If you want to do something, don’t over-analyze it! We do mostly Series A Funding! Helion Ventures #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India. This interview is done with inputs from Shashi Bhagnari.

think-investor-helionHelion Venture Partners is a $600 million venture fund focused on India with offices in Bangalore and Delhi. The company is an early to mid-stage investor in Indian startups in sectors such as Enterprise software, Internet, Mobile, Outsourcing, Retail, Education and Financial Services. In a conversation with iSPIRT, Helion’s Alok Goyal, Partner, talks about the company’s funding strategy, evaluating projects and making the right investments.

Tell us about the company’s background. What is its focus? What is your current fund? What is it looking at?

We formed the firm in 2006 with four founders that included Ashish Gupta, Sanjeev Aggarwal, Kanwaljit Singh and Rahul Chandra. Besides our team of analysts, our CFO doubles up as an operating partner for finance. We also have an HR advisor who works closely with our portfolio companies. We recently got someone in Product Management from Google to help portfolio companies. We are now a group of 15 people and have our offices in Gurgaon and Bangalore in India.

We focus our investments on early to mid-stage ventures, investing in technology-powered and consumer service businesses in sectors like Outsourcing, Internet, Mobile, Technology Products, Retail Services, Healthcare, Education and Financial Services. We have done about 60 investments so far.

In our current fund, we have raised about $250 million. The focus of this new fund will be divided between technology side and tech-enabled consumer investments. We will continue to look at Internet services like Makemytrip where we invested earlier, taxi services like TaxiForSure etc.

What’s your strategy on verticals? How do you characterize them?

Within e-commerce, we are bullish on Internet-only brands and marketplaces. For example, YepMe–a Web only brand focused on tier two and tier three markets. We have also invested in a venture called ShopClues which is an eCommerce marketplace.

Within consumer services, we have invested in consumer facing travel ventures like TaxiForSure. We have also made an investment in a company that makes planning travel experiences much easier. We have also funded a housing and real estate venture, Housing.com.

What stage of investment are you most interested in? Seed funding or later stage investments?

We are mostly the first or one of the first institutional investors in the company. Our sweet spot would be Series A or Series B funding. I would imagine 70 to 80 percent of our investments are in Series A. We invest between $10 to 20 million over the lifetime of an asset.

Any interesting investments you have made recently?

We had been looking at investments in the healthcare sector for a while now. We have recently invested in Denty’s, a chain of dental care units. This Hyderabad based company focuses on dentures, jaw replacement and other high end dental care treatments.  We have also invested in the area of enterprise mobility, in a company called Rapid Value that provides services in the area of mobilization of enterprise applications. Another recent investment is Linguanext, which has created a unique technology for language translation. It allows Independent Software Vendors (ISVs) and enterprises to translate any application from one language to another without any changes in the application itself.

How do entrepreneurs get in touch with you? Is there a defined process they need to follow?

Entrepreneurs are at the heart of the venture capital eco-system. It is as much or more of our job to find entrepreneurs than they reaching out to us. In fact, we use a lot of our bandwidth to get to reach out to entrepreneurs.

Entrepreneurs are most welcome to reach out to us directly. There are two ways entrepreneurs typically get in touch. First is through our personal network. Second way is through bankers. We also like to make ourselves visible in forums and events so that entrepreneurs can reach out to us and we can reach out to them.

We also have a strong outbound program through a team of analysts.

What is your due diligence process? Is it specific to all?

We view around 1500+ business plans each year. The process is similar for most. Usually the first meeting takes place with one of our analysts, unless it comes from personal contacts. Different analysts focus on different areas and they all gain a good idea after the first meeting, which is then followed up with another meeting with one of the partner(s), to understand the business better.

Due diligence for us is more Market Diligence. We also do primary research, secondary research and make reference checks. After we are through with the entire due diligence, we invite the entrepreneurs to present their business plan to the whole team.  If the partnership is positive, we issue a term sheet after which financial/legal due diligence cycle along with documentation is completed.

The entire end-to-end process is completed within a month and a half typically.

How do you interact with your entrepreneurs? Is there a process outlined for this?

