VCCircle

Every panelist at the VC Circle Forum (held on Friday, Nov 30, in Bangalore) asserted one word: Entrepreneur. Entrepreneur. Entrepreneur. So the entrepreneur is the key parameter a fund evaluates before making the funding decision. That said, funds should not chase a celebrity entrepeneur. Second, the macro trends of the sector, whether it's likely to clip at a healthy 30 per cent or above a year. Third, the intellectual honesty of the management on the sector opportunity and how realistic they are about the projections. Fourth, the scalability of the business model - $100 million or more in revenues in growth stage, and $60-100 million in case of VC investments – that is the kind of scale the investors are looking at in a business. Fifth, the VC panel agreed that there is a dearth of seed capital, and a gap in mentorship, and that needs to be tackled. They agreed most of the incubation centres are not doing well for lack of mentors. And finally, all those who are pursuing a VC career, please think again. It may not be all that sexy when you actually find out that you are a misfit in the industry five years down the line. By then you are unemployable elsewhere.

Thinking Out Of The Box
Hetal Gandhi of Tano Capital, while harping on the importance of the management team, said that they are thinking out of the box to generate dealflow. He cited the most recent deal of his fund in ABG Motors which used the capital to buy an Italian company flameproof motors manufacturer Cemp. This deal was completely sourced by Tano using their networks and relationships in Italy. It was brought to ABG Group (they own ABG Shipyards) by Tano, and a deal was struck. So funds are looking at innovative ways to generate dealflow. It’s not just the classical way of a deal being to a fund by a banker.

Raja Kumar of UTI Ventures said that there was no hard and fast rule about selecting a company. “We like entrepreneurs who are focused on business.” But that does not mean they would chase a celebrity entrepreneur. According to him, a celebrity entrepreneur might not be hungry and as focused as a first generation entrepreneur.
Kumar said the foremost characteristics are the scalability of the business (for instance, Koutons Retail, which has 1,100 stores now and revenues of Rs 800 crore), whether the company is ready to go in for an IPO in three to five years from the investment (UTI Ventures had a series of IPO exits recently like Zylog Systems, CCCL, Koutons etc), and the value system of the entrepreneur. Kumar said: “We have not gone wrong on entrepreneur even in a single case.”

Deepak I Shahdadpuri of Beacon India Advisors too seconded the view that entrepreneur (read management) is everything from an investment point of view. “We are very entrepreneur-centric,” he said. Shahdadpuri cited the instances of his earlier two investments – Sula Wines and Saffron Art - to make a point that how the founders have played a major role in converting their ideas into high growth businesses. Sula is now in an industry which grows at 60 per cent in India. The founder Rajiv Samant, a Stanford graduate, had tried growing roses and mangoes earlier, but they did not work out. But finally he settled on wine. This is a sector where India is second fastest growing in the world after China. Shahdadpuri said before they select a company, they actually zero in on the sector, and whether it’s a fast growing one.

Ashish Gupta, Managing Director of Helion Venture Partners, talked about venture capital as a career. His contention was that not every one is suited to become a VC. If one enters the VC’s job and after five years realizes that he is on the wrong job, he is unemployable by anyone else. “That is a very dangerous situation.” Gupta’s point was that don’t rush into venture capital career because it’s sexy. What I understood from Gupta was that it might help to build a career elsewhere before seeking to enter venture capital industry. One would have at least built some skill set which could become a fall back option in the event of a failure in VC career.
He also cautioned young VCs and other VC aspirants. People (entrepreneurs) who walk into a VC’s office probably will be much smarter than the VC himself. But it becomes dangerous when a VC thinks that he is smarter than the entrepreneur.

Sudhir Sethi, founder chairman and managing director of IDG Ventures, talked about trends in technology investing. He said it’s very difficult to forecast technology trends in the long term. One can take only a short term call on technology trends. He said they would look at investing in businesses if they are among the first three in India. All their portfolio companies meet this criterion. They like early stage ideas and are ready to put in smaller amounts in businesses. However, at the end of it all, they use the old world methodology – whether the company can be scaled to $60 million-$100 million, and if it has a disruptive business model.

Mohanjit Jolly, Director of Draper Fisher Jurvetson, said he could be biased towards early stage technology ventures in India. In his previous role as the managing director of Garage Technology Ventures, Jolly was involved with seed and early stage deals. He was also involved with a $20 million seed fund prior to that. In India too, although he is with a VC fund which makes investments in mature ventures as opposed to seed stage deals, he said he is open to working with incubation centres and angels. DFJ has a $75 million technology fund.

In response to a question from Shantanu Surpure, the moderator of the VC panel, on risks associated with venture investments, Ashish Gupta made an interesting point. According to him, one needs to watch out for intellectual dishonesty risk on the part of entrepreneur. So what is intellectual dishonesty? An entrepreneur has no idea how the market will look like a few months down the line, but despite that he would like to believe that the market would behave the same way as his businessplan has projected. That’s intellectual dishonesty. Gupta said intellectual honesty is a pre-condition he would look for in an entrepreneur.

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