Having tasted success with their investments in Indian firms, venture capital funds are in no mood to exit the country just yet and are keeping their eyes and ears open for the next big thing amid difficult market conditions. We spoke to Manu Rekhi, Principal at US-based Inventus Capital Partners , to gauge venture capital funds’ perspective on India.
Which sectors have you been investing in, in India? What do you look for when you invest?
Inventus backs entrepreneurs first and foremost, with particular interest in businesses that leverage consumer Internet and media, software-as-a-service, mobile technology and knowledge-based services to address a variety of attractive industries in India and across the globe.
We partner with entrepreneurs in India and the US to create great companies, investing in Indian talent, markets and aspirations. We are continuously looking for great entrepreneurs who have bootstrapped their company to some customer validation.
Which sectors do you see as future avenues for your investments?
We have seen a lot of success in our focus area and continue to find amazing opportunities in start-ups that leverage consumer, Internet and media.
With Internet and smartphone penetration at upwards of 15 crore users (according to a Google India report), one can argue that the market is available and growing rapidly, with opportunity-rich targets everywhere.
The large and growing market encourages entrepreneurs to build products that solve a uniquely Indian problem and one that can address problems on a global stage. It will encourage new entrepreneurs to dream and we are here to partner with them to build great companies.
Do you think investing in real estate is a good opportunity?
Our focus area and expertise lie in technology-enabled start-ups. We are not experts in real estate and hence don’t have an opinion on this opportunity.
However, we understand the challenges new companies face, first hand. We work as a team across the India-US corridor to help our entrepreneurs better capitalise on their ideas in the fast moving local and global markets.
Before becoming venture investors, each of us spent significant time leading and building world-class companies from their early beginnings. As active board members, we help entrepreneurs apply the lessons learned from our own entrepreneurial, operating and venture experiences in the sectors where we invest.
Have there been any exits?
Yes. We have had some very high profile exits. The most recent example is redBus. RedBus’ recent acquisition by MIH/Naspers signifies the coming of age of Indian Internet companies and venture-like returns for investors. It is the front-end of a wave of successful start-ups coming out of India.
As investors in redBus, we realised returns in double-digit multiples in four years. During our involvement with redBus, the company saw a 15x increase in revenue and was profitable, with less than $10 million raised in total venture financing.
The other two examples are of Sierra Atlantic and Vivu. Sierra Atlantic was an India/US company with approximately 2,000 employees in Hyderabad focused on enterprise application outsourcing.
What has been the typical size of your investments?
We typically lead the first venture round with approximately $1 million to $2 million. We also reserve enough dry powder to support the company through subsequent rounds of financing.
The Indian market has not been doing well of late. Are there any sectors that remain attractive despite this?
We have a long-term view and hence, are not swayed by short-term market trends. Our contrarian viewpoint has served us very well as some of our best investments were made during down markets. For example, we invested in redBus when there was a global market meltdown and other venture firms were holding back their investments.
Has the rupee depreciation had any bearing on India investments? What impact does it have on your current investments?
We evaluate potential returns in our companies in excess of 10x. A 10-20 per cent fluctuation in currency has minor effect on us, unlike PE firms which look at approximately 20-40 per cent returns, (for whom) currency fluctuations can have significant impact on their returns.