The Hindu Business Line : `The team is the clincher'

Venture capitalists are generally perceived to be reclusive folk, difficult to get in touch with and rarely engaging in public debate. But Alok Mittal comes as a pleasant surprise in the inaccessible world of venture fund managers.

The Executive Director of Canaan Partners (www.canaan.com) , who helped the company establish its Indian operations, Mittal is actively involved with Band of Angels (he's a founding member) and www.venturewoods.org, a blog that acts as an interface between innovators, VCs and anyone tracking the sector.

As a successful entrepreneur who founded JobsAhead.com and sold it to Monster for Rs 40 crore, Mittal is now on the other side, with the mandate of identifying opportunities, companies and people to build companies in the wireless, technology and Internet domains.

As one riding the crest of the second wave of VC activity in the country, he is confident that the right mix of VC support and home-grown talent can produce world-beating companies. "There is a lot of energy and enthusiasm we see in entrepreneurs. With the right quality of mentoring and support, I believe that some of these businesses can create large successes. We are very excited about the quality of entrepreneurs we are seeing in India."

His stint as an entrepreneur holds him in good stead as he is able to bring both perspectives to the table. "Having done it yourself gives a credible position to help other entrepreneurs in building their companies. Personally, a VC job is very exciting because you meet hundreds of entrepreneurs on a monthly basis, and each of them comes with new ideas, energy and perspectives."

Canaan is an early stage investor in IT businesses in areas such as Internet, wireless, BPO, productised services and software products. "We are seeing exciting ideas in each of these categories. One reason why there is such optimism around the entrepreneurial activity today is that there are some very large businesses that are just becoming feasible due to explosive growth in the Indian market."

However, the company is also willing to do a few seed investments "should we see the right quality of teams."

Canaan joined hands with Yahoo! to invest $8.6 million in the BharatMatrimony Group, which runs a clutch of matrimonial and classifieds sites, besides auto and property verticals.

While it is still early days for the fund in India, Mittal concedes that "startups inevitably involve ups and downs, and significant shifts in strategy and plans - that is what makes the startup journey exciting and valuable."

When it comes to funding companies, venture funds are known to prefer strong management teams with top-of-the-league educational background, but Mittal says there is no inbuilt preference for labels. "Educational background helps support the team background but is not a deciding factor."

However, he does underscore the need for a strong team, which sometimes can be a clincher in the fund's decision to invest. "Broadly, what we look for are large markets, unique and defensible value proposition, and great teams. Within those, some things become more important than others in a particular case. The only clincher can be a team - everything else is subject to a lot of uncertainty."

He goes on to add: "The management team is perhaps the most important single factor in making a company successful. Different people have different leadership styles and we are comfortable with that, as long as it is effective in achieving the objectives of the organisation."

Canaan specialises in early stage funding, being typically first round institutional investors. The fund's first round of investments is usually in the $3-5 million range, with lifetime commitments of $10-20 million. "On an opportunistic basis, we do some seed and late stage investments."

The company is also an active investor. "We lead most of the investments that we do, and we take board seats in companies that we invest in. Some of the key areas we involve ourselves include strategy, key personnel recruitment, business development, financing and exits. Ultimately, the entrepreneurial teams create successes, and we see our role as providing active support to them."

But Canaan does not incubate companies. "However, we do engage intensely with educational institutes in terms of education and guidance. At this point, we have ongoing relationships with several institutes, and we have sponsored activities as a mark of our support in some of those."

Worldwide, it has invested in more than 200 companies, generating 100 exits and more than 50 IPOs and 60 mergers and acquisitions.

It is active in the areas of communications, Internet and consumer technology, enterprise software and services and semiconductors.

Though VC activity in the country has seen resurgence in the past one year, the culture as such is nascent. "It will be what we make of it," says Mittal, who believes that one should always be prepared for the unexpected. "Sometimes the market doesn't pan out the way one had anticipated. Sometimes a better team comes along and captures the market. One has to realise that there is intrinsic risk in venture investing, and one has to accept those risks."

So, how does a VC minimise the risk factor? To begin with, by finding the right entrepreneur. "Apart from the right skills and background, we value the cultural fit with entrepreneurs.

In our active role as investors, it is important that both sides are willing to listen and have an open mind to business issues. Part of our due diligence during the investment process involves establishing this cultural fit."

Venture capital, like many other sunrise sectors, suffers from a lack of experienced people. For a career in the industry, the basic qualities aspirants need to have include "having a network, a high-level view of the opportunity space, ability to make decisions, quantitative skills and ability to add value to investee companies."

Mittal holds a Bachelors degree in Computer Science and Engineering from the Indian Institute of Technology, Delhi and a Masters degree in Computer Science from the University of California, Berkeley. Prior to Canaan, he led the technology practice at Baring Private Equity Partners India, where he focused on IT products and services, BPO, Internet and telecom. Before that he worked for Hughes Software Systems.