 "There is an opportunity in the non-tech space, too: Nikhil Khattau")
Mayfield Advisors India is among a handful of venture capitals that have managed to close its second fund. In February this year, the venture capitalist closed Mayfield India-II fund with $108 million. Mayfield India-I fund with $111 million corpus was raised in 2008. What makes Mayfield different is its focus on the non-tech entrepreneurial set-up in India. Nikhil Khattau, co-founder and managing partner, Mayfield Advisors LLP tells Shivani Shinde Nadhe the fund-raising scenario, opportunity in non-tech space and Indian e-commerce space. Excerpts:
Mayfield Advisors is among the few who have managed to raise its second fund. How is the fund raising scenario?
I think countries go in-and-out of fashion, and India has been out of favour since almost 2009. But the cycle is looking like it is ready to turn. Depending on the outcome of elections, we could well have a situation where sentiments could turn positive. This is still a highly sentimental-driven market and as that turns, domestic liquidity will also turn positive. This will also drive a lot of inward liquidity from international markets. That will hopefully give the political party that comes to power the time to fix some of the structural issues.
I think we were slightly ahead of that curve and lucky to get a good close. From a strategy point of view, we will continue to do what we have been doing.
Mayfield is an early-stage venture technology focused VC. In India, additionally, we believe there is an opportunity in the non-tech space, too. India has anywhere between one million and 10 million SMEs. A lot of these companies are focused on solving a problem in an economy that has a lot of white space in the non-tech space. And that is part of some of our investment thesis.
If you look at the first fund, we invested in Sohan Lal Commodity Management that is focused on bringing efficiency to the post-harvest agricultural services market. SecurenS focused on bringing efficiency in the surveillance market for ATMs. We think there are a lot of opportunities in tech and non-tech space.
Is the first fund completely invested?
We have invested in 11 companies from the first fund. There is still room for one or two before we close it. But we will start deploying the second fund from this year.
How has the fund-raising scenario changed?
Anytime you raise a fund, there are always questions and concerns. The nature of questions is significantly related to India now. It is fair to say that India has not done a particularly good job of providing a transparent regulatory processes for foreign investment. So they have the right to seek clarity, and ask questions on what the issues are and what can be done. They would also like to see liquidity on investments made. That is the biggest difference between funds who raise money or cannot.
Mayfiled India Fund-II has been raised after almost five years. Have you been slow in terms of investments made in India?
Ideally, we would have liked to say we would be three-four year fund cycle. Year 2008 itself was a strange. In 2009, we took stock of the situation and yes, we have been cautious.
There was a significant uncertainty and the decision from our side was to go cautious.
You have not been an aggressive player with your investments in the e-commerce space...
We believe you need two things if you want to invest in e-commerce segment. One, you need to go in extremely early, and two, you need to put in a large amount of dollars to work across the companies that you have invested in. Having done neither of this, we decided to stay away.
We also think barriers to entry have gone up significantly in the e-commerce space. Why would you fund another Flipkart or a Snapdeal? If there is a specialised play, we might look at it.
We do have investment in Dealsandyou. It has been slow to take off. But we think couponing will happen in India. Indians like deals, regardless of socio-economic status.
Mayfield is among a few VCs that also focus in the non-tech space. How different is the non-tech entrepreneurial set-up?
Tech entrepreneurs are younger and who have been working with a very high-growth tech company for the past five to 10 years. Chances are they have also worked abroad and exposed to international markets. They have also had made some money so chances are they have used some of it as seed capital. Some of them are also successful serial entrepreneurs. Maybe they have failed etc. So from a VC point, you check a lot of boxes.
In contrast, an entrepreneur in the non-tech space would be in his 40s or early 50s. Chances are he is a technocrat but worked in a certain space for a significantly long period. But he has not been able to make the same amount of money that a tech entrepreneur has done. This is propelling him to take risks and starting something on his own.
There is opportunity in the non-tech space. If you look at Sohan Lal, it can be the Cargill of Indian domestic story. Another example is SecurenS, which, like ADT Corporation, has build a multi-billion dollar business. In India, you do not have domestic players.
Mayfield has been in India for long. How has the entrepreneurial eco-system changed?
