BackHere’s why start-ups reach out to veterans, and no, it’s not all about the money
For the fledgling start-ups that are often weighed down by operational challenges, seasoned executives make for an invaluable sounding board
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Bengaluru/Hyderabad: Ashish Goel had braced himself for a volley of questions on his business the first time he went to meet Ratan Tata at his Mumbai office in September last year.
The chairman emeritus of Tata Sons was keen on making an investment in Urban Ladder, an online furniture store Goel had co-founded in 2012. Right before the meeting, a sofa inside one of the cabins caught Goel’s eye. The design was so compelling that he could not help but take a picture of the sofa with his mobile phone.
“One of his colleagues told me that the sofa was designed by Mr. Tata," Goel said. More surprise awaited Goel as he learnt several other pieces of furniture in that office were designed by Tata, an architect by education. No wonder their first conversation revolved around the importance of design.
Tata’s sound advice has prevented Goel from executing ideas that would fetch immediate laurels but weaken the business in the long run. For instance, Urban Ladder decided to service new cities with its own logistics network instead of outsourcing it after Tata advised it to hold the delivery infrastructure “close to itself".
“He is not at all a headmaster," Goel said. “Mr. Tata only shares his thoughts. He has interacted with enough smart people to know that people who understand his thoughts will definitely execute them."
Tata is among several India corporate veterans, such as former Infosys chief executive Kris Gopalakrishnan and former director V. Balakrishnan, former Microsoft India chairman Ravi Venkatesan and Manipal Education Group chairman Mohandas Pai, who are now seeking a slice of the country’s burgeoning start-up ecosystem through personal investments, especially in the consumer internet and information technology (IT) and IT-enabled services companies.
The renewed vigour is timely, with industry estimates pegging total investments in domestic technology start-ups in 2014 at about $5.2 billion across more than 300 deals.
The quantum of investment typically varies between ₹ 25 lakh and ₹ 2 crore—a pale figure in comparison with the big bucks pumped in by venture capital firms. The real value, though, is not in the money, but an access to a few of the best minds who have built and managed successful businesses in their heyday.
For the fledgling start-ups that are often weighed down by operational challenges, seasoned executives make for an invaluable sounding board, especially when it comes to dealing with issues such as inadequate access to capital and talent, roadblocks in execution of an idea or managing a team of professionals with efficacy.
An investment from seasoned veterans is also viewed as an endorsement of the company’s potential.
“An investment from people of such profile, the ‘been there, done that’ kind of industry veterans who built successful companies of their own, gives us great confidence that there are much more things working well for us," said Rajiv Rao, founder and chief executive of FreshWorld, a fruit and vegetable retail start-up that raised capital from Kris Gopalakrishnan in February.
The former Infosys executive has invested in companies such as price discovery platform Buyhatke, speech recognition solution provider Uniphore and chat messaging start-up Lookup.
“Ratan Tata’s investment in Snapdeal possibly helped Snapdeal grab more eyeballs than their Big Boss sponsorship," said Udit Aggarwal, partner at EY, a consultancy firm.
It also boosts the company’s perception and enhances its credibility among business partners and customers, said Vijay Shekhar Sharma, chairman and managing director of Paytm, a payments processing company that secured an investment from Tata in March. “Besides, these people are supremely networked," said Sharma.
Indeed, the business connections such investors bring along are definitely an add-on. Their association helps in reaching out to the right talent for hire, as well as investors to fuel the next phase of growth. Though it does not ensure subsequent rounds of funding, it at least “opens the door", said FreshWorld’s Rao.
“While it definitely adds credibility to the team and creates interest, an investor will still go
with the fundamentals of investment and make an investment bet based on the business model," said Karthik Prabhakar, vice-president at IDG Ventures India, a venture capital firm.
The Indian start-up ecosystem has thrown up a few billion-dollar start-ups such as Flipkart, Snapdeal, Ola and Musigma within a very short span. However, such instances are few as many of the emerging business wilt, not only because of the lack of investor interest or a tenable business model, but also lack of maturity in the promoters of the company.
“In high-growth situations, the CEO is often the biggest obstacle to the success of a company. So I help young entrepreneurs manage themselves better so that they can scale fast," Venkatesan, former chairman of Microsoft India.
The veterans are, however, discreet with their investments as they feel there has to be mutual trust and chemistry between them and the promoters of the company to build a successful business. Once investors are convinced that they can add value to the business and like the team, the scope of success is immense. They are not always on the company’s boards, but often function as advisors.
“In Silicon Valley, it has been happening for a long time," said former Infosys board member Balakrishnan, who has invested in companies such as Avekshaa, Clonet Solutions and TaxSutra. “Here, it is happening now because the industry is maturing. A lot of people are coming out of the industry wealthier and can help the ecosystem."
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