Only companies that grow rapidly will have interesting exit options open to them: Vani Kola of Kalaari Capital
Last year, Technology focused venture capital firm Indo-US Venture Partners rechristened itself to Kalaari Capital while raising a new $160 million fund. Its existing portfolio from investments includes a bunch of e-commerce players such as Snapdeal, Myntra, UrbanLadder, Hushbabies and Zivame. However, the firm has also seen two of its previous e-com investments biting the dust. In an interview with VCCircle, Kalaari Capital’s Vani Kola talks about her take on the current state of the e-commerce sector, failed bets, new investment themes the VC firm is chasing and more. Edited excerpts:
Seeing the mergers and consolidations happening in e-commerce, what do you have to say about the sector as a whole? How is it different from other segments in the tech space?
It is a phase; if you track any market and segment it is usually like this. As of now, mergers are happening for combining sources of capital and for strategic alignment. This will continue for some time now. Also, you have to realise that e-commerce needs much more capital than most other sectors and sources of capital are scarce; hence these consolidations.
e-commerce is a unique sector; no other sector necessarily has this type of behaviour and model. In e-commerce, you have to create a company not only from the grassroots but also really rapidly and hence lots of companies get started, raise a certain initial capital but after some time they require large amounts of capital which most sectors don’t require. This requirement of capital is the premise of these consolidations in the sector, too. I don’t necessarily believe that the same trend will be seen in other sectors.
What went wrong with Indiaplaza and Seventymm?
There are certain challenges in the e-commerce market. The market is nascent and you have to get your business model right. Differentiation is very important. The challenge with both the companies you mentioned was that they weren’t able to execute the right economics from business metrics and they couldn’t raise further funding.
Why did you choose to write off your investments? Did you also consider a merger for these companies as they were in a similar space after Seventymm pivoted from DVD rental business?
The only recipe for success is growth. If the companies grow, their business survives but if growth is not happening, no buyer is interested in the company either. Only companies that rapidly grow will have interesting exit options open to them—be it somebody buying them or providing funding.
There were rumours that Indiaplaza is going to be acquired. What is the current status?
We are not involved in Indiaplaza or Seventymm anymore. So we don’t have any information. We resigned from Indiaplaza almost a year ago; so we have no idea what is happening to it.
How does the exit pipeline look for Kalaari?
Kalaari raised a fund just a year ago; we are not looking at exits as of now.
Via.com, one of your portfolio companies, is quite mature. Is it moving towards an IPO?
The company is growing rapidly and a lot of times when the firm is growing nicely we leave it up to the management team to define an exit time frame. Currently Via.com is profitable and it does not need external capital; it is growing nicely and the management team wants to grow the business further and we are fully supporting them. An IPO is quite possible a couple of years down the line but nothing immediately.
What are the sectors that seem appealing to you for the coming year?
The whole mobility market seems to be very interesting. SaaS is another interesting sector. We have done a few investments in education and looking forward to more. Apart from these, social media support, digital media tools and solutions, niche e-commerce companies and how we take internet and mobile and merge them; all this will be interesting to watch.
(Edited by Joby Puthuparampil Johnson)
Kalaari Capital Advisors Pvt. Ltd. (formerly IndoUS Capital Advisors Pvt. Ltd.) is a venture capital firm with $350 million assets under management. It provides early stage capital to companies operating in India and United States of America. The firm seeks to invest in technology, cleantech, healthcare, education, pharma, food and beverages, technology enable services, media and entertainment and retail sectors. It typically invests between $1 million and $5 million in its portfolio companies. The company was founded in 2006 and is based in Bangalore, Karnataka.