The difference now is that you are seeing an eco-system being created. You are seeing angel investors coming in, a lot of incubators and accelerators being set up. This is an eco-system that has been developed in countries like Israel and the Silicon Valley, and now it is happening here.
Also, the more success you see coming out of the start-up space, the higher the quantity of entrepreneurs coming in to try out. The smartest young graduates these days don't want to get into a job.
Mayfield Advisors is among the few who have managed to raise its second fund. How is the fund raising scenario?
I think countries go in-and-out of fashion, and India has been out of favour since almost 2009. But the cycle is looking like it is ready to turn. Depending on the outcome of elections, we could well have a situation where sentiments could turn positive. This is still a highly sentimental-driven market and as that turns, domestic liquidity will also turn positive. This will also drive a lot of inward liquidity from international markets. That will hopefully give the political party that comes to power the time to fix some of the structural issues.
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Mayfield is an early-stage venture technology focused VC. In India, additionally, we believe there is an opportunity in the non-tech space, too. India has anywhere between one million and 10 million SMEs. A lot of these companies are focused on solving a problem in an economy that has a lot of white space in the non-tech space. And that is part of some of our investment thesis.
If you look at the first fund, we invested in Sohan Lal Commodity Management that is focused on bringing efficiency to the post-harvest agricultural services market. SecurenS focused on bringing efficiency in the surveillance market for ATMs. We think there are a lot of opportunities in tech and non-tech space.
Is the first fund completely invested?
We have invested in 11 companies from the first fund. There is still room for one or two before we close it. But we will start deploying the second fund from this year.
How has the fund-raising scenario changed?
Anytime you raise a fund, there are always questions and concerns. The nature of questions is significantly related to India now. It is fair to say that India has not done a particularly good job of providing a transparent regulatory processes for foreign investment. So they have the right to seek clarity, and ask questions on what the issues are and what can be done. They would also like to see liquidity on investments made. That is the biggest difference between funds who raise money or cannot.
Mayfiled India Fund-II has been raised after almost five years. Have you been slow in terms of investments made in India?
Ideally, we would have liked to say we would be three-four year fund cycle. Year 2008 itself was a strange. In 2009, we took stock of the situation and yes, we have been cautious.
There was a significant uncertainty and the decision from our side was to go cautious.
You have not been an aggressive player with your investments in the e-commerce space...
We believe you need two things if you want to invest in e-commerce segment. One, you need to go in extremely early, and two, you need to put in a large amount of dollars to work across the companies that you have invested in. Having done neither of this, we decided to stay away.
We also think barriers to entry have gone up significantly in the e-commerce space. Why would you fund another Flipkart or a Snapdeal? If there is a specialised play, we might look at it.
We do have investment in Dealsandyou. It has been slow to take off. But we think couponing will happen in India. Indians like deals, regardless of socio-economic status.
Mayfield is among a few VCs that also focus in the non-tech space. How different is the non-tech entrepreneurial set-up?
Tech entrepreneurs are younger and who have been working with a very high-growth tech company for the past five to 10 years. Chances are they have also worked abroad and exposed to international markets. They have also had made some money so chances are they have used some of it as seed capital. Some of them are also successful serial entrepreneurs. Maybe they have failed etc. So from a VC point, you check a lot of boxes.
In contrast, an entrepreneur in the non-tech space would be in his 40s or early 50s. Chances are he is a technocrat but worked in a certain space for a significantly long period. But he has not been able to make the same amount of money that a tech entrepreneur has done. This is propelling him to take risks and starting something on his own.
There is opportunity in the non-tech space. If you look at Sohan Lal, it can be the Cargill of Indian domestic story. Another example is SecurenS, which, like ADT Corporation, has build a multi-billion dollar business. In India, you do not have domestic players.
Mayfield has been in India for long. How has the entrepreneurial eco-system changed?
The difference now is that you are seeing an eco-system being created. You are seeing angel investors coming in, a lot of incubators and accelerators being set up. This is an eco-system that has been developed in countries like Israel and the Silicon Valley, and now it is happening here.
Also, the more success you see coming out of the start-up space, the higher the quantity of entrepreneurs coming in to try out. The smartest young graduates these days don't want to get into a job.