Investment is not only about money. We have developed reasonably strong relationships with our entrepreneurs which begins when we start the process of due diligence. We have both formal and informal interactions on a periodic basis.

In the early stages, face-to-face meetings are held every quarter, in addition to monthly calls. But outside of that, we do not interfere in their work at an operational level. But entrepreneurs reach out to us whenever they need help. For instance, if they need clarity on product direction or to connect with other prospects, they contact us. Those interactions are in fact, quite regular. However, I personally find myself being in touch with them on a very regular basis.

Do you have any avenues where you meet your portfolio company CEOs informally during the year?

Yes, we are doing this once a year. We have also started to form groups now. For instance one group that focuses on product management can share tips with portfolio companies in that area.  We also reach out to our portfolio companies through webinars.

Tell us about your recent exits? What do you think of the climate for exits in India like?

We are just an eight years old entity, so there have not been too many exits. Our first was an IPO exit from MakeMyTrip when they went public. We also exited redBus when it was acquired by Naspers. Then we got out of Amba Research. We are hopeful that the market climate in the next few years will get a lot better for favorable exits.

What excites you about entrepreneurs these days, and what is it that you like to see in them?

In all my discussions there is a general belief that the quality of entrepreneurs has gone up significantly. We are also seeing a whole class of entrepreneurs moving back from the US. We are seeing a generation of entrepreneurs starting their second ventures now. Their scale and thinking is different, very bold.

What we’d like to see is stronger talent in Product Management. It is relatively more difficult in India compared to a place like the Bay AreaWe are also not seeing as many deep technology assets. What we are seeing are more applications based and light IP based businesses from India. Over a period of time, I have no doubt that India will create more deeper technology companies as well.

What advice would you like to give young guys who want to start a new venture?

You should ask yourselves if you have the entrepreneur inside you or not. If you are over analyzing, you are probably not. An entrepreneur has to be “foolish” enough to purse the dream besides being passionate about it. If you want to do something, don’t over-analyze it. The important thing is the ability to take the plunge.

Entrepreneurship is not a solo sport; but a team sport. You need to find complementary capabilities in others. The bottom-line is that you should be able to pull together a team that has complimentary skills and the same passion to do it.

A startup is successful because it is focused. Defining that focus is important. Startups succeed because they choose a specific market segment or a specific problem or a specific customer set etc. and serve that market better than anyone else.

Lastly, it is important to be close to the market. You need to continuously listen, learn and act with agility. It is important to be able to iterate quickly. 

#TheWayForward for M&A in India

2013 was a hot year for Global Technology M&A:   204 announced Tech M&A deals took place at an overall valuation of ~$100B, of which 70% were pure software companies. Thanks to a strong stock market, 51 Tech IPOs took place in 2013.

The story for the India software product industry has been different. Despite huge innovation and rising entrepreneurship, most Indian product companies have lacked meaningful exits.

ThinkNext CorpDev PanelLast Friday, I hosted the M&A Panel at Microsoft Think Next in Bangalore, with a very interesting setup: 2 VCs, 2 entrepreneurs and 2 Corp Development folks from MNCs.   The theme of the discussion was “The way forward for M&A for the Software products out of India”.    Our star panel consisted of Ashish Gupta (Helion Ventures), Bharti Jacob (Seedfund), Ken Foo (Autodesk), Prashant Gupta (Microsoft), Sanjay Shah (Invensys Skelta) & Phani Sama (Redbus).   We had a marquee audience of VCs from IDG, Lightspeed, Qualcomm, Inventus etc. who contributed their insights and really made the discussion lively!

