Harshal Shah, chief executive officer of Reliance Technology Ventures Ltd (RTVL) and a member of the leadership team at Reliance-Anil Dhirubhai Ambani Group (R-Adag), speaks about RTVL’s new sector focus, the performance of portfolio firms and exit strategy for travel services firm Yatra Online Pvt. Ltd, India. Edited excerpts from an interview:
RTVL began as a corporate venture capital (VC) firm focused on the technology and mobile sectors. It is now diversifying into other sectors. What has triggered this?
When I looked at investing into technology in 2005, our mothership was Reliance Communications (Ltd). We had access to knowledge of the ecosystem—customers, suppliers, contracts, nature of financing and so on—as Reliance Communications was a tier I and well-established mothership. That is why we started focusing on tech and telecom.
Beyond tech: Shah says that outside of IT and telecom, some interesting areas are retirement homes, real estate and defence.
Subsequently, the other businesses of the Reliance-Ada Group—Reliance Capital (Ltd), Reliance Infrastructure (Ltd), Reliance Energy (Ltd), Reliance Natural Resources (Ltd), Reliance Power (Ltd), Reliance Media and Entertainment—started to grow. We again had access to the same kind of knowledge and experience in these businesses. So it made sense for us to look at other sectors. We believe that information and knowledge is an incredible competitive advantage for us.
Which sectors look attractive?
It’s very difficult not to see technology as an underlying theme for most of the businesses. But outside of IT (information technology) and telecom, some of the areas that I find interesting are retirement homes, clean tech, real estate infrastructure enablers, aerospace component or equipment makers and defence.
How did your portfolio companies fare in the economic downturn?
I don’t look at venture capital as an investing business. It’s actually a customer service business. The customers are our portfolio companies, entrepreneurs and the top management team. It would be pretentious to believe that we are the only people with money. We believe our money is smart money and if we can go across servicing our customers, then we end up making our money greener than anyone else. This makes our model very different from a lot of other VC firms.
Every single portfolio company of ours, despite the worst downturn last year, has seen an increase in valuations, taken away market share from its competitors and hired employees. If you look at the average IRR (internal rate of return) that has been generated by VC firms for vintage 2006, the returns have been negative 50%. Our annualized IRR is in excess of triple digits at this point of time across the portfolio companies. Not a single portfolio company of ours will be a dud. Our model is fool-proof.
How is Yatra (a portfolio firm) faring against other online travel agents. Is an exit on the cards?
Yatra is a leader in terms of market share and it enjoys the highest customer awareness and retention. People find the Yatra interface most comprehensive. We are making (a) good amount of money in Yatra. In fact, we have a large amount of cash in the bank now.
Should I exit this now or not? The way I see it is that should we continue to increase our IRR in the investments or not? Now, there’s a company called C Trip (Ctrip.com International, Ltd) in China, similar to Yatra. Started in 1999, it got listed in 2003 at Nasdaq at a market cap of $300 million (Rs1,404 crore), and it eventually became a billion-dollar company in 2009. IPO (initial public offering) is a possibility, but not a given at this stage. In a year or two, it could happen.
What are your recent investments?
We are seed investors in Scalable Display Technologies Inc., founded by Rajeev Surati. He is to instant messaging what Sabeer Bhatia is to Hotmail. Just when Bhatia sold his company to Microsoft (Corp.), Surati also sold his company Flash Communications to Microsoft. What we use today for instant messaging is based on his (Surati’s) technology.
As part of his thesis at MIT (Massachusetts Institute of Technology), he wanted to come up with better forms of projections to be used for the media and entertainment industry. He has 12 PhDs working with him and he also has a full-time MIT professor on the company’s board. Scalable Displays has already broken even.
So if you connect normal projectors with Scalable’s software, it actually eliminates the need for having screens. This company has got contracts from the US department of defence and from Japanese companies such as Sony (Corp.), Hitachi (Ltd), Toshiba (Corp.) and others.
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