The Hindu Business Line : It is ‘team, technology and traction’

Investors typically have to deal with an unproven team and unproven technology and, as a result, no real traction… All you have to go on is the team’s ‘can-do’ attitude, along with your educated guess of whether the market exists for that product.

— MR MOHANJIT JOLLY, DIRECTOR, DRAPER-FISHER-JURVETSON

Most venture capital (VC) funds that have set up shop in India tend to focus on companies powered by technology, the consumer Internet model or, in rare instances, old economy. Areas such as clean technology have not attracted the kind of attention as in the West, but a beginning has been made by DFJ (Draper-Fisher-Jurvetson), a VC fund that joined hands with Global Environment Fund to pump in $20 million in Reva, the electric car company.

DFJ’s investment in Reva is based on the premise that wealth creation and environmental efficiency can go hand in hand, says Mr Mohanjit Jolly, Director, who recently joined the company. In an e-mailed interview to Business Line on DFJ’s plans for India, the areas of focus and issues surrounding venture capital and entrepreneurship, Mr Jolly said that clean technology should get, is getting, and will continue to get interest from the venture world for a variety of reasons.

“First, you have the trickle-down effect of the wealth that is being created in India, leading to a booming automotive market where more people than ever can afford their own automotive mode of transportation. That obviously is leading to significant growth in fuel consumption, which is a finite resource.”

DFJ has a remarkable track record of having backed some of the most famous companies, such as Hotmail, Skype and Baidu. And it is definitely striving to add India to the list of countries where it has had an impact “in a small way,” says Mr Jolly.

Importance of Team

A firm believer in the importance of the right team, he defines venture capital as an activity that is all about investing in the right teams “who, driven by significant changes in their environment, find opportunities to change the world. India is going through a significant change currently and offers great opportunities for entrepreneurs.” These opportunities lie in a wide range of sectors, from infrastructure to the pent-up demand for mobile and Web technologies to energy and power. “In 20 years, the world will be looking back in awe of the technological advances that will come out of India. And DFJ absolutely wants to be a part of that innovation wave.”

So what’s hot? “IT-enabled services in traditional retail sectors through a combination of offline and online customer interactions; personalised mobile apps; clean and green tech; logistics and distribution and other infrastructure plays.” And what’s not? “Another online travel or matrimonial site.” Not surprisingly.

Mr Jolly added that traditional mobile apps such as ringtones, wallpapers and SMS apps are cooling off, falling between hot and not.

How bullish is DFJ on the mobile opportunity? “Very bullish,” he says. “With 3G spectrum being released, better, faster and more personalised services will be absorbed by those with growing disposable income. And at the lower end, you have a vast portion of the country adopting basic voice services and feel the thrill of simply being connected.”

Mr Jolly believes that “amazing things happen” when people are connected and information dissemination becomes real-time.

“That is the power of the mobile market in India. The phone is the computing and display device here. It is the “voice of the poor” and will be “the information source” for the middle class.” Stressing the importance of the team, he says that it forms the most important piece of the start-up puzzle.

“And that team changes with the company. The key for entrepreneurs is to realise when to finally let go of the reins, especially when the company grows to a size where more professional management is necessary.”

Talking of teams, it is a common accusation that VCs have an inbuilt preference for the IIT/IIM pedigree. And Mr Jolly pleads guilty: “Honestly, yes, there is an in-built preference for IIT/IIM pedigree in teams, which provides some level of comfort and risk mitigation around technology and general management.”

Entrepreneur Defined

On entrepreneurs, he said that though one cannot have a defined profile for an entrepreneur, they are “extremely passionate, often stubborn and can infect others with their passion. They are risk-takers and often don’t start a company to make money but to make a difference. Because, if they ‘make meaning,’ to steal a phrase from Guy Kawasaki, the financial returns follow.”

Being an evolving market, India does pose several challenges to the VC looking to back the right team and opportunity. “The key ingredients that VCs look at when funding a company are: Team, technology and traction. In India, VCs have region-specific issues to overcome. There is a churn issue, which I feel could be the Achilles heel for the country.”

Besides, he pointed to the cultural concept of honouring a contract, “which mentality, although changing, simply does not exist. As a result, VCs are often left questioning whether an announcement by a start-up of landing a multi-year contract with a customer is real or will evaporate after six months. The lack of infrastructure in India is another growth hurdle.”

Despite these challenges, DFJ has lined up $600 million for its quest for game-changing companies; for India the allocation is $75 million. “We are looking at monumental, not incremental, improvements. And for a core team that has the chemistry, the desire and the passion to want to change the world.”

To win DFJ’s confidence, the team would need to attack a big and growing market with a unique product or service offering. “But often it comes down to what most VCs won’t talk about, and that is ‘gut feel’.”

According to Mr Jolly, at the early stage, investors typically have to deal with an unproven team and unproven technology and, as a result, no real traction.

“At that point, all you have to go on is the team’s ‘can-do’ attitude, along with your educated guess of whether the market exists for that product or presumably will be there when the product is ready.”

To him there is no formula that a VC can point to ensure success. “At the end of the day, VCs are in the risky business of making educated bets.”

http://Venturions.blogspot.com

D. MURALI
C. RAMESH

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