Here is a glimpse of the insights generated during the panel:

– “Discovery” continues to be problem #1 for India software product companies.  Most Indian startups don’t show up on the radar of the big US acquirers. Autodesk first discovered Qontext (their marquee acquisition in 2012) through analyst reports in the US, and didn’t know they were an India company until later in the process.
– Corp development folks are mostly agnostic to the location of the company.  As Ken Foo from Autodesk put it, “we don’t start our day thinking:   today I will acquire an Israeli company … or an Indian company”.  They are looking for a specific product or technology fit & location is secondary.
– One interesting insight was the Investment bankers didn’t really seem to play a role during the discovery process, and all of the participants (buy side, VCs and entrepreneurs) felt that startups shouldn’t expect a banker to help with strategic engagements.  iBanks do play an important role in helping negotiate the deal and running the process to a positive conclusion.
– Acqui-hires (acquisitions with the sole intent of acquiring engineering talent) are extremely hot right now, due to the shortage of big data, analytics & android/iOS engineers.  Obviously, VC investors are less excited about acquihires & view them as a “last option”.  As Ashish put it, a VC will entertain an acquihire deal only when he believes that scaling the company is no longer possible, and the company is in danger of running out of cash.  On the other hand, Corp development folks at the MNCs view acquihires as a ‘badge of pedigree’ for the founders!
– Entrepreneur readiness continues to be a challenge during the M&A process.   Indian entrepreneurs traditionally are techies and don’t spend time building a clear differentiation story or preparing themselves for organizational and financial diligence.  iSPIRT does offer an “M&A hotline” to entrepreneurs where we formally provide advice in the event of an inbound M&A interest.
– A new generation of MNCs: Traditionally, MNC companies have established captive R&D centers in India (eg: Intel, Cisco) and then looked at M&A to enter the India market or identify new technologies.   However, the panelists beleived that M&A activity in software products will be driven by a new generation of MNC companies, such as Facebook, Salesforce, Autodesk etc. who have limited or no presence in India, and are looking to use M&A as a means to acquire global talent and/or establish a presence in India
– Future M&A:  Based on the “Virtual Mandates” that iSPIRT has received, we believe that future technology M&A is likely to happen in the areas of Machine Learning & Analytics, SaaS disruptions like HR and Recruiting, Cloud Infrastructure & Mobility.   Companies that have aggregated large groups of customers & partners within India (small medium businesses, classifieds, consumers for finance etc.) are also interesting for acquirers.

I enjoyed the frank conversation & clear thinking from the panelists, and left with a  huge amount of learning and ideas that I will use to guide iSPIRT’s M&A connect program.

The redBus Founders on Motorbikes Story! Interested in India Domestic Consumption Start Ups! Seedfund #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

Seedfund is an early-stage venture capital fund, with operations in Bombay, Bangalore and New Delhi. Seedfund was founded in 2006 by Bharati Jacob, Mahesh Murthy and Pravin Gandhi and the team has grown to include Paula Mariwala, Sanjay Anandaram, Sarabjeet Singh, Shailesh Vickram Singh and Tarana Lalwani. All Seedfund team members have been entrepreneurs at some point or the other in their careers. Seedfund investees include AFAQS, CarWale, Chumbaka, EduSports, Fetise, Frontier Markets, Healthizen, Heckyl, Ixsight, Jeevanti Healthcare, Jeeves, Level10 Comics, Lifeblob, myDentist, Nevales Networks, Printo, redBus, RupeeTalk, Sportskeeda, ThinkLabs, Uhuroo and Vaatsalya.







ProductNation sat down with  Sanjay Anandram, Venture Partner of Seedfund for this interview.

Here’s what we heard :

What is Seedfund? Tell us a little bit about your fund, stage, investments you like? How are you structured? What’s your current fund? How far along are you in your current fund?

The name Seedfund implies only seed funding but really is a seed or early stage fund that likes to get in early and stays on through multiple rounds of funding. We can invest up to $5M in a company. The sector is India Domestic Consumption – anything that the Indian consumer spends money on; financial services, entertainment, travel, hospitality, healthcare, education, etc,. We are structured like a regular VC fund. Our first fund was a small $15M fund but our second and current fund is $55M. The first fund is nearing its end of life and the second fund is about 2 years and 10 months old.

How do you get to know companies and entrepreneurs? What’s the best way for an entrepreneur to get in touch with you?

Sanjay-AnandramWe are less driven by broad trends than by the specific opportunity and the category we find them in. In many cases, we have invested in companies that created a whole new category. For example, when we invested in redBus, there was no category called Bus Ticketing Services but they created one! Our investment in Vaatsalya created a category called Hospital Chains for Tier 2 and Tier 2 towns. Our investment EduSports created a category for Physical Education Services for schools. Sportskeeda is a Sports Online Community site. All these have been started by people completely embedded in that space.

