Mumbai: When Avnish Bajaj, managing director at Mumbai-based Matrix Partners, was an entrepreneur, he believed that venture capitalists (VCs) didn’t work hard. “I had this misconception that they were out golfing and on these various boondoggles,” he says.
Now on the other side of the fence, he obviously knows better, but his experience as an entrepreneur—he founded online marketplace Baazee and sold it to eBay in 2002—who has worked closely with VCs, gives him a few valuable insights. For instance, he’s sensitive to the fact that entrepreneurs don’t like being micro-managed by over involved VCs. Bajaj is not the only one in the country’s recently revived venture capital industry who thinks along such lines. In the past 12-18 months, entrepreneurs across India have found themselves discussing business plans with people who seem to know what they’re talking about—shaping businesses out of ideas. We call them entrepreneur-VCs—folks who built and sold their own start-ups, sometimes more than one, before turning VCs themselves.
Start-ups who have been funded by such VCs in recent months have often found the relationship go beyond doling out dollars. Bangalore-based JiGrahak Mobility Solutions, for instance, was able to hire a couple of senior managers with 10-12 years of industry experience because of references by its VC, Helion Venture Partners Llc. “One of the good things about Helion is their ability to understand the business cycle,” says Saurabh Jain, CEO, JiGrahak. Helion, in fact, was the first VC in the country to be formed in the classic Silicon Valley mould. Two of the four founders—Ashish Gupta and Sanjeev Aggarwal—are seasoned entrepreneurs. Gupta co-founded Silicon Valley start-ups Junglee Corp. (acquired by Amazon in 1998) and Tavant Technologies Inc., before relocating to Bangalore last year. He’s also been an angel investor in several start-ups, among them Gurgaon-based Daksh eServices Pvt. Ltd, which Aggarwal co-founded and sold to IBM in 2004. They are backed by Kanwaljit Singh, who led marketing operations at Unilever and Intel Corp., and Rahul Chandra, the only one with a pure VC background. “Our approach to deal making is to see what problem the start-up is trying to solve,” says Singh, a learning from his Unilever stint. Today, Helion, headquartered in Bangalore and Gurgaon, is the fastest early-stage deal maker, with 10 deals since its launch last August.
The phenomenon of entrepreneur-VCs, if it persists, could change the way start-up businesses are built in the country. Even more so because such VCs take their cues from the Silicon Valley, where almost all the top quartile venture capital firms are founded and led by former entrepreneurs. The Valley’s success at shaping pioneering companies out of garage start-ups is rooted to a large extent in the character of its VC community.
In recent months, many of the Bay Area’s top quartile investors have set up base in the country and their local teams are usually led by former entrepreneurs. Examples include Alok Mittal, co-founder of jobs portal Jobsahead (acquired by Monster Inc. in 2004), who now heads Gurgaon-based Canaan Partners, serial entrepreneur Vani Kola (RightWorks, NthOrbit) at Bangalore-based NEA IndoUS Ventures and Nikhil Khattau, founding CEO of Sun F&C Asset Management (sold to Principal Financial Group in 2004) at Mayfield Fund in Mumbai. Others, such as Norwest Venture Partners, Kleiner, Perkins Caulfield & Byers, Draper Fisher Jurvetson and Bessemer Venture Partners are in the process of setting up local teams here.
The current generation believes that their experience will make this era of investing far more successful. “In the first (dotcom) phase, people did not have operating backgrounds and that diminished the value they could bring to the table,” says Canaan’s Mittal. While, on the one hand, they have a nose for deals because they were once on the other side, their backgrounds prove more handy post-deal. “If it is an Internet company, I can sit in on strategy and get into details of search engine marketing,” says Bajaj. Bangalore-based 4 Interactive, an Internet and mobile start-up that Matrix has invested in, agrees. “In our space, there is not enough market research data available and the only way to find out is through experience,” says co-founder of 4 Interactive Shriram Adukoorie .
Venture capital investing this round is also different in terms of deal types. Deal sizes are more proportionate to the stage the company is in. So, in early stage funding, deal sizes have become smaller, but the number of deals has grown. “Looking back at the group of investors then, most of us were new to the space,” says Sandeep Singhal, director, Nexus India Capital. Singhal was part of the Rupert Murdoch-backed venture capital firm eVentures India in 1999-2000. Post-bust, Singhal co-founded health care services firm Medusind Solutions, an experience he says gave him a better understanding of the finer details of working with entrepreneurs.
But it is not a given that all entrepreneurs make good VCs. “A lot of entrepreneurs, particularly those who had not scaled up their companies, can be bad investors. They think they know the answers, but they don’t” says Naren Gupta, managing director, Nexus. He believes a well-rounded investment team should have experience both on the financial and operations side. Gupta co-founded embedded software company Integrated Systems in the US in 1980 and took it public in 1990 and has been a VC and angel investor in the US since then.
The jury is still out on whether India’s latest experiment with venture capital investing will bear better fruits than the first round. Meanwhile, a few successful exits since the dotcom bust—such as Monster’s acquisition of Jobsahead.com in 2004 and India Infoedge’s IPO last year—give the country’s entrepreneur VCs hope that there will be more this time around.