here. We don’t have the same base of entrepreneurs who have been there, done that. In the US, entrepreneurs are in their second, third, fourth, fifth stages of venture capital funding and have build and sold businesses, taken businesses public, have scaled companies, and understood the nuances in a very short time. In India, we do have talent who are managing companies but we don’t have a lot of entrepreneurs who have completely experienced VC funding. but we are building a lot of them today.
Look at the previous generation of entrepreneurs, a lot of them moved into the venture world. Venture funds in India are filled with people who had built and sold some of their businesses from the first boom. So that group is not starting new businesses; instead they are playing a very good role of mentoring new companies. So we are stuck in a position where we are searching for qualified entrepreneurs or even young entrepreneurs who have had a chance to do some work before.
Have you tweaked your investment strategy in the last one year?
We don’t have a dedicated fund for India. We have never been under any pressure to invest aggressively. We are simply looking for good opportunities and good companies. In our first four years here, we have made ten investments. Last year we did not make any. It has been like this because as the downturn hit, the companies that we worked with, required a lot more focus and attention, and we were spending a lot more time with them. Our priority has always been to make businesses we ultimately invest in, successful. I spent 90 percent of my time with the existing portfolios because they needed more funds as they were reducing their external resources, so we decided to step in and take on some responsibilities and help them out. We did a lot of that in the past year. Now things have stabilized, and the companies have found much more stable footing, and there approach has matured.
Did you not ponder on the proposals that came to you or there weren’t any good proposals at all?
We did meetings, we looked at the proposals, we evaluated them, and we tried to understand them. What happened over the last one year was that even if I was ready to fund an early-stage, it was very clear that these companies would require more capital beyond the resources that we would provide. Therefore, it was a bit of a challenge that let me fund this business knowing that 18 months from now, they would need more money, and not knowing where the world would be when the given time frame is over. For us, it is not really a valuation game at that stage.
The stage we invest at, valuations don’t shift drastically in a good economy or a bad economy. We are dealing with what’s the opportunity, what’s the capital required to prove the business model, what’s the value that we provide, and how does the entrepreneur value that. Those elements aren’t as impacted by the external environment as is the next round. So when you don’t know what the horizon is for the next round, you start worrying about various things.
It’s not that we did not spend any time with new businesses. Over the last three years, I have worked with at least three companies very closely and helped them craft and develop their business on their limited set of resources. And if they could prove themselves and become profitable then we would be happy to invest more later. We would then know that future financing would be easier for them.
What support did you lend to your investee companies while they were dealing with the slowdown?
It was more of an operational support. In many instances we were looking at cost base, revenue base, essential costs, overhead trimming, etc. and providing an ongoing external discipline to the business. What happens is that if you are running a company, you are so focused on the day- to-day activities and if you don’t have an active investor asking you questions every now and then, you tend to become complacent when it comes to efficiency.
Isn’t that "support" perceived as interference by the entrepreneurs?
We are not trying to tell a person how to run his business. But if they took money from us, it was because they believed that we would add some value beyond the finances. That is why we take a lot of time before we invest in a company. As an entrepreneur, I was on the Board of Cleartrip for two years. To me the most valuable thing was to talk to Ram (Shriram) about what we were doing. Entrepreneurs need someone that they can talk to. They don’t see that as interference.
What are some of the mistakes that first-time entrepreneurs make?
I think losing track of expenses. You are in a mad rush to grow, especially in venture funding. You have a lot of pressure from a lot of different angles. But you have to keep track of costs. I think a lot of entrepreneurs get overwhelmed. Losing track of costs is one of the outcomes of the symptom of not tracking your data closely enough.
Another area is taking the time to hire. In the hurry to support growth, often companies tend to hire just bodies. First you hire the most important people, taking the time with them and making sure they are right, they fit culturally, and they understand the vision. Wrong hiring can cause a lot of pain in going forward.
Can you take me through as to how the talks develop between a venture fund and an entrepreneur?
If an entrepreneur sends something that looks interesting, in an area that I know about, we usually end up having a meeting. We discuss the plan, the challenges, the need for money, competition, and the numbers to get a general feel about the philosophy behind it. At that stage, we may come to the conclusion that it’s a good business but maybe not for us. If it continues from there, we try to get to know each other more. It is like getting married. It would be nice to know as much as you possibly can. At the end of the day, we have to share a common vision, and that takes some time to develop.
What kind of returns a typical VC investment entails? Is that also discussed during the initial meetings?
No it’s not discussed. At that stage we are simply saying that the market looks good, the team looks good, and we seem to have a good differentiator here. Let’s go and give it a shot. Beyond that, it is hard for us to think of what we should be getting in terms of returns.
What is the rate of failure in VC funding?
The anecdote is that one in ten investments is successful. The numbers say that one in ten is big, three in ten are moderate, another three just return the capital, and the rest fail. In India, it is still unproven because it is early years in VC funding.
Subscribe to this comment's feed
written by Desi, October 18, 2010
written by Mr. Supriya Dutta, February 03, 2010
I’m a marketing professional and is looking for product based software development funding. There are 4 members in my team consisting of my childhood friend who is an aspirant Chartered Accountant, two software developers and myself an M.B.A and having 4 years of Sales & Operations Experience in Telecom and Financial Industry respectively in the profile of Channel Management and Relationship Management. We’re seeking funding for accounting based software development and setting up PAN India Distributor set-up for the same. Please contact me in case if you find this proposal interesting and lucrative.
Warm Regards,
Mr. Supriya Dutta,
Kolkata, India,
(M) +919874545880,
E-Mail:- duttasupriyo@yahoo.com
| < Prev | Next > |
|---|
