We are working at creating small enterprises that we believe have a much higher level of job creation. Plus with the kind of model our investee companies have, they are also making a difference to the lives of the people. For us, it is more important than getting a Rs 1000 crore company.
Are you reassessing your business strategy? How is the slowdown affecting it?
We have increased the stress on some of our companies. Special emphasis is on artisan companies because the export market has gone down. Pressure on the top line and bottom line has gone up immensely. Micro-finance companies have seen tremendous pressure because banks are not lending to them, equity market valuations have gone down, and investing in the pre-revenue stage is looking much more difficult than it was eight months back. We are also becoming cautious of investing into pre-revenue stage companies.
How are your companies reacting to the slowdown? Are you in touch with them all the time and telling them how they should handle things?
They know business better than we do. We can help them in certain areas that they don’t understand but we do; or even if we don’t know, we may reach out to people. If there is a strong demand or desire for someone to understand something, we make an effort. The impact has not been dramatic. We follow a conservative approach irrespectively. We are not the kind of investors that Subhiksha is seeing, push people from 500 to 1,000. We are the kind of investors who look at pushing a company which is at 500 to 700. We believe that pushing from 700 to 1,000 may build a kind of risk that we don’t understand. This is also about size differences because we do small investments as we are more conservative. We don’t have deep pockets.
There is a perception that when investors come in they try to have their way. Have you seen your companies getting skeptical about this?
All the companies we have invested in are very worried about investments. All investors are equally worried about companies they invest in. Investors are born skeptics. Otherwise they will never make good investments. The art is actually to not demonstrate to the companies that you are a skeptic. Unfortunately, not many VCs actually understand that not showing your skepticism actually helps you in doing a better deal. Otherwise, the other guy loses confidence in you. He thinks you are always trying to run him down.
We believe that the company you invest in knows best what is to be done. At the same time, in case they don’t, we don’t hesitate in telling them, politely as well as harshly, depending on the level of resistance to what we are saying. If it becomes a fight then I don’t think there is a winner. Both sides stand to lose. Thus, we try to avoid a fight. Even though we have a social mandate, we don’t believe it is the reason for us to actually be polite all the time. We are not pushy, we are not very hard. We try to be very considerate. Our legal agreements are not offensive. We hear our companies out to the extent they can tell us that they are seeing problems.
What is the time horizon for investments?
We have a six-year investment horizon. We look at an exit after the seventh year. It varies. Today I am looking at five to six years for exit. Two years down the line, I will be looking at four years.
As an investor, what are some of the challenges that you face?
The companies we invest in feel they are challenged. They are actually raising money only once or twice. We are investing money every day. We are skeptical on a daily basis. The investors are also skeptical about your ability to deliver. And then you don’t have the capability to either be the rich guy (the core investor or the limited partner) or actually run the company. Your ability to really influence changes is very limited. In that case, it is a balancing act. There is a ‘God and Dog Theory’. The venture capitalists feel like God till the time they send the check; after that they are treated like the dog.
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