Srini Vudayagiri is currently Managing Director at Lightspeed Venture Partners. Prior to this, he was Director at Thomas Weisel International, and before that, Associate Director, South Asia of Intel Capital. Thus Srini’s Venture interests go back a long way to before the dotcom boom and the bust. Srini has worked with boards and senior management in Subex Azure, Nipuna, Netkraft, Career Launcher, First Leasing, Lanco Kondapalli Powerand BPL Cellular amongst a host of other companies.
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| SRINI VUDAYAGIRI Lightspeed Venture Partners |
Compared to the dot-com boom days, has there been a significant change in the way the VC markets are operating?
There have been some critical changes in the market in the last seven-eight years. Take the Internet market in India, there has been a huge leap in the number of users. Today, we have anywhere between 40-45 million users going to 100 million users in the next four years. The domestic market in absolute numbers is interesting, while as a percentage of population it is still small. Talking in general about the entrepreneur community, one can say that there is a strong sense of learning from the past experiences.
Are there any specific changes in the type of entrepreneurs out in the market, between then and now?
We have seen some good trends there again. One such trend is Indians returning from other countries. The trickle has become at least a small stream now if not a river. Every year a few hundred thousand Indians are coming back. These people have a soft landing in India. Let us say that the person was working in a large multinational company in Europe or United States. All of them have had the opportunity to transit into the Indian operations of the company. Therefore, this person was a part of say IBM in United States but he can now become a part of IBM in India, and because he is an Indian, he already has an understanding of the culture. He then works for about four to five years in an exciting environment. The fact that he is doing well financially combined with the experience that he brings from abroad gives him the flexibility to think out of the box and become an entrepreneur.
One other change that we have seen is the fact that salaries in India are going high, and going up every year. People who have been in middle or top management in the last 4-5 years have been able to have good amount of savings, maintaining their lifestyle and even after upping their lifestyle. These factors are giving them the flexibility of becoming an entrepreneur.
Added is the fact that there is this huge demand for middle and top management talent pool. Entrepreneurs do realize that even if things are not working out for them, there is still a significant opportunity awaiting him in the corporate world because of his previous work experience. Some time ago, it used to be difficult for this person to go back into the corporate world if he did not succeed as an entrepreneur. The chances of being accepted back are higher, so the risk of entrepreneurship goes down significantly.
In a potential investment, what do you look for?
If we were to draw a list of top ten things that we look for in a pitch, the top eight will be the team itself. What is the credibility, passion, experience, expertise, vision and commitment that the team has? All of us investors believe that you can make a not so good idea work with a good team, than the other way around. So, team is the one critical thing that we look for.
Nineth would be how large is the opportunity in the Target Addressable Market (TAM)? In this, one critical factor is whether the entrepreneur is creating a market, or an existing pain point. If it is an existing pain point, then how differently is the offering placed – based on either packaging, pricing, etc.
The last factor would obviously be their execution capability to take the business to a critical TAM. Even if the TAM is large, he needs to become a significant player within that market.
There are some who feel that there is too much money in the market and even bad projects get funding. Is it true? how difficult is it to find good projects?
It is a global phenomenon that there is liquidity in all the markets. Having said that, it is up to the individual fund in terms of what calls do they want to take. I do understand that for some of the very specific funds, such as a predominantly Internet focused fund, the timeline is very crucial. When such funds have a time of just one year to go through the investment phase and have already run through four years into the fund cycle, they are compelled to make some calls which valuation wise might be higher than what otherwise one would be comfortable with. Similarly, India might be a missing link in certain funders’ portfolio.
I think it is up to the individual fund to maintain discipline – 'If I think that a particular segment of the market in India is overvalued; do I have the investment discipline to say that I will not do this investment at this valuation.'
In our case, we have a common pool of capital. It is not an India specific fund. It is a global fund which has the flexibility to invest all over the world, specifically in four geographies – India, China, Israel and US. If we see that any particular geography is overheated, we could look at the flexibility of investing somewhere else, rather than taking a sub-optimal decision of putting money in one place or one sector.
How would you compare the Indian entrepreneurial ecosystem with China and Israel?
I think both the entrepreneurial as well as the investment ecosystems are more evolved in Israel, as compared to India – at least in early stage investment, because VC funding started happening there much before it started happening in India. Hence, they have a longer record of accomplishments in terms of looking at investments. In addition, the typical US silicon valley based VCs have been in Israel for close to 15 years now. By definition, the domestic market in Israel is small. Most of the Israeli companies are looking at global markets, specifically the US market in terms of technologies, medical devices, etc. Thus the mindset, the ecosystem, and the community there have been closely related to the US market.
Compared to China, the early stage ecosystem in India is more mature. The reasons are manifold. India is good at IP (Intellectual Property) led product companies; there is a perception that there are better IP protection laws here, etc.
In India, unfortunately, when VCs started investing in 1999-2000, we had the dot-com crash and the global meltdown hitting the VC community in India early in their lifecycle. Many of the funds back then did not manage to get even one exit. Hence, they went into a shell and only started coming back since the last few years.
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