We have a large network and many companies and entrepreneurs we get to know through referrals. We also have a number of companies approaching us directly also. I started in 1999 an online magazine aimed at entrepreneurs. In 2002 I started one of India’s first VC fund called Jumpstartup. Since 2006 I have been associated with Seedfund as a venture partner. All of this means that we have been long enough in this space to build a large network and get to know people. That’s how we get a lot of referrals and many of them come in directly as well, through email for example.

How long does it take for you to do the due diligence process? What is your due diligence process?

At the stage of the companies we are dealing with, there is usually not a lot of due diligence we could do because many of our portfolio companies create their own categories. That said, we place a few phone calls to check out the space a company is in, any competition they may have. Apart from the usual things like checking out the team, sometimes, we may need to clean up existing company structures if they have involved a lot of friends and family investments. Sometimes companies need time to pull things together for us to do due diligence. All of these typically take from about 3 to 5 weeks time.

What kinds of interesting new categories are you seeing in India? Exciting business models, technologies?

There are two ways to look at the categories we see – one could be the mode of delivery – cloud, mobile, SaaS, etc. The other is along verticals that correspond to consumption of the Indian consumer – financial services, education, healthcare, entertainment, travelThe interesting companies we are seeing deliver something faster, better, cheaper to the Indian consumer in these verticals using one of these delivery methods.We are not seeing a lot of fundamental technology advancement plays from India. We are seeing  more innovations in Business Models, throwing together unusual methods of delivery being the innovations.

Although we are focused on the Indian market we have invested in a company like Heckyl that provides financial analytics that includes social media targeted towards brokers and traders. This company has international markets in its scope.

We are very excited about Chumbak, a designer, a brand and a retailer that does India designed Motifs and colors. They have a presence in Japan, have retail stores also in addition to the online one and growing extraordinarily well. Chumbak is creating a brand new category for Indian designed, Indian made products. 

AxisRooms is a one of a kind cloud-based start up in the hospitality industry. It enables an exchange for price and inventory discovery to bring together agents and consumers in the hospitality industry with hotels in real-time. Till now there has never been a single place where all travel agents, consumers and hotels can interact, transact business, and get contracts done.

Sports advertising market is about $800M in size and growing at 25% per year. Sportskeeda is right in the middle of this market to serve consumers with a multi-sport content and community platform. Jeeves is a portal for in-warranty, extended warranty and out-of-warranty appliance repair in India.

What caught your attention about redBus? Any stories or interesting pivots you want to share about that company?

There are a few remarkable things about redBus. They proved that you can build a large company in a very ethical way, focusing only on the Indian market, and building a strong consumer brand without splurging money on marketing and advertising. They also proved that it is possible to create a category by co-opting all the players – the bus operators, consumers, ticketing agents and the Government. It wasn’t easy at all; they had lots of roadblocks but they overcame all those! They made a high-end service possible for the end consumer and at the same time, made it transparent to the bus operators how much money they can make by using redBus, and where their weak points were with consumer feedback. Now a lot of the bus operators’ growth is tied to redBus’ growth and vice-versa, a symbiotic relationship! It was a very unorganized, unprofessional, not transparent business. redBus made it a transparent, democratized one!

Here’s an not often mentioned story about redBus: It was one of those early days when they were selling 30 to 40 tickets a day which was really, really small.  As happens in small start up companies the co-founders were helping man the customer service phone lines one evening. They got a very angry call from a customer whose Bangalore to Mumbai bus was cancelled and he was stranded in the middle of nowhere with his luggage! It was late at night and Phani, and one of his other co-founders got on their motorbikes and met this irate customer where he was. From there they took him and his luggage on their motorbikes to Bangalore airport, bought him a ticket on a late night Air-India flight to Mumbai and saw him off! Although they were not directly responsible since the bus operator was the one that cancelled the bus, they took it upon themselves to make sure that their customer was treated right! The customer reached Mumbai, wrote them a nice letter thanking them for their service and has been a loyal customer since!

