Mumbai: In 2003, some years after the dotcom bust, Ash Lilani led a delegation of 20 of the top venture capitalists (VCs) of Silicon Valley into India, billed a first for most on the trip, to show them the “good, bad and the ugly” side of the market here. About half the firms that came along then, including Sequoia Capital, Mayfield Fund, Norwest Venture Partners and Bessemer Venture Partners, have set up India offices now.
Lilani, head, Silicon Valley Bank Global, the international businesses unit of the $5 billion (Rs21,500 crore) SVB Financial Group, has helped strike close to a dozen deals here in India since 2004 co-investing with other VCs from the $54 million SVB India Capital Partners Fund. The group is awaiting clearances to launch its venture lending business in India. Lilani spoke to Mint about its plans, the market slowdown and why it is a good time for investing. Edited excerpts:
Partnering growth: Ash Lilani is upbeat about future prospects in India. (Photo: Hemant Mishra/Mint)
What will be the basis for venture lending?
The concept is not very new globally, but in India it is. Usually, (a company) uses equity for growth and debt for physical assets, for things that don’t generate the same returns, like buying equipment and opening offices. The actual and perceived risk is very different in this business. Banks expect to see three years of cash flow and profitability; we believe in lending against growth. We look for barriers to entry and a good management team. We are betting on the value of the enterprise or the IP (intellectual property) going forward, rather than assets today.
How will you go about it in this market?
The goal is that we will start the initial programme and work with the funds we know, which understand venture lending. We are not going to do venture lending just by ourselves, it is always going to be in partnership with a fund. There are a lot of smart entrepreneurs in the market and we are very excited. Our goal is to eventually become a bank, down the road. Again, we will focus exclusively on venture capital and technology, we won’t do consumer.
How will the market slowdown impact deals here?
I don’t think the subprime crisis is over yet, there is still going to be a shake-out. Growth is going to slow down as price of oil and cost of debt goes up.
But even if there is a slowdown, there are enough smart investors who will be patient. I believe it will be a great opportunity for investing, because good companies will stay good companies. The biggest difference in the Indian slowdown versus the Internet bubble bursting is that (during the bust), hundreds of companies were left with nothing. There were no barriers to entry and no customers. If you look at the companies VCs are investing in now, they’re all growing at 40-60%, a lot of them focused on domestic markets, not global.
What’s the worse thing that can happen if the market completely slows down? Companies will grow a little slowly, it will take longer to exit but these companies will not go out of business. People like us will be aggressive investors in a down market.
How have you seen the venture ecosystem evolve?
In June 2003, I hosted a dinner in Bangalore and got every venture capitalist and CEO of major technology companies in the country to come down. We had 22 people. Today if I did the same, I would probably have 250-300 people. That shows the magnitude of growth. In 2005, the year of the fly-in VCs began.
In 2007, people said we have to be local. (Firms) hired senior people here or raised domestic funds. I think in another two years, this will be a local business and fly-in VCs will not work because the deals are here. More and more, there are opportunities to invest in Indian companies focused on India, not just cross-border.