Ojas Will Follow Multi-LP Model For Next Fund

Nadathur Holdings & Investments-sponsored Ojas Venture Partners--a $35-million India-focussed early stage venture firm investing in technology-based businesses—shares an illustrious lineage. Raghavan S Nadathur (NSR), one of the founding members of India’s best known enterprises, Infosys, is the sole limited partner (investor) in Ojas but that will change when the VC firm hits the road for its next fund-raise. Although the fund-raising is a good two years away, Ojas managing partner Rajesh Srivathsa (in pic) told VCCircle that a multiple-LP model with Nadathur Holdings as anchor investor could be the way forward. In a wide-ranging interview, Srivathsa talks about the heavy mobile bias in Ojas’ portfolio and the deal environment. Excerpts:- 

What is your assessment of the deal environment?

We have not seen much of an impact because we are very early stage. We continue to see the same number of deals. What we find frustrating is that the deals continue to come in the same area and vertical. It has been a while since we did a deal.

Your portfolio leans towards mobile. Will you continue to look at the same space? 

We are overleveraged towards mobile. Four of the six portfolio companies--Mango Technologies (which offers games and middleware for low-cost cell phones); Ziva (mobile answer engine); Telibrahma (marketing through mobile channel) and Tyfone (which is in mobile financial services)--touch the mobile customer ecosystem. It is fair to say that they do not compete for the same customers.

We would not want to continue putting money in the mobile area from a risk mitigation perspective unless we come across a game-changing opportunity. We may not want to look at other companies in the same space as they may be competing with the same customers as our existing portfolio firms. A small fund such as ours may not be able to look at such investments.

We are also looking at the gaming segment where companies build game applications for social sites like Facebook or those in the MMMG (multiplayer mobile massive gaming) space.

Is the nature of portfolio companies a function of the partner bandwidth?

In early stage, it is not so much us but the environment as such. You end up seeing similar profiles of companies being funded. You do not see anything fundamentally different anywhere. People are following the same set of trends. In online ticketing, you had air tickets, movie tickets, bus tickets and so on. The question is how to be a differentiator and gain more than the first-mover advantage. 

Partner bandwidth too is an issue which is governed by talent coming into the investing space. It is essentially drawn from growth areas like IT, from Infosys, Wipro, Texas Instruments, Intel and so on. It is an ecosystem thing. Take the case of cleantech. We all know that it is the next big thing. But where is the experience? Where are the entrepreneurs? We are only talking about solar panels and making biofuel from jatropha. Now, they are all needed but are they VC-fundable.

How different is the Indian innovation space compared to global hotspots?

We have been corrupted by our services industry. Neither Silicon Valley nor Israel have been corrupted by this. We are good at implementing systems and installing products. But who makes those systems and products? Even MNCs in India are predominantly cost plus.

Now, you have companies going after the Indian market. Our innovation-led companies pay a high cost for customer acquisition and retention. We also cannot leverage the digital platform. 

What are the sectors that you are keen on?

We started investing two years ago. We are looking at 5-7 years before we exit. We are trying to be sector-agnostic as long as there is technology play. Either the company is creating new technology or leveraging technology to deliver efficiencies. We are such a small fund. We cannot go after brick and mortar companies. We need to create a differentiator. 

Tell us about your portfolio companies?

Four of our companies are into hardcore technology with significant IP being created and patents being filed. They are using technology to create solutions that are cost-effective and able to bring a better user experience. Co-cubes, a placements platform, deploys technology as a tool. 

What is the dividing line between Nadathur Holdings & Investments (which also invests in technology) and Ojas Ventures?

N S Raghavan is the only LP into the fund, at present. He is on our board and on our advisory committee. NSR Holdings started investing in technology eight years ago and Ojas was a natural extension of that play. Nadathur’s Holdings and Investments no longer invests in technology except in cases such as subsequent rounds or when ticket sizes are larger. This is because Ojas has not inherited existing technology companies in Nadathur Holdings portfolio. As and when those exits happen, Nadathur Holdings will move out of technology. So, there is no conflict of interest.

What kind of money has been committed so far?

Ours is a $35-million fund. About a third has been committed and about a fourth has been invested. So we still have a lot of money for early stage investments.

We typically do not do Series B funding unless in exceptions like Arigami where we almost entered at angel stage. Post Series A, we prefer external investors to come in. We definitely handhold them and try to retain as much stake. In the next round, we prefer somebody else to lead it and we will co-invest. There are two portfolio companies in the process of raising funds. Tyfone and Ziva are looking at raising $5 million and $3-4 million respectively.

Yours is a single LP model. What is the thinking going forward when you raise the next fund?

It is early to talk about it since we have a lot of money left to invest. But, the intent is to have a multi-LP model with NSR as the anchor investor. What sort of fund it will be is not yet decided. We are at least two years away on that.

If Ojas were to raise a second fund of say $70 million, it is a lot of money for a single LP to raise. It may not be reasonable from a wealth management perspective.

The point is we first need to prove this model of focussing on early stage and core technology. We do not look at areas like consumer internet like others.

What will I do with the money? Let me first demonstrate value creation for entrepreneurs and return money to investors. 

Will you do more co-investments?

We have done a joint deal with Inventus in Telibrahma. We welcome opportunities to co-invest with VCs who are keen on early stage technology. This will come in handy particularly in subsequent rounds. Together, we can add value in terms of functional expertise and geographic spread. In later stage, it makes sense to co-invest if we see eye to eye on a deal. We typically make an initial investment of $250,000 to $1.5 million and follow that by participating in subsequent rounds up to a maximum of $3 million per company over the life cycle.

When will you ink your next deal?

Quite a few opportunities have bubbled up. The deal flow has not stopped. There are two deals we are chasing, one is a broad enterprise software company and another offers software in retail space. These are not based in Bangalore. 

What is your take on Infosys chief mentor N R Narayana Murthy’s move to start an early stage fund called Catamaran?

It is very welcome. We need more industry captains to come forward. It is a validation of our model which is early stage.  

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