Another remarkable thing about redBus is their commission structure for the tickets they sell for large bus operators and smaller ones. It has been the same and they have resisted lowering it for larger operators that bring them more business or increasing it for smaller operators that don’t bring them that much! It is always a standard transparent one for all of the operators. They have done this in spite of intense pressure from larger and smaller operators alike! Over time everyone understood the value of a transparent, consistent commission structure.

The point I am trying to make is that it is possible to conduct business in India this way – ethical, fair, transparent and consistent!

Once you have invested in a company, what’s your engagement model? How do you interact with these companies?

It’s informal and easy-going (but not at all lax). We focus more on helping the portfolio companies build their business rather than manage from spreadsheets. We focus on strategies and tactics for the company; hiring, customers, business model tweaks, what would the next round of financing look like, partnerships they need to create, what kinds of mentors and advisers they need to bring on board, etc,. We see ourselves as partners rather than investors who write a check, and disappear.

There are formal board meetings with the companies on a pre-arranged calendar. Beyond this the informal interactions are all driven by the entrepreneur needing us to help with something. We share interesting anecdotes, articles, meeting minutes, etc,. Apart from these, we do have CEO meetups a few times a year where they share problems, solutions, experiences, lessons learned, especially in the areas of hiring, sales, etc,.

Let’s move to exits! How do you help them prepare for exits? Do you prepare them for exits?

We believe that you build a good company the exits will suggest themselves automatically! CarWale built a good business around a portal for buying and selling new and used automobiles. The German group Axel Springer and the India Today group did an acquisition.  With redBus we were out raising funds when the Naspers group came along and acquired it.

There is no general preparations for exits. Our responsibility as investors is to see the company grow and if they grow well, exits will happen automatically.

What are your thoughts on what’s happening in India? Advice for entrepreneurs and start ups? What’s your advice for people leaving stable jobs for start ups?

There is a lot of activity in India currently. However, we advise entrepreneurs not to get too excited after reading TechCrunch and things happening in Silicon Valley! You need to be excited about opportunities that happen in India! There are enough problems to be solved right here. The customers are here, you can build partnerships here. It is important to be grounded and present in the market for you to build something worthwhile.  It is possible to build big,  interesting companies, businesses right here in India. But for that to happen, you really need to understand the customer problem you are solving and why they would write a check for your business. A lot of youngsters get excited about what’s going on in Silicon Valley. But you should be spurred by customer problems here, not what’s happening in some other market.

You don’t do a start up because you want another job. Not for sex appeal or the glamour! You do it for the passion. You do it because you want to do it! You may need to get used to downsizing your life significantly. You may not have the same compensation and others things that go with a stable corporate job. You may need to deal with social pressures because your friend continues in a corporate job and has bought a brand new house and a Mercedes recently! I have written extensively about these economic and social pressures, why should you be an entrepreneur,  and should you be an entrepreneur. When your passion to go out and do something is greater than the analytical assessment of all these costs, you should do it! You will have to deal with a lot of emotional issues such as self-esteem.

Think of all the possibilities! Don’t let constraints come in the way! It is easy to blame the ecosystem, the lack of money, VCs, Angel Investors, etc,. This question is like asking Is it possible to climb Mt.Everest? Yes. It’s always possible. The key questions are what is required to make it happen? You need to be physically fit, you need to know the lay of the land, you need to have people who have knowledge and experience with doing it before, you need to have the right equipment, a timeline that is suitable and all other resources for such an expedition to succeed. You need to lay all of these in sequence and execute and in 18 months or so you may be on top of Mt.Everest. Constraint based thinking make us give up too soon when you lack one or more of things that are needed. Entrepreneurs use possibility based thinking to address and overcome these limitations one way or another. That’s the difference!

What’s your take on companies getting Mentors? When should they look for one?

Before answering this question it may be better to get some terminology defined correctly since people tend to use words rather interchangeably.

A Consultant is one you bring in to solve a transient, bounded problem. How do I put in an IT system? How do I do Risk Assessment? How do I design a compensation plan?

