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'Venture Capital Is A Customer Servicing Business'

18 May, 2012

Harshal Shah, the CEO of Reliance Technology Ventures Ltd (RTVL) and a member of the leadership team at Reliance Anil Dhirubhai Ambani Group, has a unique definition for the venture capital business. He believes VC firms are in the business of servicing their customers, who are portfolio companies and entrepreneurs. In an exclusive interview with VCCircle, Shah talks about RTVL’s new sector focus, performance of portfolio firms and exit strategy for Yatra.com. Edited excerpts:-

RTVL began as a corporate VC firm focused on technology and mobile sectors. We now see the firm diversifying into other sectors as well. What has triggered this?

When I looked at investing into technology in 2005, our mothership was Reliance Communications. We had access to knowledge of the ecosystem- the customers, the suppliers,  contracts, nature of financing and so on—as Reliance Communications was a Tier I and well-established mothership. That is why we started focussing on tech and telecom.

Subsequently, the other businesses of the Reliance ADA Group – Reliance Capital, Reliance Infrastructure, Reliance Energy, Reliance Natural Resources, Reliance Power, Reliance Media & Entertainment–started to grow. We again had access to the same kind of knowledge and experience in these businesses. So, it made sense for us to look at other sectors. We believe that information and knowledge is an incredible competitive advantage for us.

Which sectors look attractive to you?

It’s very difficult not to see technology as an underlying theme for most of the businesses. But, outside of IT and telecom, some of the areas that I find interesting are retirement homes, cleantech, real estate infrastructure enablers (like standardising pre made homes), aerospace component or equipment makers and defence.

Would you look at investing across all these areas?

These are some of the concepts we are toying with in our organisation. We not only plan to invest but might go out and seek some of these opportunities. As a VC investor, we are investing into areas which could become an industry in its own right in the near future.

How did your portfolio companies fare in the economic downturn?

I don’t look at venture capital as an investing business. It’s actually a customer service business. The customers are our portfolio companies, entrepreneurs and the top management team. It would be pretentious to believe that we are the only people with money. We believe our money is smart money, and if we can go across servicing our customers, then we end up making our money greener than anyone else. This makes our model very different from a lot of other VC firms.

Every single portfolio company of ours, despite the worst downturn last year, has seen an increase in valuations, taken away market share from its competitors and hired employees.  If you look at the average IRR, that has been generated by VC firms for vintage 2006, the returns have been negative 50%. Our annualised IRR is in excess of triple digits at the point of time across the portfolio companies. Not a single portfolio company of ours will be a dud. Our model is fool–proof.

How is Yatra (portfolio firm) faring against other online travel agents. Is an exit on cards?

Yatra is a leader in terms of market share and it enjoys the highest customer awareness and retention. People find the Yatra interface most comprehensive.

We are making good amount of money in Yatra. In fact, we have a large amount of cash in the bank now.

Should I exit this now or not, the way I see it is that should we continue to increase our IRR in the investments or not. Now, there’s a company called C Trip in China, similar to Yatra. Started in 1999, it got listed in 2003 at NASDAQ at a market cap of $300 million and it eventually became a billion dollar company in 2009.

IPO is a possibility but not a given at this stage. In a year or two, it could happen.

RTVL has also invested in a company (Stoke) based out of the US.  How do you plan to gain advantage from this? (Stoke develops carrier-class mobile broadband gateways to enable mobile and converged network operators to maximise the economic returns of their 3G mobile networks.)

We led the round in Stoke and then got other investors like KPCB, Seqouia and DAG Ventures on board. We got Dan Warmenhoven – CEO of Net Appliance, a data centre management company — to join the board.

We have set up its office in Bangalore to achieve cost arbitrage. When 3G- 4G happens, Stoke should be the de facto choice for this kind of product.

What are the recent investments that you have made?

We are seed investors in Scalable Display Technologies Inc, founded by Rajeev Surati. He is to instant messaging what Sabeer Bhatia is to Hotmail. Just when Bhatia sold his company to Microsoft, Surati also sold his company Flash Communications to Microsoft. What we use today for instant messaging is based on his (Surati) technology.

As part of his thesis at MIT, he wanted to come up with better forms of projections to be used for the media & entertainment industry. He has 12 PhDs working with him and he also has a full time MIT professor on the company’s board. Scalable Displays has already broken even. (Scalable Display simplifies the creation of super-resolution, multi-projector displays of the highest quality and scalable size.)

So, if you connect normal projectors with Scalable’s software, it actually eliminates the need for having screens. This company has got contracts from the US department of defence, and from Japanese companies such as Sony, Hitachi, Toshiba and others. 


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5 Comments
Akash Bhalotia . 6 years ago

Mr Shah has very aptly classified the VC business as a Customer Service business as opposed to an Investing business. However the real question out here is “To what extent to do you go to service your customers ? What is so unique about your business model that makes it fool proof?”

Niren Shah . 6 years ago

“Not a single portfolio company of ours will be a dud. Our model is fool–proof.”

Such humility is admirable.

VC . 6 years ago

I agree with Mr. Shah’s statement that VC business is a Customer Service business, but the customer list starts with the Limited Partners who give VCs the money to invest and it is their interest the VCs need to keep in mind and then come the others.

There have been instances when VCs have pulled the plug on promising companies just because they were not worth spending their time on any further.

anthony . 6 years ago

What I like about small business owners is that they are not afraid to take huge risks and lay it all on the line. But, I agree they do need a lot of help with their marketing. I think having them go the social media and email route is not only the least expensive but its also the most effective. Thanks for the stats!

http://www.onlineuniversalwork.com

Harshal Shah . 6 years ago

@VC: The way I see it is that capital is raw material and like a commodity, and it’s owners (read, LPs) seek the highest return on it possible. Here come the VCs who provide the “value add”, enhance the “commodity product” and sell it to the best of entrepreneurs and management teams. It is when this message is not clear that, unfortunately, some VCs have fallen prey to the vagaries of the economy, LPs etc and have pulled the plugs on promising companies. But then let me ask this: would a good entrepreneur ever go again to such a VC? Exactly.

A good customer service business would ensure that a) it’s original raw material is of good quality (if capital was a commodity like rice, then good LPs are like basmati rice), and b) would sell it provided they are confident of having added value and further quality enhancements to that commodity.

@Akash: If everyone is aligned once an investment is made into the company, we would go to any extent to enhance the value that we all together generate for the company. Of course, there is a possibility of a free-rider problem existing in some cases, but there was ways to circumvent that, if everyone is purely focused on value creation that’s in everyone’s interest.

We believe that the information, networks, the ability to create trust and teamwork with entrepreneurs, suppliers, customers, employees, and several other factors come together to make this fool-proof. We are also patient, have a large pool of capital, are very good at screening deals, believe that we have access to good mentors, and last but not the least, have an ethos and drive that makes us want to emulate one of the greatest entrepreneurs who ever lived – Dhirubhai Ambani – who, if he was alive today, would have become, in one generation, the richest man in the world…and that, too, from India.

'Venture Capital Is A Customer Servicing Business'

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