Satisfied with its Rs 620-cr investment, it’s agnostic on sectors and geography.
Harshal Shah was part of IBM’s Global Strategy Group in 2004 when he met Anil Ambani. The two got talking and Shah was pleasantly surprised that Ambani knew about his start-up company, which Shah had launched with about $30,000 of his savings and sold for $2.5 million a few years later. He was just 28 then.
At the end of the meeting, Ambani offered him a job to lead the start-up he was planning, after creating the ADA Group. Shah took the offer and has been leading Reliance Venture Asset Management Ltd (earlier known as Reliance Venture), the group’s venture capital (VC) arm, as Managing Director & CEO since 2005.
The first investment his team and he made was in yatra.com. That was the only investment in the inaugural year, but the company has traversed a long distance since then. It has invested around $140 million (Rs 620 crore) in 16 ventures and three more are in the pipeline. Reliance Venture (RV) hasn’t cashed out on any of its investments so far, but Shah says it is in the process of doing so in a few. In between, it has emerged as the only India-based corporate venture capital company to feature in the Red Herring’s Top 100 Global List of VC firms in 2009-10. The company was ranked 30th.
Not bound
Beginning with investments in technology firms to take advantage of group company Reliance Communications’ ecosystem, it is now looking at other areas and that explains the name change last year. “We are now geography agnostic, stage agnostic and sector agnostic,” Shah, 39, says.
While 70 per cent of its investments are still in tech companies, the plan is to make it 50:50 or even lower in the next three years. The company is looking at healthcare, financial services, etc, but is keen on focusing on ancillary industries connected with sectors that have seen valuations going through the roof. For example, RV has invested in a company called Gradatil, which is an information technology solutions provider to the micro-finance industry.
“When you have hundreds of thousands of customers, you require phenomenally powerful IT infrastructure in the backroom to be able to handle and monitor them on a day to day basis. So, in a way this company allows us to go ahead and capture that large segment which is untouched at this point in time,” Shah says.
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Defence is an area RV is looking at closely, in areas such as cyber security. “It may look slightly ahead of time at this point, but as a venture capitalist, our job is to enter when the cost of entry is low and then wait for the eco system to evolve. There is tremendous scope here,” Shah says.
RV is looking at other areas connected with defence as well. For example, it invested $5 million in 2008 in a US-based company called Dhama Innovations, owned by a MIT graduate, which has now set up an incubation centre in India. The company is developing jackets for defence personnel which increase the body temperature. For example, if the outside temperature is minus 50 degrees Centigrade, the jacket will increase the body temperature by 70 degrees, to 22 degrees Centigrade. The jackets earlier weighed seven-eight kg each; Dhama has brought it down to 650g. Not just jackets, the company has also developed shoes, track suits and helmets based on the same principles.
Shah says one of the biggest reasons for the company’s success is its innovative mindset and not getting trapped in conventional thinking. For example, it has invested in a firm called Reverse Logistics, which in all likelihood will also be working with the defence industry. The company refurbishes a lot of components in old cell phones, TV sets and radios and bring them back into the system. “Re-engineering these waste components can make a lot of money and the same logic can be applied in our police and defence departments as well,” he says. Reverse Logistics is led by a former logistics head of Microsoft and RV invested in the company this year.
‘No hurry’
Shah says he can afford to wait before cashing out of its investments, as RV is not a Fund and is not bound by time. “As long as there is continuous value-add, there is no reason for us to go ahead and make an exit,” he adds.
To stress his point, Shah gives the example of Shanghai-based Ctrip.com International, a similar-sized competitor of yatra.com, which started in 1999. The company went public in 2003 at Nasdaq and had a market cap of $300 million. The market cap today is $6.3 billion – which means the company’s value has grown 20 times in seven years. “It doesn’t make sense to exit when our value in yatra.com has the potential to grow further. We will consider this within five years,” he says.
Shah says quite a few VCs which started in 2005-6 (around the same time as RV) have got annualised returns that are minus 50 per cent, due to the market slowdown in the interim. In the same duration, RV’s annualised return has gone up in “multiples of three digits”. “You may call it good luck or destiny, which may be true. But obviously, we have done something which is alright,” he says.