An Adviser has a longer term strategic and functional objective. What should my IT Strategy or technology be? How should I be doing my marketing?

A Mentor is a like a coach helping them become better. 

In Mahabharata, Krishna tells Arjuna to aim and kill Duryodhana below the waist. That’s a Consultant!

When Krishna give Arjuna advice on how to kill Bheeshma, he’s an Adviser!

Before the battle, Arjuna asks Krishna how he could kill his cousins and grandparents in battle. He’s very conflicted about this. Krishna’s advice then is Mentoring!

It depends upon what the entrepreneur needs. Mentors are needed for high level coaching type of advice. Not for finding customers or helping with this or that. You need to be sure that the problem you have needs a Mentor, not an Adviser and definitely, not a Consultant!

Ideas are NOT dime a dozen! At least good ones! Building an Innovation Culture! #ThinkBig

Ideas are dime a dozen! It’s all in the execution!

So goes the popular wisdom. Indian start-ups and accelerators keep talking about identifying problems and solving them. True. There are great companies like redBus.in that were built using this approach. However, there are other great companies like Twitter that were not born out of any urgent problems that people had. They developed a short-form, real-time, instant broadcast mechanism that found a thousand uses such as having quick conversations, fighting for freedom around the world, and distributing links to articles, pictures, etc,. Such is the power of ideas that go in directions you never even anticipated. The main point is that ideas are important whether they address well defined problems or someone thinks “Wouldn’t it be nice if….”. They may all lead to innovation that helps start ups scale quickly!

I had written about  this subject almost two years ago in two articles here,  in the same forum – Is your company dependent on Innovation? Grow the right Culture First! The rest will take care of itself! and  Is Software Innovation an Art or a Science? It’s Artful Science or Scientific Art! . Since then, the Indian product ecosystem has come a long way and has seen examples of great exits happening because of innovation. It may be time to enumerate different steps that start-ups could take to make sure they are building an Innovation Culture.

Wikipedia has an excellent definition of Innovation – Innovation is the application of better solutions that meet new requirements, in-articulated needs, or existing market needs. This is accomplished through more effective products, processes, services, technologies, or ideas that are readily available to markets, governments and society. The term innovation can be defined as something original and, as a consequence, new, that “breaks into” the market or society. A definition consistent with these aspects would be the following: “An innovation is something original, new, and important in whatever field that breaks in to a market or society”.

Now you can see why software product companies need to build a culture of innovation. It is key for their differentiation; essential for raising investment money, attracting bright employees and building unique intellectual property.

So how do you exactly build a culture of innovation? Here are popularly recognized steps:

Articulate a Mission and a Vision for the company rather than just end-products Pixar’s goals were to reinvent the animation industry. Facebook’s mission is to give people the power to share and make the world more open and connected.   Google’s mission is to organize the world’s information and make it universally accessible and useful. This does not mean that you encourage your employees to come in and do random things. It just sets up a framework to view existing and future products and draws the lines within which they can innovate.

Hire people who are curious in addition to having the capabilities you need –  Innovation cultures cannot be built with people to whom it’s just a job with a paycheck or people who have very narrow interests. Those kinds of people will do extremely well in services companies where a team needs such focused people on some narrow task as part of a larger team. Software product start up companies can afford only so many people and they may need to wear many hats especially at the start of the whole effort. So if you want to build an innovation culture, you need to hire people who have diverse interests and generally curious about many things. Innovation happens more often at the intersection of many interests than in a single focused discipline.

Encourage Ideas  – This sounds like a truism but it is one of the most difficult things to do in start up companies, especially with co-founders or management with strong personalities. The first time an idea from an employee is overruled or ignored may be the last time that employee speaks up with ideas again! The founders/CEO need to establish encouragement of new ideas from day 1 or it will be too late for this to happen.  It is easy to be busy with being busy in a start up company and not take the time or recognize new and good ideas as they come up in conversations and encourage them.

Encourage Autonomy – Encouraging autonomy is another way of encouraging new ideas. In fact it may be an even better one than soliciting them in company forums. Someone who is expected to produce results rather than dictated steps to get to the desired results may come up and implement new ideas themselves.  Accidental and autonomous innovation is just as good anything that goes through formal processes.

