Meaningful exits have raised the confidence levels on the Indian market and the venture capital community is quite upbeat about the prospects in store, says Ash Lilani, the president of India for SVB Financial Group. Lilani, who is also the managing director of the company’s India-focused funds, said that retailing and e-commerce could be the next focus areas for venture funds. In an interview with VCCircle, Lilani said, SVB Financial Group will be launching the next India-focused fund in early 2011. Lilani, who has an MBA degree from Philadelphia University, talks about the investment outlook and sectors to watch out for in India. Excerpts:-
How would you describe the current investment environment?
We are continuing to see exciting investment opportunities both for the early stage and growth stage companies. The late stage companies have been quite challenging because of the valuations. The other interesting thing is that we are beginning to see meaningful exits in India. One of the market criticisms has been that the Indian venture capital Industry had not experienced exits as how China has seen. This situation is changing with some meaningful exits and this is expected to continue in the next 12 months. The overall mood is quite positive.
What is your investment outlook for 2011?
2010 was a seminal year for the VC industry because this was the first year where true meaningful exits were delivered by the market. Potentially, Indian entrepreneurs are becoming competitive to play larger role in the global market and, in the next phase, we are going to see medium players also becoming inquisitive about the global market. More opportunities for challenging work is out there and opportunity to create wealth are driving people to go back and settle in India This reverse movement of skilled manpower would create additional opportunities for entrepreneurship. This should encourage more venture investments in the country.
We have already seen lot of money in the market. 2009 was a slow year because of the economic slowdown. But the market has already turned active. We are going to see a different 2011. We are going to see a growth trend in exits. We are going to see hopefully more IPO activity. In terms of sectors, I see more growth in education, financial services and consumer internet.
Has there been any shift in SVB’s India strategy?
Our strategy has been more sector agnostic as well as stage agnostic. We will do deals across the board on all sectors and stages the reason being India is still an evolving market and there are gaps in basic business as well as infrastructure needs. Our strategy is to be broad and focused on the right entrepreneur and the right business model, rather than being focused on couple of sectors.
Which are the sectors that are raising your interest?
There are so many opportunities in India in financial services, education and retailing. Retailing in India is a huge opportunity if done in an organized basis. The large retail format like those in the US is not an ideal venture capital model. There are other models you can employ in a smaller scale, which focuses more on the volume rather than on the size of the format. Of course, the regulatory policy is still an inhibitor. Online retail is going to come up in a large scale in India. India is lagging behind historically because of lack of broadband penetration. This is changing. We are beginning to see real e-commerce activity. What Makemytrip has done, the volume it has achieved, has proven now that India accepts the e-commerce model. It can be said that e-commerce can be an enormous opportunity for venture investors but then you have to pick the right sector and right segment.
Will SVB continue its co investment strategy or is it time to look at solo deals?
I would say more than co investment we have followed an active syndication strategy. What I mean is that we like to work with partners because these companies have spent a lot of time and resources in understanding the market. We continue to work with funds in India and we prefer to go with a partner even for deals. Early stage companies require lot of help in terms of different set resources, set advises.
We have been fortunate in working with some collaborative firms. And it has been productive for us. We are a sector and stage agnostic fund with an active syndication strategy. We don’t use the word co-investment, as it is more passive.
Is SVB working on a new fund allocation focusing on the Indian market?
Right now we are focusing on investing from the first allocation. We look to put in additional capital to work shortly. We are still formatting plans and strategies for our next fund. We plan to launch this in early 2011. We are still trying to put this together and we do not have a conclusive figure yet.
What significant changes do you observe in the Indian investment scene?
The biggest shift that has happened is that people have started realizing that you have to be local while deciding to invest in India. All those funds that started five years back have either gone away or now have local partners. Even traditional technology investors are investing in broad areas primarily because the Indian market has so many exciting opportunities just not limiting to traditional technology. The geography of deals is spreading across the country. Earlier, because of technology trends, folks used to believe that deals would be centered round certain specific cities but today they (deals) are all over the map.
What is your assessment of deals in the IT services sector?
IT services will see a consolidation and the larger players will become larger. It is very important for people to find niches rather than remaining a pure services company. Market specialization and niches will help the IT companies explode. For instance, our portfolio company iYogi provides online tech support in Gurgaon for a fixed annual sum to customers. They have made a great space and great niche where the big guys are not present.
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