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On Wednesday, Matrix Partners India announced its second investment since they launched their fund in August (its first investment was $7 million in online DVD rental company Seventymm.com). The $150 million fund put in Rs 25 crore or $5.5 million in Moods Hospitality Pvt Ltd, the parent company of Chinese fast food chain Yo! China. Yo! China currently has 20 outlets in Delhi and National Capital Region (Noida, Gurgaon and Ghaziabad), besides , Chandigarh, Dehradun, Pune, Bangalore, Mangalore and Hyderabad. The company plans to grow 10 times to 200 outlets in 3-4 years and also grow in revenues to some Rs 400 crore from Rs 40 crore currently.

I caught up with Avnish Bajaj, Founding Managing Director of Matrix Partners India, to discuss the investment, and also other ideas he has up his sleeves. Good news is Matrix is set to announce two more investments in December. (In the picture: Avnish Bajaj, left, and Ashish Kapur, MD, Moods Hospitality)

Your investment in Chinese fast food company Yo! China was a surprise since your first investment was in an online DVD rental company. The sectors are as varied as it can get?

It’s just a perception. When we launched the fund we had said that we would be a multi-stage, multi-sector venture fund. We are not focused on a particular sector. We also haven't said that we will invest only in technology. We can put in money in any sectors ranging from travel, food and beverages, hospitality, media and entertainment, financial services, consumer internet and mobile. So we are looking at across the sectors with an aim to tap the rise in Indian consumption. We will invest anywhere from $500,000 to $10 million.

If we need to invest more than that, say $20 million, then that is also possible in partnership with our global partner Matrix Partners of the US.

What is your investment thesis for Yo! China?

Traditionally VCs have invested in innovation. For instance, funds like Kleiner Perkins are looking at investing in new innovations from clean energy, in biotech and also the internet. We are also focused on innovative business ideas in India.

We see Yo! China as innovative since they are targeting a popular food segment (Chinese food is the second most popular cuisine in India according to a Business World survey) in a highly efficient and process driven manner. Amongst the target audience of youth, Chinese food is the number one choice.

There is a clear gap in the market with a lack of quality fast service food outlets. There is no single national player in the business. Yo! China intends to become that with some 200 outlets over the next five years from the current 20 outlets.

Also we invest in businesses with some IP. The IP Yo! China has is that it has a central base kitchen in Gurgaon from where the sauces and other ingredients for all the outlets (even the outstation outlets) are flown in. There is innovation in the supply chain, the ambience, the customer delight etc. The mantra is “process”.

Isn’t food retail a bit capital intensive for a VC fund?

Our view is that if you are innovative, your costs will be low. We invest in low-to-medium capital intensive businesses. We will not invest in infrastructure, manufacturing, and real estate businesses which are highly capital intensive.

Our view is that if you are a first mover, it’s highly advantageous since you create a higher barrier for entry. However, there are concerns regarding real estate, whether you get it cheaper or not. But there are challenges in every business.

What is up with Matrix going forward?

You will see two more deals closing from our side before the year ends. The dealflow has been good considering we set up shop only a few months ago. That said, VC funding is a cyclical business.

Where do you see opportunities, for instance in financial services business?

There are opportunities in every sector. In financial services, we looked at a credit bureau company. But we decided to let it pass since India still does not have adequate risk management systems. We will look at innovative business models in credit or spending in the financial services sector.