Recognize and Celebrate New Ideas – Public and private recognition of new ideas  is an essential step in the building of an innovation culture. Man does not live by monetary incentives alone and they may be the least important ones! Start up companies may not have a lot of money to pass around for new ideas, but you could have other incentives such as small stock option awards that motivate good employees even more.

Build a Culture where Failure is not a StigmaThe Anti-Portfolio pages of the VC Firm Bessemer Venture Partners is a great example of celebrating failure quite publicly! . It names the partners who, for whatever reason, passed on some investments that went on and made it big! The message they are conveying mainly is not that these people screwed up, but to encourage taking more risk! In a software product start up, public recognition of the fact that some people tried something, even if they failed, builds the confidence that it is OK to try new things. Fear of failure is something that stops many employees dead in their tracks and they keep new ideas to themselves.

Encourage Big Thinking and Small Experiments –  Start up companies cannot afford not to think big and may not be able to afford large experiments.  They can, however, encourage small experiments that can validate the big thinking. These experiments ought to be encouraged and employees given the time and encouragement to pursue them.

But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we’ve been thinking about a problem. – Steve Jobs

Want to get our attention? Talk to the founders of our portfolio companies! – Blume Ventures #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

ThinkInvestor-BlumeVBlume Ventures is an early-stage seed & pre-series A venture fund based out of Mumbai, India. They provide seed funding in the range of $50K – $300K to early-stage tech-focused and tech-enabled ventures. They are proponents of a collaborative approach and like to co-invest with like-minded angels and seed funds. They then provide follow-on investments to stellar portfolio companies, ranging from $500K – $1.5 million.

ProductNation sat down with Karthik Reddy, Managing Partner, Blume Ventures for this interview. Here ‘s what we heard:

What made you focus on early stage investing in India? And your observations of this market?

Karthik Reddy - Blume VenturesAdoption of innovative technologies has always been a challenge in India. Early on we realized that growth has to come from other global markets like the US or Europe. We also realized that there was a huge gap in the venture market in India for investments between $150K and $3M. Our intention in our first fund was to bridge these gaps. They proved to be larger than what we thought initially. The venture market at the top of the funnel (late stage) was very wide, the middle had also widened but the lower end offered opportunities for us. But this market has its own problems – bridging the gap between this level of funding and the next stage. Series A funding of companies has been a continuing problem but we have found ways to bridge these gaps. However, with our next fund to be raised next year, we plan to stick to the same strategy, but with a larger fund.

What has been the effect of exits like redBus.In on the Indian ecosystem? Do you think that this improves the outlook for more early stage investing?

Yes. Exits like redBus.in are good for various things in the Indian ecosystem. If not for the individual exit, more examples like redBus are needed sorely. Typically, companies like those take around 8 years to enter, and exit. The public markets are not good options as yet for exits. We do not as yet have a culture of acquisitions within India. Indian companies don’t do them. Companies like Naukri should really consider acquisitions and grow inorganically. Large companies in the US are beginning to take notice of possible acquisitions in India and have started doing some cross-border transactions.  This kind of ecosystem did not exist but things are beginning to change. We still have a huge need for innovative ideas. Ideas that can get built into $40M to $50M companies and get exits are key to putting the ecosystem into higher gear.

How does an entrepreneur get your attention? What kinds of start-ups interest you? How does an entrepreneur get in touch with you?

We are driven by themes. We are not reactive investors. We are interested in Smartphone/Mobile plays and are not interested in web applications. If we see a plan first addressing a web version of an application we are not interested, but those that go straight to a mobile app will get our attention. Our themes are chosen so that they can grow fast and get to a Series A comfortably. The entrepreneur needs to think like a VC and ensure that whatever they are working on is capable of such growth. Founders of our portfolio companies know our themes best. Get in touch with them, see if there is a mapping between what you do, and what we are interested in. Get one of the founders to introduce you to us after this initial filtering. This way, you won’t waste your time and you will get our attention! We do get cold referrals that go through our associates and it will be a long winded process. If you come through the founders of our portfolio companies it will be faster and it can also make sure that there is a mapping between what you are thinking and what our investment themes are. We get 60 to 70% of the introductions like this, with 125+ founders in our portfolio network.

