 "Our investment fundamentals will not change: Rohit Bhagat")
Tandem Capital, the first and perhaps the only mobile industry incubator and venture capitalist, entered India in July this year. The incubator is in the midst of raising its third fund of $100 million. India, the second largest mobile market, is key to Tandem’s global expansion story. Rohit Bhagat, partner, Tandem Capital, however, says the firm is not focused on the market but on sourcing talent from these regions. In an interview with Shivani Shinde Nadhe, he talks about Tandem’s unique offering, called ‘muscle capital’, India market and plethora of incubators mushrooming in India. Excerpts:
Why focus on mobile?
For the foreseeable future (next five to 10 years), the level of innovation and value creating in mobile space will be beyond what we have seen so far.
Go into any of the developing markets like Africa or Asia and see what this technology is capable of doing. For the very first time, computing power is in the hands of those who have never really had access to computing capability. We are excited about this opportunity.
Tandem has a concept called muscle capital. How is it different from what others provide?
Muscle capital means financial investment and dedicated support to our investee firms. We believe from the outset, we have to surround our entrepreneur with seasoned and domain experts. These are people who focus on our entrepreneurs from the get-go, advise and mentor them. They will assist entrepreneurs in product-design, strategy, marketing, consumer acquisition, among others. Also, as a rule, none of these individuals can work on more than three Tandem firms; if they do, they tend to get stretched.
The whole purpose of the muscle capital approach is to increase the yield of our portfolio and, in turn, improve our success rate. If you look at the first two funds, the success rate has been higher than the industry average.
When we make the first investment in the company, we retain contractually the right for follow-on investments and we also keep enough reserve in our funds to be able to do so. We will never go in and make only late-stage investment. Wherever we have done a late-stage investment, we have been early investors in the company, too.
The third fund is larger than the previous two. Would there be any difference in investment as you expand the fund to other geographies?
Our investment fundamentals will not change, (though) there will be some adjustments to accommodate the context of a particular market. So, we will be consistent with our muscle capital. We will focus on the mobile segment and will do stage investment.
Since the fund is bigger, the number of companies we invest in may go up. At present, we invest in three companies every quarter, this may go up to six per quarter, taking our total investee numbers to 20-25 companies.
Our investment time in a company may go up to 12 months from the present six months. We may also have higher focus on bringing the entrepreneur to the valley because of the absence of an eco-system. This makes it particularly important for us to work with entrepreneurs where there is an eco-system.
Since we are coming into India, the time to gestate an individual company appears to be higher. So instead of having our investment for six months, we may find our first investments in India to be for 12 months. We might be able to have firm rate a little lower but our involvement a little longer.
India is the first country from where Tandem is expanding its global presence. Why India?
We observed a lot of inbound activity for our Valley programme from teams in Eastern Europe, China, India and other regions. In Tandem-II, we have invested in teams from across geographies. When we take Tandem model global, our main focus is to source talent from these regions. Because the products that these people develop do not have national boundaries, these cater to international markets. Occasionally, they will build a product that caters to their regional market. Our focus is not the market, but sourcing talent from these regions. Moreover, the supply of talented and technology-capable teams in India is huge; we have three LPs (liability partnerships) from India.
In recent times, India has seen a spurt in incubators and accelerators..
There has been a fair amount of activity on the supply side. But a lot of these lack some of the fundamental aspects of early-stage investment. They either lack commercial focus or are embedded by academic institute or government body. If they have commercial focus, then oftentimes they are in “spray and pray” model or may not be able to do stage investment.
Although at first flush it seems like a competitive arena, if you are an astute player, the field of credible providers gets willowed down quickly. Overtime, a number of players who lack deeper pocket will fall by the way side. What will come up as a result would be smaller number of player with a more complete model and these proven accelerators and incubators will, then, become the basis of a robust eco-system that is actually providing value.
In several of my discussion with entrepreneurs here, one thing I consistently hear is there tends to be a lot of pressure to deliver early profitability or commercial numbers. In general, this is good, but if this hampers the risk-taking ability of these start-ups, then it may impact visionary thinking.
How is Tandem different from other investors and incubators?
We prefer to come in really early in the life of a start-up. We invest in three companies every quarter. These then work in the Tandem programme for six to 12 months. We believe we should come in as the early investors. We think we are good and have capable skills at creating the right product and market-fit for our entrepreneurs.
The other reason for us to come on board early is the relatively short period for companies to scale. Take the case of Google, Facebook or Instagram, which took relatively lesser amount of time from inception to scale. Hence, years ago it was probably fine for VCs (venture capitals) to take time and wait till the company has shown traction, because they still had the opportunity to get in. But now with the presence of an app store and social media, a company can propel from no- and low-growth to hyper-growth in no time, hence the window of time which is available to invest a fraction has become so small that if you wait you miss the bus.
How were the early days at Tandem Capital like?
When we began in 2007, we were not as focused on mobile (as we are now). Important ecosystem like the App store was not available (then). Tandem, hence, was working with technology entrepreneurs to help them build interesting firms.
Overtime, we started seeing proliferation of mobile technology; the App world came into existence and cloud computing became prominent. All these are of significant importance.
The app-store made it possible for consumers to adopt innovative software directly. Cloud computing allowed technology firms to set up relatively inexpensively. All these forces together became powerful, driving forces in shaping Tandem’s own model; we became more focused in Tandem-II, launched in 2010, on consumer-adopted businesses that were very early in investment stage. And because of the exciting things happening in mobile, we focused on the mobile segment. In a sense, Tandem itself evolved from I to II by taking into account what was happening in the environment around.
