 "Shailendra Singh")
After the exuberance in 2015, investors have gone slow on investing in start-ups in 2016. Sequoia Capital India, one of the biggest backers of start-ups in India, has announced 4-5 deals in the past few months. Shailendra Singh, managing director of Sequoia Capital India Advisors, puts the recent deals in perspective in an interview with Ranju Sarkar. Excerpts:
You announced 4-5 deals recently. How can we interpret the same?
It’s business as usual for Sequoia India. Some of the announcements being made now are investments finalised several months ago. Market sentiments are consciously kept out of the decision-making process, and investments made on a first principles basis. The investment pace for Sequoia India in 2016 is similar to 2014, and lower than 2015, but it’s still a very healthy pace. In 2016, Sequoia India had a good balance between backing existing companies and investing in new ones.
We saw a few deals in 2016. Do the recent deals show that crunch is easing?
We think this is as good a time as any for founders to build start-ups in India. We are excited about new opportunities we are coming across in early- and growth-stages.
Are valuations more reasonable now? How is this reflected in the recent deals vis-a-vis deals in 2015?
Certainly, 2015 was an unusual year. Much of 2016 was about re-setting of expectations on valuations, salaries, growth rates, and operating costs inside companies. The start-up ecosystem in India is better off for it, and looks much healthier today than it did same time last year.
What explains the FOMO (fear of missing out) effect / exuberance? How did investors become so irrational?
Year 2015 definitely had the characteristics of a hype cycle for tech start-ups in India. Sequoia India made some conscious choices to invest at very early stages and to invest in SE Asia when the India market was very hot. We’re happy with how that has worked out. The venture fund invested in 2014 and 2015 has had a terrific start. By now, we know that every bull cycle sees the same thing in every asset class and country. It’s just how the markets work.
How has 2016 been for you in terms of exits and returns?
In general, India is a tough market for venture capital exits. That being said, we always believe exit is a function of the quality of portfolio. The best portfolio companies always have ready investors or buyers who will want to invest, and those are the ones the VCs (venture capitals) don’t want to sell.
Sequoia India had three IPOs (initial public offerings) concluded from the portfolio in 2016 and two more portfolio companies that have filed to go public. In addition, there have been some private secondary sales – the exit of Citrus and Calm.io, and the distribution of public position in Havells. Sequoia India now expects to distribute more than it invests each year as the older portfolio companies are maturing. That will hold true for 2016.
As a firm, have you changed tack in terms of the start-ups and founders you are backing?
Yes and no. Our goal is always to partner with world-class founders who wish to build enduring companies. The themes we pursue are evolving constantly, but we try to remain as open-minded as possible to new ideas. It is true, however, that in 2016, follow-on capital was very difficult to obtain for companies with poor unit economics. So, all investors raised the bar on companies that had more sound financial models.
For full interview, visit www.business-standard.com
What kind of dry powder you have now? Is there any pressure on you to deploy the funds?
This is a total misconception. At Sequoia India, there has never ever been the slightest pressure to deploy funds. I know the same to be true of other global firms in the venture space in India. Sequoia India raised a large India fund one year ago. So, there is plenty of dry powder to invest from seed to growth stages.
