The Hindu Business Line : What after Google, YouTube...

Venture capital is a growing market in India, like private equity. We are seeing significant entrepreneurial activity across both early and late stage investing.

MR K. P. BALARAJ, MD., SEQUOIA CAPITAL INDIA

India has become the latest port of call for the global venture capital industry with the coming of the IT/ITeS boom and the general upswing in the economy. Many India-specific funds of varying sizes have been raised, many companies have set up full-fledged operations in the country, while many others are eyeing a share of the growth opportunities that India has thrown up. Last year's biggest build-to-flip story was Google's $1.65-billion acquisition of YouTube; and Sequoia Capital, the fund that backed the garage start-up which changed the online video sharing landscape, came out of the deal as the smartest guys in town with a multiple return on their cumulative $11-million investment in the start-up, and that too in less than a year.

Sequoia (www.sequoiacap.com), a global market leader in venture, growth capital and private equity investing, has been part of several such success stories, including Cisco, Yahoo and, most important, Google itself. Having entered India by acquiring WestBridge Capital Partners, which was co-founded in 2000 by Mr K. P. Balaraj, who is currently Managing Director of Sequoia Capital India, the firm has been actively scouting and investing in the Indian tech space, with stakes in such companies as Bharti Telesoft, Coffee Day, FirstSource, Idea Mobile and Indiatimes.

In a short span, Sequoia has also emerged as the most active fund in the country, hitting the headlines with remarkable frequency. Moreover, it has demonstrated the willingness to tread the road less travelled by most funds, by investing in a diverse range of sectors - from search engine startup Guruji.com to, most recently, SKS Microfinance, which got $11.5 million.

Exciting Corporates

An MBA from Harvard Business School and holding a BS in Business Management from Brigham Young University, where he graduated as valedictorian of his class, Mr Balaraj believes that there are many exciting companies here. Speaking to Business Line, he is positive that a "few of them over time will create global impact." Sequoia is looking for entrepreneurs with "high levels of passion and commitment, plus a willingness to build a strong team early on in the growth phase of a business."

Mr Balaraj is confident of finding them in India. "Venture capital is a growing market in India, like private equity. We are seeing significant entrepreneurial activity across both early and late stage investing."

Sequoia does not restrict itself to any segment of funding. Active across all stages — such as seed, early stage and buyout — it has, for instance, invested in the buyout of Flextronics and provided growth capital to Idea and Coffee Day. The focus is on "large, high-growth markets, combined with a management team that can scale to create sector leaders," explains Mr Balaraj. "We are pursuing consumer services investments in media, Internet and mobile markets. On the private equity side, we are sector and stage agnostic, and look to back strong management teams in high growth markets. We recently invested $45 million in Idea Mobile (before its IPO) and $20 million in Coffee Day."

The fund also selectively invests in a few seed deals every year. "Last year, we invested at the company formation stages in Tutorvista, Apnaloan and Nazara, all of them led by very passionate and committed entrepreneurs and are well on their way to building interesting businesses." Indecomm Global is another example of a company Sequoia backed at the formation stage, with founder and CEO Naresh Ponnappa a few years ago to build a mortgage-outsourcing specialist. Indecomm is on its way to `crossing $100 million in revenues this year'.

Management, the key

For Mr Balaraj, the management team plays a vital role in the fund's decision to invest. "Strong management teams and favourable market conditions are the most important driver of success in our business." On playing an active role post-investment, he says: "It depends on the situation; in some cases we are active with one-two board seats, in others we are more of a passive minority investor."

Every fund's ultimate objective is maximising returns on money invested, alongside working with entrepreneurs in building successful, sustainable businesses.

According to Mr Balaraj, returns are made "via an IPO or trade sale. We generally are long-term, value-added and patient capital, and have the flexibility and willingness to stay invested for many years."

It is no easy road for venture capital companies, which face the toughest challenge of having to put the money where their mouth is. It is widely accepted that less than a third of investments turn in good returns on the dollar. Mr Balaraj says: "Most of the setbacks are due to changing market pressures, low gross margin business models, and management teams that do not scale with the business opportunity." Does he, as a venture capitalist, have benchmarks for performance, goals and targets? "We would like to be meaningful investors in Indian companies that make a mark locally as well as in global markets."

Right People and Opportunity

If finding and backing the right entrepreneur were not difficult enough, venture funds are also saddled with the responsibility of identifying the right people who can locate the right opportunity. What are the main qualities that venture funds look for in someone seeking a career in the industry? "The main ability is to be a partner to entrepreneurs and management, and help in ways that add value to their efforts in creating companies they are passionate about."

He should know. Before founding WestBridge, Mr Balaraj was part of the Whitehall Group of Goldman Sachs, where he served as a member of Goldman-backed funds and operating companies that invested over $1 billion of private equity in South-East Asia.

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