Sandeep is the co-founder of Nexus India Capital, a venture capital firm that mainly invests in companies that are wholly or substantially located in India. Nexus typically invests early in the life of the company. However, it limits its investments to 6-8 in a year. In the last two years, Nexus India has invested in 15 companies. Prior to Nexus, Sandeep was co-founder and CEO of Medusind Solutions, a healthcare outsourcing company. He is also the co-founder and Managing Director of eVentures, a venture capital firm focused on early stage investments in India since 1999. Sandeep has an MBA from The Wharton School with a dual Major in Finance and Marketing, and a BS in Electrical Engineering from Stanford University.
Nexus India Capital
Given the current global slowdown, are you reworking on your investment strategy?
When we are looking at investments, we are looking at a 5-7 year horizon. These blips in between don’t matter that much. Our investments are across four sectors. We invest in consumer-focused companies in the domestic market, technology companies that are both domestic and global, business services and clean technology. Although there is a slowdown in different pockets in each of these sectors but we continue to see growth. There is no change in our strategy. It all depends on the quality of the entrepreneur and what space they are targeting (if the space is large enough) and if they have some differentiated services or products. So, there is no real change in our investment approach.
We believe that consumers will continue to spend but the economic growth will slow down, and the type of growth that we were seeing at the company level may have to be moderated. Something that may have taken three years to build out, may now take four. But a strong entrepreneurial team would continue to build out great companies.
Despite the slowdown, are you still getting business plans for consideration?
That’s the good news. The entrepreneurial activity has not dipped. In fact, we believe it has picked up. There are more people today who are saying ‘listen you won’t see Infosys grow at the same rate that it was earlier’ and so on. It is a good time to potentially look at entrepreneurial options for growth. There is no sense of despondency or gloom. But there is cautious optimism. There are people who are willing to step out and take risks. A lot of people in the last decade have seen the growth in the Indian market, have seen their salaries grow tremendously and accordingly their savings. They are now open to entrepreneurial activity.
As an investor, are you open to considering business plans right now or there is a freeze?
Absolutely. We are open to new investments. We have just raised the second fund ($120 million) and we are investing from that. We are looking at plans regularly. No change in our day-to-day activity. As long as you have a great business idea, there is no dearth of funds. Investors are probably going to be looking more at differentiation. So, if you do the next “me too” thing, you may find it hard to get funding than you did before. But if you have a differentiated product, a clear strategy for the market and the market is large enough, there is funding out there.
Great companies get built during the time of recession. The reason is that when everybody sits back and says ‘I am not doing it’, there are some people who go out there and take risks. People who venture out face less competition for customers and employees. It is very important for an entrepreneur to have a clear understanding of the market and how they expect to create a compelling value proposition and a differentiated service in that market. Make sure that your market is large enough.
How has been the performance of your investee companies in the last two years?
Most of our companies have been posting revenue growth of 60-80% and in some cases 100%. Many of our companies have hit profitability and are doing quite well. Some companies that we have invested in are in the early stage of their development but had achieved milestones in terms of either building a certain technology or product, or getting a certain set of customers. For them, it may not be a revenue growth per se but are commendable achievements. We are seeing that for companies that are focused on India, given the slowdown, the growth may not be 100% but we may look at 50-60% growth.
How are your portfolio companies dealing with the current slowdown?
People are cautious in their spending, and the same holds true for our portfolio firms too. You want to make sure that you have enough cash in the bank to last yourself for 12-18 months to go through this cycle. Our companies continue to spend for growth. So they are spending money on R&D, product development and marketing but they are doing that in a thoughtful manner. We are asking them to be cautious but make sure that they don’t go overboard. But there is no hard-and-fast rule that says one can’t do an acquisition or cannot hire expensive people. A lot of that is a shade of gray and one has to take it up on a case-by-case basis.
When a business plan arrives at your table, what is it that you look for before deciding to invest?
The first thing we look at is whether it is the right focus area for us. If a company has a US management team or a European management team and are focused on the US and Europe markets, those plans do not fall in our bucket. Our focus is on companies that are being built in India or that are being built for India. The second thing that we look at is the space that they are targeting. We would not, for instance, invest in the infrastructure sector. It is not a VC type investment. There are certain segments that are not capital efficient and would not make sense for us. Once we are convinced that there is a potential to build a large scalable company in a certain space, we set up a meeting with the founding team and have them present their plan to us. There onwards, it is all about people. Then that becomes more important in making the decision. We focus on the passion of the team, and their ability to succeed. They should have the clear understanding of what the market requirements are and how they expect to target them.
How do you allay fears of entrepreneurs that once investors come on board, they call the shots?
We at Nexus have been in the shoe of an entrepreneur ourselves. All of us built companies from scratch, as the CEOs of our companies, and have had board members and investors on our companies. We are aware of this issue that may exist in the mind of an entrepreneur. The second thing is that we are investing behind people and if you come in and try and second guess the person in terms of their own business, then you are not really backing the person. If you are backing the person, then you have to give him the room to build his business in his way. Having been entrepreneurs ourselves, we understand that entrepreneurs have their own challenges – what may appear an easy thing from outside, may not be as easy as there are others constraints that the entrepreneur is working with. It is important to understand that we are there as facilitators and not as monitors or operators. So, we have to facilitate their ability to grow.
In all our shareholder agreements, we have information rights. We will have board seats in most cases. Whatever information a board member should get, we expect that. We would like to see those things that are important for an entrepreneur or the management team to run the business. We expect our investee firms to provide us information that they think is valuable for them to run their businesses and which we think can help us help them better.
What is the ticket size of the investments that you make?
We will invest anywhere from $1 million to $8-10 million in the first tranche. Over the lifecycle of the company, we could invest up to $20 million, depending where the company is in its growth path. If it is a very early-stage company, they may need only about $1-2 million. If there is a company that may have $2-3 million in revenue and is looking to go global or is planning an acquisition, the amount of money that we give will be higher.
What kind of exits do you look at and within what time-frame?
We invest for a 5-7-year horizon. The exits would either be domestic listing or some sort of a strategic transaction, some sort of an acquisition either by an Indian or a global company. We may see some exits in global markets but that would be fewer. There is no preferred exit for us. We look at IPO as another financing activity within a company, in which case rather than taking money from private investors you are taking money from public investors. We want to build our companies to the point where they could potentially list. History has shown that if you have an option to list, you would get a better valuation in a strategic transaction. We see many times that a company would file a red herring prospectus as a signal to the market that ‘if you want to acquire us, do that now before we go public.’
written by Sandeep Singhal, January 31, 2011
written by Sandeep singhal, January 23, 2011
written by Mr. Supriya Dutta, February 03, 2010
written by S Vinoth Kumar, February 23, 2009
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