The Hindu Business Line : It's hard to put a pattern on entrepreneurs' profiles

The bias is towards backing people who have some validation of success and relevant backgrounds. If the entrepreneurs are very early in their professional careers, then the IIT/IIM tags matter more because they are proxies for successful pasts. MR ASHISH GUPTA, MANAGING DIRECTOR, HELION VENTURE PARTNERS

Helion Venture Partners has been one of the most active funds in the recent past, having made investments in Komli, Anantara Solutions and Amba Research within the space of two months.

The hit rate may seem low when seen against the hundreds of business plans evaluated by the fund team ever since the $140-million India-focused fund was launched less than a year ago, but Managing Director Ashish Gupta believes that the only way a venture capitalist (VC) can avoid missing a good deal is to see enough good deals.

Speaking to Business Line on how they do a deal, or walk away from one, and a host of other issues related to venture capital, Gupta said: "What we would like to make sure is that we see the deal and say no (and then later examine why we said no). There is often a fatal flaw that persuades us to walk away from a deal, but there is seldom a high point that convinces us to do a deal."

According to him, the attractions of businesses are usually a bunch of numerous facts that "all come together to paint a picture that seems attractive enough, despite holes. We spend time talking to the team, checking references and evaluating the team's ability to be flexible and tenacious." The fund team also spends considerable time understanding the need and value of the solution by talking to customers and other people in the space, and coming to grips with the execution challenges and the cash requirements of the business.

Entrepreneurial experience

Gupta, whose illustrious track record includes investments in Daksh and co-founding Tavant Technologies and Junglee, is now on the other side of the fence, helping entrepreneurs build world-class companies.

"Entrepreneurial experience helps in better appreciation of what it takes to build a company and therefore, more patience and empathy for the entrepreneur."

He added that it also enables one to interview people for a wider variety of roles and provides a better understanding of operations.

"Besides, one is able to be a sounding board on those issues too, which enabled the entrepreneur to be more comfortable with us as they appreciate our own experience."

Gupta is very clear about the importance of recognising that not all business plans fit into the scheme of things for all VCs.

"It is very important to us that we believe in the motivation behind the plan and not literally the business plan, because the business plan will change — that is inevitable as the company grows up. As the landscape and the plan change, we need to be willing to go together despite the change."

According to him, for the right fit it is essential that the fund team (which has four other members) and the entrepreneurs get along as professionals.

"A good interpersonal equation is a solid base on which one can then put changes in business assumptions and not have things go bad."

He also said that for someone backing entrepreneurs, there is the need to believe that there is a "reasonable business using some variant of what the entrepreneur is proposing, because then we can deal with changes. If one or the other of these factors don't fit, we would not like to participate."

For Helion, which finances companies across stages, the team of entrepreneurs is "probably the most important factor. Different teams have different styles and we work with their style."

Gupta said that there are things that they can add from their own experience or through experts in different functional areas that they can introduce to companies.

"We try to encourage the management team to identify and measure metrics for gauging the progress in the business and these metrics yield most of the gaps."

According to him, there are several drivers of successful venture investments.

"One driver is to remove inefficiencies in an existing business, another is to fill in a hole in a product offering, yet another would be through innovation that can then cause one of these other factors."

Helion is active as an investor. "We consider it to be one of our strengths. The degree to which we would be involved is determined by the entrepreneur, because there we believe in not crossing the line between helping and interfering."

Gupta is very clear that at the end of the day, it's the entrepreneur and management team that will run the company.

IIT/IIM tag

VCs in India have been, and continue to be, accused of a bias towards entrepreneurs with IIT/IIM tags. Gupta agreed, and offered his reasoning of the phenomenon.

"The bias is towards backing people who have some validation of success and relevant backgrounds. If the entrepreneurs are very early in their professional careers, then the IIT/IIM tags matter more because they are proxies for successful pasts."

Similarly, if the product is highly technical, then being from an IIT is helpful validation, he said.

However, he added that as VCs consider more senior people, these tags matter "very little, if at all. We must keep in mind that some people from IIT/IIM have a over-inflated view of themselves and are hard to work with — so these tags are not always good news." Strong words, considering that they come from a former IITian himself.

While the benchmark for VC performance is the return delivered to investors, Helion has another internal benchmark, Gupta informed.

"Which is: the number of entrepreneurs we work with who want to work with us again. If that latter number is high, and we backed good people, then we would have done our job, because good people come back to work only if things went right both financially and on a day-to-day basis."

Every backer of entrepreneurs must be careful of the potholes on the VC road, which contribute to failures in investments. But Gupta thinks it would "probably be more appropriate to ask: Where is the road in the middle of these VC potholes?"

Role of incubation

Incubation is often cited as an approach that minimises the risk of failure. "We believe that this is a crucial part of cultivating entrepreneurship. We have not yet incubated any company, even though we work closely with a couple of IITs with their incubation efforts."

Is there a right profile of an entrepreneur? Gupta said that this question is practically impossible to answer, "because it's hard to put a pattern on entrepreneurs' profiles. I take a case-by-case view."

Now that India has become the hotspot for the venture capitalists of the world, many professionals are seriously contemplating a career in venture capital. But Gupta warns that this is a small industry with notoriously low predictability of success or continued employment.

"Too many people are interested in the venture business these days, much like 1999. I would exhort those who are just starting their careers to get some work experience before jumping into this business. It will better equip them to do venture investing, to earn the respect of entrepreneurs and to secure a long-term career without being dangerously dependent on it."

http://Venturions.blogspot.com

D. Murali
C. Ramesh

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