Why focus on mobile?
For the foreseeable future (next five to 10 years), the level of innovation and value creating in mobile space will be beyond what we have seen so far.
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Our partners and I spend a fair amount of time in developed and developing markets. In the developed market, the penetration of smartphones is relatively high and some interesting things have happened on this platform. But it fails in comparison to what is happening in some of the developing markets.
Go into any of the developing markets like Africa or Asia and see what this technology is capable of doing. For the very first time, computing power is in the hands of those who have never really had access to computing capability. We are excited about this opportunity.
Tandem has a concept called muscle capital. How is it different from what others provide?
Muscle capital means financial investment and dedicated support to our investee firms. We believe from the outset, we have to surround our entrepreneur with seasoned and domain experts. These are people who focus on our entrepreneurs from the get-go, advise and mentor them. They will assist entrepreneurs in product-design, strategy, marketing, consumer acquisition, among others. Also, as a rule, none of these individuals can work on more than three Tandem firms; if they do, they tend to get stretched.
The whole purpose of the muscle capital approach is to increase the yield of our portfolio and, in turn, improve our success rate. If you look at the first two funds, the success rate has been higher than the industry average.
When we make the first investment in the company, we retain contractually the right for follow-on investments and we also keep enough reserve in our funds to be able to do so. We will never go in and make only late-stage investment. Wherever we have done a late-stage investment, we have been early investors in the company, too.
The third fund is larger than the previous two. Would there be any difference in investment as you expand the fund to other geographies?
Our investment fundamentals will not change, (though) there will be some adjustments to accommodate the context of a particular market. So, we will be consistent with our muscle capital. We will focus on the mobile segment and will do stage investment.
Since the fund is bigger, the number of companies we invest in may go up. At present, we invest in three companies every quarter, this may go up to six per quarter, taking our total investee numbers to 20-25 companies.
Our investment time in a company may go up to 12 months from the present six months. We may also have higher focus on bringing the entrepreneur to the valley because of the absence of an eco-system. This makes it particularly important for us to work with entrepreneurs where there is an eco-system.
Since we are coming into India, the time to gestate an individual company appears to be higher. So instead of having our investment for six months, we may find our first investments in India to be for 12 months. We might be able to have firm rate a little lower but our involvement a little longer.
India is the first country from where Tandem is expanding its global presence. Why India?
We observed a lot of inbound activity for our Valley programme from teams in Eastern Europe, China, India and other regions. In Tandem-II, we have invested in teams from across geographies. When we take Tandem model global, our main focus is to source talent from these regions. Because the products that these people develop do not have national boundaries, these cater to international markets. Occasionally, they will build a product that caters to their regional market. Our focus is not the market, but sourcing talent from these regions. Moreover, the supply of talented and technology-capable teams in India is huge; we have three LPs (liability partnerships) from India.
In recent times, India has seen a spurt in incubators and accelerators..
There has been a fair amount of activity on the supply side. But a lot of these lack some of the fundamental aspects of early-stage investment. They either lack commercial focus or are embedded by academic institute or government body. If they have commercial focus, then oftentimes they are in “spray and pray” model or may not be able to do stage investment.
Although at first flush it seems like a competitive arena, if you are an astute player, the field of credible providers gets willowed down quickly. Overtime, a number of players who lack deeper pocket will fall by the way side. What will come up as a result would be smaller number of player with a more complete model and these proven accelerators and incubators will, then, become the basis of a robust eco-system that is actually providing value.
In several of my discussion with entrepreneurs here, one thing I consistently hear is there tends to be a lot of pressure to deliver early profitability or commercial numbers. In general, this is good, but if this hampers the risk-taking ability of these start-ups, then it may impact visionary thinking.
How is Tandem different from other investors and incubators?
We prefer to come in really early in the life of a start-up. We invest in three companies every quarter. These then work in the Tandem programme for six to 12 months. We believe we should come in as the early investors. We think we are good and have capable skills at creating the right product and market-fit for our entrepreneurs.
The other reason for us to come on board early is the relatively short period for companies to scale. Take the case of Google, Facebook or Instagram, which took relatively lesser amount of time from inception to scale. Hence, years ago it was probably fine for VCs (venture capitals) to take time and wait till the company has shown traction, because they still had the opportunity to get in. But now with the presence of an app store and social media, a company can propel from no- and low-growth to hyper-growth in no time, hence the window of time which is available to invest a fraction has become so small that if you wait you miss the bus.
How were the early days at Tandem Capital like?
When we began in 2007, we were not as focused on mobile (as we are now). Important ecosystem like the App store was not available (then). Tandem, hence, was working with technology entrepreneurs to help them build interesting firms.
Overtime, we started seeing proliferation of mobile technology; the App world came into existence and cloud computing became prominent. All these are of significant importance.
The app-store made it possible for consumers to adopt innovative software directly. Cloud computing allowed technology firms to set up relatively inexpensively. All these forces together became powerful, driving forces in shaping Tandem’s own model; we became more focused in Tandem-II, launched in 2010, on consumer-adopted businesses that were very early in investment stage. And because of the exciting things happening in mobile, we focused on the mobile segment. In a sense, Tandem itself evolved from I to II by taking into account what was happening in the environment around.