 "There are opportunities for scale-up of biz models that are discontinuous: Deepak Gaur")
SAIF Partners, a leading VC and PE firm which manages over $1 billion funds of investments in India, recently inked a funding deal with Noida-based TravelTriangle.com, an online marketplace for travel agents, for Rs 10 crore. Deepak Gaur, managing director of SAIF Partners, talks to Alokananda Chakraborty about the firm's investment strategy, among others. Excerpts:
In an early-stage investment, two things will make the difference between success and failure: a seasoned management and sales potential. What is SAIF's investment philosophy? You have invested in a variety of businesses - from restaurants to technology...
SAIF Partners invests across sectors and stages. The investment approach is to partner with entrepreneurs to build differentiated businesses in large/fast-growing markets in private companies. In listed companies, the approach is to invest in high-quality businesses, which are trading at a reasonable valuation or where the company is undergoing a transformation and there is a chance of multiple re-rating in the investment horizon.
There is a heightened interest in e-commerce by PE and VC funds in recent years. The key to any venture capital investment is the prospects of that market. What has prompted this interest and, in the current scenario, is e-commerce a safer bet than any other sector?
The interest in e-commerce and consumer internet businesses is driven by the increasing internet penetration, especially with explosive growth in smartphones and the fundamental value addition of convenience, enhanced selection and availability to consumers. Each sector has its own growth dynamics and risks, so (it is) not fair to compare (e-commerce) with other sectors.
When we talk about VC, everyone focuses on big outcomes. But the arithmetic of the VC space is such that you can have outstanding venture returns with extremely modest exits. On the exit part, is there a SAIF strategy?
SAIF is a long-term investor, investing out of a 10-year fund and the preference is to undertake public listing of the portfolio companies, wherever feasible.
The venture capital sector is focused on start-ups and adding value to early-stage development companies. How do you assist in the business growth of the companies you invest in?
SAIF's core investment thesis is generally based on independent outperformance of the team with or without assistance from investors, which allows us to keep a high bar on the founding teams. However, depending on the specific situation and desire from portfolio companies, we offer assistance in many areas such as in establishing robust financial reporting and business analytics processes to aid decision making; we also help in building the next layer of team, leveraging the extensive network and industry references; then, we advise on capital raise strategy including IPO, strategic investments, etc. The best thing one could do is, share learnings from other markets outside India.
In general, what's your take on the Indian PE sector today? In your experience, are people really committed to entrepreneurship or are they refugees from large companies who feel the opportunity cost of their time has gone way down? Do you think the returns justify the risks?
Definitely. Across sectors, there are opportunities for rapid scale-up of business models that are discontinuous. Plus, the combination of a young consuming class, economic growth in non-metro cities, technology adoption driven by mobile internet and global influences, will generate unique investment opportunities.
Evaluating financial facts is quite different from forecasting revenue potential. What are the sectors that look interesting these days? We don't see many funds that involve in biotech or cleantech or another non-IT sector...
We are very excited about consumer internet, healthcare, personal consumer goods, food, mobile-driven and technology-outsourcing opportunities.
Understanding how to effectively evaluate the leadership of the company and the reality of its market demand is crucial. Has there been any company you thought could have been a great investment but you didn't go ahead and now feel it has grown to an attractive scale?
The list is long for companies which we thought were not great investments and we have been proved wrong. Each such instance provides us an opportunity to introspect and brainstorm on try to not repeat the mistake.
From time-to-time, there is this talk about investment firms focusing more on proprietary deals rather than those coming from investment bankers to avoid overvalued transactions...
I think both will co-exist. For mature or better understood sectors, investment banks play a valuable role in creating the market. Proprietary deals are the norm when you are backing a thesis, which is a bit ahead of time.
What kind of reforms are required for the immediate growth of the PE space in India?
The opening up of FDI (foreign direct investment) in e-commerce will provide a strong push and invite a wide variety of strategic and financial investors in the sectors.
In an early-stage investment, two things will make the difference between success and failure: a seasoned management and sales potential. What is SAIF's investment philosophy? You have invested in a variety of businesses - from restaurants to technology...
SAIF Partners invests across sectors and stages. The investment approach is to partner with entrepreneurs to build differentiated businesses in large/fast-growing markets in private companies. In listed companies, the approach is to invest in high-quality businesses, which are trading at a reasonable valuation or where the company is undergoing a transformation and there is a chance of multiple re-rating in the investment horizon.
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The interest in e-commerce and consumer internet businesses is driven by the increasing internet penetration, especially with explosive growth in smartphones and the fundamental value addition of convenience, enhanced selection and availability to consumers. Each sector has its own growth dynamics and risks, so (it is) not fair to compare (e-commerce) with other sectors.
When we talk about VC, everyone focuses on big outcomes. But the arithmetic of the VC space is such that you can have outstanding venture returns with extremely modest exits. On the exit part, is there a SAIF strategy?
SAIF is a long-term investor, investing out of a 10-year fund and the preference is to undertake public listing of the portfolio companies, wherever feasible.
The venture capital sector is focused on start-ups and adding value to early-stage development companies. How do you assist in the business growth of the companies you invest in?
SAIF's core investment thesis is generally based on independent outperformance of the team with or without assistance from investors, which allows us to keep a high bar on the founding teams. However, depending on the specific situation and desire from portfolio companies, we offer assistance in many areas such as in establishing robust financial reporting and business analytics processes to aid decision making; we also help in building the next layer of team, leveraging the extensive network and industry references; then, we advise on capital raise strategy including IPO, strategic investments, etc. The best thing one could do is, share learnings from other markets outside India.
In general, what's your take on the Indian PE sector today? In your experience, are people really committed to entrepreneurship or are they refugees from large companies who feel the opportunity cost of their time has gone way down? Do you think the returns justify the risks?
Definitely. Across sectors, there are opportunities for rapid scale-up of business models that are discontinuous. Plus, the combination of a young consuming class, economic growth in non-metro cities, technology adoption driven by mobile internet and global influences, will generate unique investment opportunities.
Evaluating financial facts is quite different from forecasting revenue potential. What are the sectors that look interesting these days? We don't see many funds that involve in biotech or cleantech or another non-IT sector...
We are very excited about consumer internet, healthcare, personal consumer goods, food, mobile-driven and technology-outsourcing opportunities.
Understanding how to effectively evaluate the leadership of the company and the reality of its market demand is crucial. Has there been any company you thought could have been a great investment but you didn't go ahead and now feel it has grown to an attractive scale?
The list is long for companies which we thought were not great investments and we have been proved wrong. Each such instance provides us an opportunity to introspect and brainstorm on try to not repeat the mistake.
From time-to-time, there is this talk about investment firms focusing more on proprietary deals rather than those coming from investment bankers to avoid overvalued transactions...
I think both will co-exist. For mature or better understood sectors, investment banks play a valuable role in creating the market. Proprietary deals are the norm when you are backing a thesis, which is a bit ahead of time.
What kind of reforms are required for the immediate growth of the PE space in India?
The opening up of FDI (foreign direct investment) in e-commerce will provide a strong push and invite a wide variety of strategic and financial investors in the sectors.