This is Kamla Bhatt. Today my guest is Kanwal Rekhi, a well known entrepreneur, mentor and now an investor. He was a private investor and for the first time he has established a fund called Inventus Capital Partners. They are raising $125 million. This is a cross border investment fund, and they will be investing in India. So far Inventus has raised $51 million and they plan to raise the rest of the money by mid 2009.
Kamla: Welcome to the show Kanwal.
Kanwal: Thank you.
Kamla: Inventus...it has so many interesting possibilities. Invent US....
Kanwal: Well, the name of the fund is one of the hardest things to do. Just about every name is taken. So John (Doughery) my partner and I spent almost 2 months turning up with this name. So it was India Venture US and InventUS. It turns out that Inventus is a root word for invention in Greek. So we liked it at the end. It was a positive word and it was not taken and reflected our feelings.
Kamla: What is the goal of the fund?
Kanwal: I had been investing on my own in the valley since the mid-1990s. The name of the game has changed a bit as lot of stuff is happening in India. US startups usually have Indian talent and Indian entrepreneurs are becoming pretty savvy and looking at the Indian opportunities and global opportunities and our sense was that a new type of venture fund is needed which watch both sides of the India-US equation. US entrepreneurs are levering Indian talent and the Indian entrepreneurs who are looking at the global markets and Indian markets. So we thought we needed a fund with presence on both sides. We have two partners in Silicon Valley and Bangalore.
Kanwal: Samir Kumar. Samir was with Wipro at one time and he has been in the investment business since 2001and Parag Dhol. Parag was most recently with Intel capital and before that he worked for GE Capital and also worked for ICICI Ventures.
Kamla: What is going to be the focus of the fund?
Kanwal: It’s technology focus (fund). By technology we mean technology powered companies.We are smallish fund in size. We are going to bring series A type of investors. We are not going to be able to do companies which require $20-30-40 million because that is lot of money. So our goal is to provide $1-3 million to start up mostly in software, software-enabled services and consumer stuff which is beginning to happen more and more in India. We are not going to go too far away from technology.
Kamla: You made your first investment.
Kanwal: Yes, we made our first investment with Telibramha. The deals have been done and money has been disbursed. Telibramha is based in Bangalore and they are a bluetooth based proximity marketing company. Proximity marketing means they will have bluetooth hotspots in shopping centers, in stadiums, in movie theatres, multiplexes and most of the telephones are bluteooth enabled. If the bluetooth phone is receptive they can send you amessage and offer you a deal on the spot.
Kamla: How much money have you invested in Telibramha?
Kanwal: Well, Telibramha raised $2 million from two of us. We put a million dollars and then a million dollars were put by Ojas Ventures in Bangalore. So that is the first venture money in the company (Telibrahma). The company had some money from Karnataka state, KITVEN, a State Venture Fund and they have cashed out by and large in this round.
Kamla: Before we started the interview you were pointing out the reasons why you went with Telibramha. You were talking about closed garden and open garden and some of the areas that you will not invest even in the moble space. Could you expand on that?
Kanwal: Well, mobile value added services has been a hot area for the last 3-4 years one but has not panned out by and large. Because the mobile carriers have not been very easy to work with and part of the reason is they have been focussed on the subscriber growth, and make sure they don’t miss out on the market and market share battles. So they have not paid attention to value added services as a revenue source yet and they are looking at maintaining their market position. Also their sense is that the small built entrepreneurs are not well prepared to provide them the full partnership. So generally speaking they have not been very good towards entrepreneurs and what what we have seen is not very satisfactory. So in this situation Telibramha does not depend upon the carriers and they are building their own bluetooth networks.
Kamla: SMS is something that you are not interested?
Kanwal: We are interested. SMS is expensive and GupShup has done extremely well in producing traffic. Last I knew they had not been able to monetize their traffic as yet. So they are expensive and SMS messages are expensive to send and you have to be making revenue very quickly otherwise you will be spending a lot of money.
Kamla: Is Inventus going to be investing by itself or are you going to be partnering with other funds to ininvest in companies in India?
Kanwal: Our preference is to syndicate and partner with other people. In a venture business, everybody is a winner and multiple VC’s come together. So what you have from an entrepreneur’s perspective are two sets of network, two sets of smarts, who are helping you and everybody is distributed even further. We have a preference and will always like to have a partner in the deals.
Kamla: As someone, who is going back and forth to India very often you have seen how the start up scene has evolved in India. What is your sense, what is your read of the startup scene in India and the criticism that has often leveled that venture capitalists are not doing enough to nurture start up companies and entrepreneurs in India and mentoring is something that is required?
