Early stage investing scene has been gaining currency in India with a host of angel investing networks and seed stage funds scouting for innovative business ideas. There is Indian Angel Network in Delhi and other metros, Mumbai Angels, The Chennai Fund, and half a dozen VC firms such as Seed Fund, Erasmic Fund and so on. A new member in the list is Singularity Ventures, an early stage venture capital firm kicking off in India with capital from the Middle East, an unusual source for high risk, seed stage capital.
Singularity, which has a team of four partners, has a corpus of $7 million provided by its parent CST Capital. The firm is expected to make its first investment – probably a technology or cleantech company – in the next three months. VC Circle meets up with Vishwa Chandra, 28, Partner (profile here), to understand the fund’s plans in India.
An early stage fund from the Middle East was unexpected…is it really the Middle Eastern money?
All our investors are from the Middle East. They do not wish to be disclosed, but they are people with high entrepreneurial skills and very confident of the India growth story. All of them are ranked among the top three in their areas. The investors have various backgrounds – one of them owns a large TV network, another one a very large financial institution, and then there is a property developer. They benefited from the oil-driven boom in the Middle East. Our investors understand the value of innovation.
You owe your origins to Jordan-based CST Capital. What is the fund all about and what have been your previous investments?
CST Capital is a special opportunity fund in the Middle East. We have invested in the Jordan group (a chain of hotels), a financial institution and also in a comic book manufacturer, Aranium. It is a very large fund, and we have taken $7 million as our initial corpus for our investments in India for the next 12 months.
What has been your experience with seed investing so far?
At Wharton Small business Development Association, a consulting division, I have handled and helped a lot of start-ups in the US. It worked more like an incubator. Tejus Sawjiani, the other partner, founded Trading Objects and has gone through that frustrating experience which start-ups are usually confronted with. He knows how difficult it is to hire people, especially when you are in the start-up mode, the hard task of generating revenues, and transforming your initiative into a successful company. Our interests are diverse; I specialise in the sectors of consumer products, retail and health care. Tejus’ primary area of focus is technology and financial institutions.
Is the scene different in India? What lies here in terms of opportunities in early stage investing?
The scene is really different and interesting in India. Compared to the US, an early stage invstment would be typically at business plan phase. The scene is much more mature in India. The research and development of the product is already done; in most of the cases, the product is developed too; moreover, a website talking about it.
If you look at any initiative, there are two kinds of risk that come to the forefront: product risk and execution risk. The initial homework in terms of development of the product/service backed by a prior research in terms of its scalability, market size minimises the product risk. What then remains is the implementation or the execution risk. We see tremendous opportunities in terms of seed funding in India.
Have you started getting proposals already? How have they been?
The volume of activity is unbelievable. We receive about 25-30 plans a week. I would put them into two categories. Those coming from people who have prior experience in consulting or services; their presentations are very well developed and very well articulated. Then there are from people with technology or R&D background. Their pitch may not be well packaged. But that does not necessarily slot them into a “yes or no” category. Besides these two, there are a large number of people in the middle category who need to be guided. We will cater to them also by way of our advisory services, money and expertise.
You have talked about establishing a MENA link to India. Do you see more money coming from the Middle East?
You will see a lot more money coming to India from the region. There is a huge amount of surplus money available with them and they certainly want to expand in to markets outside the US. There are several synergies one can look at exploiting. For instance, if an Indian banking software product can satisfy the huge demand in the Middle East, then we can get them clients very quickly. This is an added advantage that we can bring to the company. This is precisely what we mean when we say, establishing and leveraging the MENA (Middle East and North Africa) link.
Why have you decided to early stage investing, as India also offers tremendous private equity opportunities?
Early stage investing is brutal. But it is most enjoyable. The sheer experience of working with these technocrats, this bunch of young entrepreneurs are really satisfying, akin to raising kids. Unlike established companies, where the concerns are how to package an IPO, the immediate concerns in early stage remain how to grow and just grow. It is unglamorous but the most pure form of growth investing in the company. We understand the nuances and we will always be a seed fund.
What does Singularity Ventures bring to a company?
There are many seed funds existing in the country and the entrepreneurs today have several choices to make. If it is only about
money, then it is just not worth it. As I said, early stage financing is brutal. Entrepreneurs have capabilities in terms of developing the product, but there exists a “facility gap” which most of them are confronted with e.g. how do they market it, expand it, sell it, generate revenues and so on. We want to bridge this gap between capabilities and facilities.
What are your plans for India now?
We will not invest in more than 5-7 companies. How many kids can you handle at a time (laughs)? We believe in being responsible for the companies that we invest in. We also look at co-investing with other seed funds in India if need be. We have initiated talks in this regard with a couple of them, but shall never take up more than what we can handle. We plan to conduct informal conferences once in every quarter in the cities of Delhi, Hyderabad, Chennai and Bangalore to facilitate a constructive dialogue which will benefit the entrepreneurs. The two-day activity will include entrepreneurs, industry executives, professors and us. We look forward to sharing thoughts on valuations, hiring people and other relevant areas. After we have deployed the current $7 million in 12 months, we will raise another fund of about $25-30 million by mid of June in the next year.
So, when and where do we see Singualrity ventures making its first investment?
Our first investment from our initial corpus of $7 million will be done in three months. From the current pipeline of things, it looks
like a technology or a cleantech company.
What do you make out of the existing early stage scene in India? Would you invest in companies which have not registered any revenues?
All our companies could be a no-revenue company. If you look for revenues in a company in an early stage, it will be a contradiction to what you want to achieve at that stage. It is indeed about very “high risk”. I think that there lies enormous potential here. Earlier, when there were Indianised versions of foreign websites, I see a lot of activity already happening in web 2.0, advertising driven models, search engine optimisation and such. This thought process of leaving a highly paid job with an IT company and venturing into your own business would not have been possible five years ago. Most of these entrepreneurs just need to find an answer to one question which poses a mental barrier to them, “When is it the right time to become an entrepreneur?”