Availability of capital at the right time is key for startups: Mohanjit Jolly
‘There are US-based venture firms, with no presence in India so far, who are now looking to invest here’
Even as the early stage funding momentum in startups continue, 2019 saw a boom in growth stage funding, with newer venture capital funds entering this space.
IronPillar, a mid-stage, technology focused venture capital firm, raised a $90 million fund in 2018 and has fully committed the capital to eight companies. In an interview with Mint , Mohanjit Jolly, partner, IronPillar, speaks on entrepreneurship, shift in the startup ecosystem and more venture funds looking at India. Edited excerpts:
What’s the status of IronPillar’s new fund?
We had our first exit with NowFloats being acquired. The portfolio is, by design, looking at interesting and large opportunities where technology can be leveraged to create a branded leader in that particular space. On the consumer front, we have done so with FreshToHome in fresh produce and Bluestone in jewellery. Majority of the portfolio is enterprise centric with a B2B angle. We get involved in companies which are typically 4-5 years into their life cycle, our holding period could be anywhere between 4-6 years and then exit, primarily through merger and acquisition although if there is an interesting opportunity for us for a secondary sale, by selling our stake to a private equity player etc, we’ll explore it.
Have you noticed any shift in India’s startup ecosystem while investing this time around?
Just the sheer numbers of fresh college graduates, who want to start their own companies or work for startups has gone up significantly. The start-up ecosystem has matured. In 2007-09, when I was investing, it was tough to find the right kind of talent and the right kind of pool of capital, especially as the companies scaled. Then you ended up hiring people from established industries, who had no idea what a start-up culture is. Now, since there are start-ups who have already established themselves and been there for the last few years, the mindset and the skill set have changed. Young entrepreneurs who are starting out now want to create a billion-dollar company. Not just billion dollars in valuation but aiming for a billion dollars in revenue. I had not seen that or heard that before.
On the venture capital side, there is specialization that has developed, both in terms of sectors and stages of funding. For example, we were the first mid-stage tech fund for India, but since then there are others who have either ventured into this or planning to raise similar funds. There are certain sectors such as consumer, FMCG, cleantech, impact, health and fintech, which have developed as focus areas for investors.
Is this a more exciting time for investors like you?
Absolutely. If you are fundamentally a believer in building a large company because you are solving a real problem in a unique way, that can scale and provide the kind of returns that I am looking for, that’s what I get excited about. But if somebody says I want to be a unicorn for the sake of being a unicorn, that’s when my alarm starts going off.
What kind of opportunities are there today for investors?
There are massive opportunities both for “India for India” companies and “India for the world” start-ups. Just the number of companies that are founded every year continues to grow, even if there was a slight dip in 2015-16. India’s demographic dividend, its young, aspirational people, democratisation of technology and the emergence of incredible talent not just in Tier I cities but also small cities and towns as well, is exciting and lends itself to big opportunities for investors. When companies (like Servify or Uniphore) from India, scale by going after massive global markets, and if they get the right kind of talent, these are billion-dollar revenue opportunities.
I think there is going to a massive uptake in gaming, for example. Healthcare is interesting, especially in areas such as remote healthcare delivery and patient monitoring. I am also a big fan of unsexy enterprise software segments, which leverage technology and create disruption. There are businesses such as human capital management, contract management, infrastructure management, which are typically in the back-end. Sometimes, you can also build interesting businesses without raising any or very little venture capital by leveraging network effects or strategic distribution partnerships.
How important is profitability when companies are on a growth, fund-raising path?
One of the key things for a startup is ample availability of capital at the right time. If you continue to show that you are a leader in an emerging market/sector, then you may have the luxury of raising large amounts of capital, and you may need to raise that capital to continue to maintain the lead, especially in a ‘winner take all or winner take most’ sector. However, there are times when entrepreneurs give up a big chunk of their company upfront, and therefore become very dilution sensitive. The nature of investors also matter and at what stage of their funds are they investing. Entrepreneurs may not always realize these dynamics.
I am a believer in companies where there is a business model which leads me to believe that there is a path to profitability in the mid-term. Once I know there is a line of sight to that endpoint, then I know that the business itself works. If a company is capital intensive, and believes in growth with speed over efficiency, that’s great, if one can see the business actually working. For enterprises, we have to see the product market fit, business model that is working and the profile of initial customers they already have.
What are the concern areas for start-ups today?
The biggest concern for me is around people. On the part of entrepreneurs, there is often a lack of self-awareness and thinking that you can or need to do it all. It’s great to have the vision and aspiration that I can build something large, but one needs to acknowledge that one needs to bring in people alongside. Most entrepreneurs want to be a Mark Zuckerberg but not everyone can be. The other concern is when there’s too much capital, it changes the person and their behaviour and the need to spend it all. One needs to be authentic and stay true to one’s vision. There are down-to-earth, low-key entrepreneurs who have built massive businesses from India.
How has venture investing changed over the years?
India has gone through four phases of venture investing. There was tourist investing, which includes the first venture investors in 2003-2005 from U.S, who visited India, invested and went back. Then came, satellite investors, where decisions were made in U.S. but there was a partner stationed here, which is how I came to Bangalore to set up DFJ’s (Draper Fisher Jurvetson) India office in 2007.
Then came, acquisitions and home-grown ventures and finally, today with some home-grown investors getting bigger, a new wave of overseas investors are dipping their toes in India. But these new investors are doing it alongside other existing investors, who they trust, in the respective companies. There are U.S.-based venture firms, with no presence in India so far, who are now looking to invest here.
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