Kanwal: We have in India now a bright entrepreneurship 3.0. So back in 1999-2000 when entrepreneurship started to happen in India, I used to think these are immature entrepreneurs, this environment is immature and I don’t think we should expect any real miracles. But I used to also say that the Indians are fast learners and they will get their fingers burnt and pretty soon some of them will start to emerge as seasoned entrepreneurs. So what you have is a pretty interesting environment, and a lot more interesting now than it was 10 years ago. See what has happened with Naukri.com, Indiabulls, they are some of the people who have emerged as successful entrepreneurs in the last 10 years and that is pretty amazing. And you have now an eco-system which is developed in major metros-in Bangalore, in Delhi, in Mumbai. We are beginning to see the Angel investors, we are beginning to see the small seed stage funds, beginning to see large funds and The Indus Entreprenuers (TiE) phenomenon is starting to repeat itself in various places. The nurturant and mentoring is always required because most of the entrepreneurs are first-time entrepreneurs and tend to come from non-business families and they need to understand the basics, the financials, how to do the income statement, how to do the balance sheets, how to value equity, how to hire a team and a lot more needs to be done. There is a lot more now that was not there 10 years ago.
Kamla: You also made a very interesting observation that you usually don’t mix mentoring and investing.
Kanwal: It is very hard thing to do because mentoring at least begin before you are investing, it’s a noble activity, it takes time and energ. When you mentor somebody your menti is your student, he is listening to you, he is learning from you. There is a huge potential of abuse when you tend to take advantage of the person because if you are an investor you are trying to get the best deal and if you are the mentor to someone you are trying to tell him how to get the best deal. So those two things may not likely happen together. So you know you are going to screw him or you are going to screw yourself. When I was mentoring I would not do investment in the (Silicon) Valley here. I will have somebody else become the VC, my investment should follow rather than lead. Almost all investment that I did including the one in Exodus, I mentored people and I sent them to other people for the investments. They did the negotiations and I would help them how to negotiate, wherever the deal that we are able to get through the process I would write the deal which I had not priced, which I had not done myself. Mentoring is a noble, selfless activity and investing is very much a self centred, get the best deal activity.
Kamla: Who was your mentor when you were starting your company back in the 1980s?
Kanwal: No, I did not have any mentors. I was learning as I went. One of the reasons is why we did The Indus Entrepreneurs (TiE) was it was very lonely. I had done everything from the seat of my pants and it was very very hard, very very hard.
Kamla: There was nobody that you could turn to?
Kanwal: No, it was very hard to turn to people because everybody believed that Indians were not entrepreneurs. Indian were not business people. Indians are techies. We should not be doing it. So as soon as you ask for help the first answer is why are you doing this? You are not supposed to be doing this you are supposed to be a good designer, a good programmer, a good engineer and so there was a lack of belief in us. As soon as you ask for help you have proving the point that they were making . So it was very very tough at that time.
Kamla: When do you think that change came about in the valley and elsewhere that Indians were no longer techies, but they were also capable of running companies?
Kanwal: Several of us have done well like Suhas Patil, Prabhu (Goel), and myself in the 1980s. So there was a sense that Indians can do entrepreneurship, but there was also a sense that it may be few of them who are exceptions rather than rule that Indians can do also (entrepreneurship). It was in the mid to late 1990s when the TIE phenomenon started to happen when the number of Indians believing in entrepreneurs started to mushroom. By mid to late 1990s it was a very well-established and the Indians were very good the entrepreneurs.
Kamla: Do you think it is hard to be an investor today because there is so much happening around the world? The world is in transition at so many different levels, people are talking that finally may be convergence has arrived. What is your take?
Kanwal: It is hard to be invested today because there is a lot of competition. But a good venture capitalist and angel investor will obviously do well because there is so much happening out there and you can pick and choose. You have to become a little bit more disciplined. Just to give you the math of it of the 1 to 2% of the population who start out in the population will succeed as an entrepreneur. So 98-99% chance is that average person who approaches you is going to fail as an entrepreneur. So you have to find ways to improve your odds from 1-2% to 10-20% and that means you will have to say no to the 90% of the people you see right away. And that will improve your odds from 1-2% to 10-20% and those are very good odds for the venture capitalist. You learned to become very disciplined in saying no.
You were listening to Kanwal Rekhi. Tune back in for Part-2 of the interview where Kanwal talks about his failures and success and growing up in India. This is Kamla Bhatt. This interview was produced in association with LiveMint Radio. And, as always thank you for tuning in.