 "Start-ups and innovation go together: Anand Deshpande")
Pune-based Persistent Systems has taken a leaf out of corporate venture capital funds set up by the likes of Intel, SAP and Cisco. Its own venture fund, Persistent Venture Fund, has already announced two investments in US-based Ustyme and DxNow. Anand Deshpande, chairman, managing director and CEO of Persistent Systems, explains the fund to Shivani Shinde Nadhe. Edited excerpts:
What made Persistent System set up a venture fund?
We think innovation cannot happen only within the company and it's important to be part of the eco-system. Start-ups and innovation go together. We thought at a stage where Persistent is today, it is a good time to participate in enhancing this eco-system. We found that many US firms have such set-ups. So you have SAP, Qualcomm, Cisco, Google, Intel and many more having similar set-ups. They use small amount of money to look at future technology and get a chance to explore and be part of that technology. Some of these will fail and some will work, but that's the way it is. That has been our inspiration.
We want to make sure we are strategic investors rather than financial investors. We have two parameters when we select firms. First, the technology area that the start-up is working is similar to our interest. Two, the customers that they have must align with our customer eco-system.
From an involvement perspective, Persistent as a company will be at an arms' length. The board has given us a clear guideline this should not be a distraction to the regular business of the company. The main executives of the company will not be actively involved in the fund's work. Hence we have a separate team looking into it. It is headed by Sridhar Jagannathan, chief innovation officer, at Persistent.
How do you see exits?
Our objective is not to hold these investments forever. We will look at series A, B, and C rounds of funding as exit opportunity. For us, it's a financial transaction at the end of the day. We are taking an equity position. Our range of investment will be in $100,000-250,000 per company.
Why have you not set up a separate fund for investment?
We have not carved out a special fund for investment; it will be part of our P&L (profit and loss). We have Rs 450-500 crore in cash. The requirement for investment will be very small.
We wanted to set up a fund, but it was very complicated. In India, we do not have precedence of this and people were not aware of how to do this. Our auditors could not suggest a way of handling this as a fund. Besides, we are being transparent. Since this is part of the P&L, the details will be shared with the investors and shareholders.
Moreover, we have got an approval from shareholders for the same in the last AGM (annual general meeting). We announced this around May-June and shared the details with investors and analysts.
Why would a start-up work with Persistent?
They come to Persistent because we have presence in technology, and we have a network of customers and we can help them connect with them. Also, we think we should invest in them because of the cutting-edge technology they are working on and the fact that we can take them to our customers. We have also had instances where customers have told us to look into a start-up as they have worked with them and now want us to help them in achieving scale.
You have invested in two US-based start-ups. Are you looking at Indian eco-system?
The eco-system in the US is pretty mature. Our intention was to get a few successes. I feel pretty confident that the investments we have announced so far will do better. And we will also do well as they go for future fund raising.
How do you vet companies?
There is a small team that reviews the idea and the plan. Then we have a three-member board committee, consisting of myself and two other board members and we, along with CFO (chief financial officer), decide on the investment. We are betting on people whom we have known in the past and they, too, have worked in technology. The investments that we have done so far are such examples. We will be more comfortable in investing in firms where we know the people.
We do have bias towards our own employee eco-system. There are several people who have started companies and have been our ex-employees.
How would you rate the success of the fund?
I haven't written it down yet. There are three parameters though: first, how much money we have made. Two, how much we have benefited from customers in the eco-system. Finally, if this has helped us in any of our technology roadmap.
What made Persistent System set up a venture fund?
We think innovation cannot happen only within the company and it's important to be part of the eco-system. Start-ups and innovation go together. We thought at a stage where Persistent is today, it is a good time to participate in enhancing this eco-system. We found that many US firms have such set-ups. So you have SAP, Qualcomm, Cisco, Google, Intel and many more having similar set-ups. They use small amount of money to look at future technology and get a chance to explore and be part of that technology. Some of these will fail and some will work, but that's the way it is. That has been our inspiration.
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What are your key objectives?
We want to make sure we are strategic investors rather than financial investors. We have two parameters when we select firms. First, the technology area that the start-up is working is similar to our interest. Two, the customers that they have must align with our customer eco-system.
From an involvement perspective, Persistent as a company will be at an arms' length. The board has given us a clear guideline this should not be a distraction to the regular business of the company. The main executives of the company will not be actively involved in the fund's work. Hence we have a separate team looking into it. It is headed by Sridhar Jagannathan, chief innovation officer, at Persistent.
How do you see exits?
Our objective is not to hold these investments forever. We will look at series A, B, and C rounds of funding as exit opportunity. For us, it's a financial transaction at the end of the day. We are taking an equity position. Our range of investment will be in $100,000-250,000 per company.
Why have you not set up a separate fund for investment?
We have not carved out a special fund for investment; it will be part of our P&L (profit and loss). We have Rs 450-500 crore in cash. The requirement for investment will be very small.
We wanted to set up a fund, but it was very complicated. In India, we do not have precedence of this and people were not aware of how to do this. Our auditors could not suggest a way of handling this as a fund. Besides, we are being transparent. Since this is part of the P&L, the details will be shared with the investors and shareholders.
Moreover, we have got an approval from shareholders for the same in the last AGM (annual general meeting). We announced this around May-June and shared the details with investors and analysts.
Why would a start-up work with Persistent?
They come to Persistent because we have presence in technology, and we have a network of customers and we can help them connect with them. Also, we think we should invest in them because of the cutting-edge technology they are working on and the fact that we can take them to our customers. We have also had instances where customers have told us to look into a start-up as they have worked with them and now want us to help them in achieving scale.
You have invested in two US-based start-ups. Are you looking at Indian eco-system?
The eco-system in the US is pretty mature. Our intention was to get a few successes. I feel pretty confident that the investments we have announced so far will do better. And we will also do well as they go for future fund raising.
How do you vet companies?
There is a small team that reviews the idea and the plan. Then we have a three-member board committee, consisting of myself and two other board members and we, along with CFO (chief financial officer), decide on the investment. We are betting on people whom we have known in the past and they, too, have worked in technology. The investments that we have done so far are such examples. We will be more comfortable in investing in firms where we know the people.
We do have bias towards our own employee eco-system. There are several people who have started companies and have been our ex-employees.
How would you rate the success of the fund?
I haven't written it down yet. There are three parameters though: first, how much money we have made. Two, how much we have benefited from customers in the eco-system. Finally, if this has helped us in any of our technology roadmap.