Alok Mittal’s second coming4 min read . Updated: 30 Sep 2015, 10:49 AM IST
The former entrepreneur turned venture capitalist comes full circle with Indifi, a debt financing platform for small businesses
In June last year, Alok Mittal decided on two things. One, he would not be a venture capitalist anymore. Two, he would create a bigger impact than he had ever done in all his years in the business.
Earlier this month, more than a year after he quit venture capital firm Canaan Partners, Mittal, 43, finally turned the page to the next chapter of his life.
“We’re live now," he says, over telephone from his home in Gurgaon. “We" is Indifi (in-dee-fee), Mittal’s new entrepreneurial venture, a platform that aims to connect small businesses with formal lending institutions such as banks.
How small is small? “It could be a streetside travel agent, a kirana store, a small restaurant, or even a handicrafts maker."
Essentially, any business that needs unsecured loans to finance working capital and is not currently serviced by organized lenders. The addressable market, Mittal says, is significantly large. A 2012 International Finance Corporation report estimates the gap in financing for the micro, small and medium enterprise (MSME) sector in India at $380 billion.
Mittal and his co-founders—Siddharth Mahanot, former executive vice president at Indiabulls Housing Finance Ltd, and Sundeep Sahi, former chief product officer at BSB Portal Ltd—want to take a crack at solving that problem from their modest 700 sqft office in Gurgaon. “It’s eight of us right now, mostly in technology. And, we make our own coffee," he says, clearly excited to be back in startup mode.
Indifi, or Indifi Technologies Pvt Ltd, will begin by rolling out services for the travel segment. Travel agents will be able to access loans between ₹ 2 lakh and ₹ 50 lakh from banks and other regulated lending entities that are registered on the platform. Indifi will take care of loan origination, collation of data, documentation and collections, for which it will charge lenders a fee.
It took Mittal and his team about six months to scope out just the travel segment, identify its specific problems and come up with solutions. One of the things that they discovered was that most travel agents have to deal with a gap in their working capital cycle because of payment delays at the customer end. Such agents will now be able to access specifically designed 30-and 60-day loans through Indifi.
In the next couple of months, the platform will open up products for at least two more small business segments.
But why debt financing for small and micro businesses? It’s a fairly unconventional shift for somebody who went from being a successful dotcommer to venture capitalist at the turn of the decade. “When I left Canaan in June, the intent was to set up an operating company, get my hands dirty again," says Mittal, who co-founded and built jobs portal Jobsahead before it was acquired by NYSE-listed Monster.com in 2004.
The urge to start up again, though, wasn’t the only factor that led to Indifi. Mittal’s exit from Canaan wasn’t an entirely pleasant affair.
When he left last summer, the Connecticut-based venture capital firm was in the middle of re-evaluating its nine-year-old India operations. It had stopped making new investments and was making up its mind about whether to launch an India-specific fund led by the local team. Until then, Canaan invested here from its global funds and had already pumped about $170 million in 15-odd companies including Matrimony.com, Happiest Minds Technologies and iYogi. Canaan’s introspection stemmed from its dissatisfaction with the performance of its portfolio in terms of returns.
As things turned out, Canaan eventually decided to exit India and put its entire portfolio on the block. The portfolio was reportedly acquired early this year for $200 million by JP Morgan Asset Management.
The whole affair left Mittal with a bitter after-taste, though he doesn’t say so in as many words. “The venture capital process is very exclusive. There are tens of thousands of entrepreneurs sitting out there that need the support that venture capital provides to a few thousands.". The only way to enable those entrepreneurs to access capital, he says, is some scalable model of debt financing. Indifi, he thinks, is that model.
It took him some time, though, to get to Indifi. After Canaan, he worked on multiple ideas in parallel. Out of 20-odd ideas that he evaluated, three emerged as the most attractive and closest to his objective of solving a big problem that ordinary folks were facing. One of those was in healthcare, around chronic disease management, another involved supplementary education and the third was debt financing for small businesses.
By August, he had started scoping out the opportunity for the debt financing platform. It helped that by then his first co-founder, Mahanot, was on board (Sahi, the second co-founder and the team’s technology brain, joined in March). Mahanot has extensive prior experience in credit underwriting small business loan portfolios at institutions such as Citi and Edelweiss. Together, they crisscrossed the country, talking to small business owners about their problems with financing.
“Most of my time now is spent on the field," says Mittal, who clocks in at his desk by 8am every day. The early start allows him to pack in 70 work hours every week and still spend time with family.
Attention to family is not the only thing that’s different about starting up this time. The first time he started up, with Jobsahead, the decision to quit his job as technical lead at Hughes Software Systems (now Aricent) was taken over one evening. “A lot more thought has gone into this one," he says, and then adds, “though I don’t in any way claim that it changes the probability of success or failure."