Sateesh Andra is an excited man these days. The reason, says the managing partner at Ventureast, overseeing the Ventureast Tenet Fund, a seed-stage venture capital fund started in partnership with the Tenet Group of IIT-Madras, is that the early-stage ecosystem in India is ready. In an interview with K Rajani Kanth, he talks of their plans, his experience of investing in US-based start-ups and the Indian scenario. Edited excerpts:
Your take on the Indian culture in terms of start-ups, and why the more highly-educated, especially from the IITs and IIMs, start new ventures, and how successful they are?
In the US, Google, Yahoo!, Facebook and Sun Microsystems, to name a few, were started by graduates. The key reasons are they didn’t have any biases, they didn’t have any opinions, they wanted to change the world, and they were fearless.
In India, there are three types of entrepreneurs: Returning Indians (coming back from abroad) who want to start business on their own; professionals who want to do something on their own; college graduates, who are more active. In India, I think, they are all definitely creating more value but we will need more case studies. So, it is very early to predict and say they have done extremely well or they have not done well. A number of start-ups and a number of successful start-ups will rise in India but we are still early. It is very encouraging to see many young graduates. I have seen more alumni coming back and starting on their own.
What are the criteria you look at while investing in a start-up and how do you differentiate a good start-up?
When you invest in a late stage, you already know they have a good idea, they have a great team, they have some customers and now they need some scale. When we go early, we deal with concepts and we deal with one- or two-people teams. So, risk is very, very high. What at least I look for is very clearly the team first...who is the entrepreneur that I are going to work with and can I disagree and work with him?
Second, how big is the market? The third is whether it is a ‘painkiller’ or a ‘vitamin’, if the product or services they are delivering are relevant, who will pay and why they will buy.
What are the major differences between Indian and US seed-funding patterns?
Definitely the university system. Indian education, at least the IITs and IIMs, are as good as Stanford. The second is entrepreneurial talent and that is also equally good. The third is capital. In India, we are still in the early stages. In the US, 20 times or 25 times more capital is invested in start-ups. In terms of angel money, too, 20-25 per cent angel or risk capital is invested.
However, the biggest issue that I see is the markets in India. In India, the markets grow slow and that’s not a good thing for start-ups. Even large companies will come and say I, too, have a nice product in this area.
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So, the detriment for Indian start-ups has been the pace and size of the market.
The second issue is acquirers. In the US, even a failed start-up is a good acquisition target. In the Indian context, we don’t see many local acquirers. The acquirers have to either go public (IPO) or you have to get acquired by a foreign company. It is another thing that has to improve. We need to see more and more exits. So, fast-growing markets, exits and more capital will change the entire ecosystem and will see more case studies, and then you will see more and more entrepreneurs.
Any comparison between the strategies that Indian start-ups and their US counterparts adopt?
In the US, they focus on one thing and they want to be the best at that one thing, primarily. In India, when everything is growing fast, everyone wants to do everything. So, the entrepreneur here gets de-focused. Amazon sold books for several years and Google did only search for several years. In India, every three to six months, start-ups become something else. Since the last five-six years, the Indian economy is growing very fast. So, start-ups also wanted to pursue many opportunities.
The second thing is that if an idea is not working in the US context, they are ready to change very quickly and even ready to kill and move to the next one. In India, we don’t do that. Here, failure is seen as a taboo. Here, one should never go and say that he failed; that is seen as a personal defeat. In the US, however, start-ups are very quick to acknowledge and change the strategy and execute.
What is the exit time and the internal rate of return (IRR) you look at from an investment perspective?
On an average, it was taking seven years for companies in the US to go public. Now, it is almost nine years. Also, it takes seven years to go for acquisitions in the US. In the Indian context, we are patient and we are okay with seven to 10-year exits. Exits come in multiple ways for us. Sometimes, the follower investors will come and say we want you to exit. The second is through strategic sale and the third is IPO. Typically for small funds, we look at 25-30 per cent IRR.
How big is the Tenet Fund and when will it get exhausted?
The current fund — which has Google, Lemelson Foundation, Proactive, Sidbi and TDB as institutional investors — is only Rs 50 crore in size. We have eight portfolio companies — Vortex, DesiCrew Solutions, Seclore, Mobien Technologies, Crederity, InOpen Technologies, Intelizon and Rope International. Most of our investments are in IIT-Madras and IIT-Bombay, while one is in Wharton (School at the University of Pennsylvania). We will be making two more investments in three to four months.
When will the next fund be raised?
The next fund-raising will be around $50 million (Rs 250 crore). I am going to start that in three to six months and hope to raise this fund in an year. My focus will be to invest anywhere between Rs 10 crore and Rs 12.5 crore in each firm.
Which areas are you planning to focus on?
My focus will be on technology, which includes software, internet, mobility and cloud, clean technologies like renewable and energy savings, and technology-enabled education, healthcare, and financial and business services. Given my 16 years of experience in the US, with a good understanding about the US, Europe and Southeast Asian markets, one key focus area is going to be on helping companies go abroad, and helping them with customers, partners and analysts. The second focus is on people going after the domestic market. The third is impact or social enterprises.