Let’s say there is a mapping between a start-up company and your VC firm. What happens next? What are your typical due diligence efforts? How long does it take for an investment?

We are primarily looking for leadership in these companies that can survive the long haul of entrepreneurship. Can they survive the first year of marriage, primarily between the co-founders? Do they have 2 to 3 layers of leadership in the start-up, not just a single layer with the co-founders! And are the co-founders super-compatible with each other? We have seen too many founder breakups! We are not looking for problem solvers – people who solve a problem with a technical solution. We are looking for business builders. Can they build a business around it? They are not the same! In 1 or 2 meetings (in 2 or 3 weeks) you can get an idea of whether we want to proceed ahead with due diligence or let you know that the fit between our themes and your business is not there. If you can find co-investors on your own is a positive thing in your favor. The ability to excite other investors is key to us. The ability to line up other clients or customers during this period is important to us. We look for some red flags during the due diligence period – like being very casual about relationships or client opportunities. The fastest investments have been made in 4 to 5 months from introductions. The slowest ones have taken 12 to 18 months. The latter ones are usually because of syndicated investments.

Let’s say a start-up gets funded by you. How hands-on or hands-off are you with your portfolio company? What’s your style of engagement with a portfolio company?

Portfolio companies should consider us a Super-Concierge on Demand. They should be comfortable with knowing exactly when we are needed and come to us. In the early stages they come to us with quite a few problems for advice and guidance. Luckily our founder network usually has many of the answers.  We have a Google group for our portfolio company, sort of a private Quora. This helps solve 70 to 80% of the problems our start-ups face. Someone has come across most of the problems any new portfolio company is facing.  Typically these will be questions like whether to incorporate in the US or not. We are more like a platform than a VC firm in that sense, an 18-24 month accelerator program. We are as hands-on or hands-off with companies as needed. We do take a board seat as a seed investor and invariably meet with each portfolio company in person, at least every couple of months.

Let’s talk about going beyond the early stage funding and getting to the next level of funding and growth.

Series A funding  is becoming more difficult with the bar being set higher and higher. There are only 10 to 12 active Series A investors in India doing 1 or 2 investments a year. With such a thin ecosystem for Series A investing, pitching the wrong partner may mean not getting funded. The other problem is making these businesses 10X propositions for Series A (they are not interested in 5X business plans)  that require these companies to become $200M companies. We do bridge rounds that can get start-ups to get the growth necessary to qualify for a Series A funding. We are planning to raise a larger fund next time so that we can make these kinds of deeper investments.

Do you think it is possible to build a $200M company focused on the Indian market?

Yes. There are some promising areas in India that has that potential – travel or taxi services. Technology solutions like Knowlarity, NowFloats, and Exotel have that potential. The Enterprise market in India is too slow but the SME market in India has the potential to build some $200M companies. That market will also explode only when the smartphone/mobile market in India leapfrogs. The SaaS market, especially when built for a global market could grow a few $200M companies.  We are optimistic overall and feel that lots of opportunities are yet to come.

Now, let’s talk about Exits. What do you see coming in this area?

The subject of realistic venture exits is the one that somewhat dictates what the focus of a start-up should have been. Hoping to get acquired by a company in India is somewhat unrealistic. However, there are a number of companies in the US that have started coming to India to acquire Indian companies and grow inorganically. Autodesk is hiring a person in India to look for such companies, They have done a number of acquisitions already. Unfortunately, the Indian arms of Google and Yahoo are not empowered to make acquisitions.There are some companies like WebEngage and OrangeScape that are focused on foreign markets that could make good acquisition targets for companies outside India.

What about some parting advice for entrepreneurs?

Go outside India for markets. You cannot grow fast enough to raise funding and grow focusing on Indian markets currently. This is true especially if you are a technology play. Someone in Silicon Valley could start 2 years later than a company in India and beat them to it if a company is growing only in India. Grow fast and get acquired!