Patience with the team and with the market is required. That is what will make companies grow to the next level.
There was a bubble of energy in the cushy, white-tiled, glass-corridor office of Accel Partners. The sleepy Bangalore road portrayed exactly the opposite mood of what was on the other side of the glass conference room. A high-spirited presentation, followed by a feisty question-and-answer round. And as they were about to break for lunch, Shekhar Kirani, Partner at Accel Partners, pulled himself out of the conference to talk to Business Line about the trends in the venture capital industry and the risks or rewards of investing in early-stage companies. Kirani is a Ph.D. in computer science and a seasoned angel investor. The venture-capital firm is deploying money from its latest fund of $179 million, which it closed late last year. It invests in the Internet, education, healthcare, digital media and enterprise management/mobile sectors. Its portfolio includes Babyoye, EduPristine, Flipkart, Myntra, QwikCilver, SherSingh, SureWaves and Virident. Excerpts from the interview:
Being a global fund, what kind of investments are being made out of India?
Accel is in its third fund in India. It’s a dedicated pool of money to be deployed in India. The last fund was about $179 million. We are deploying money from that fund. The previous fund was about $69 million.
Our focus in India has been for early-stage seed-fund investments. All the investments from this fund are being done to help companies go to the next level. We’ve just started — we have done some 15-plus investments in that fund. Funds usually get invested over four years. We also keep some money aside for follow-on investment. We will continue to invest out of the third fund till 2014-15. Then we will raise the next fund.
You have made one late-stage investment. Is this in line with your investment strategy?
We have made one late stage investment. This was in Bookmyshow.com. We will not invest in some pipe-manufacturing company or some industrial company. We will never look at investing in brick-and-mortar. The company should be technology driven. Our skills are more in technology and technology-driven models that can scale fast. These investments are typically $7-8 million.
For very-early-stage companies, we invest as low as $100,000-200,000. Our sweet spot is around $1 million. However, if there is already a humongous investment — after angel investment — we’ll be on the board. This is mainly to prevent our investment from getting diluted.
What trends are you seeing in the industry?
From an Accel perspective, the number of entrepreneurs starting companies is significantly increasing. The number of technology companies that are trying to crack the established markets is also increasing. Number of founders who like start-ups is also increasing. There is sizeable amount of activity among accelerators/angel investors to help these start-ups to understand the basics of how to build big businesses and how someone else has done globally. There is decent amount of technology penetration in India. Companies are using the underlying ecosystem of technology and helping to disrupt the market place.
For early-stage investments, how do you manage the risk-reward ratio?
The venture-capital business is about managing risk and reward. It also depends on the theme of investment. We don’t take investments where there is average reward and high risk. The companies should seem like high ‘reward’ ones. Overall, patience with the team and with the market is required. That is what will make companies grow to the next level.
In which companies are you ready to invest?
We are looking at two companies — one is in the big data business. It is a global player. The other one is in the enterprise software space. Work is in progress. These are $1-2 million investments, because they have slightly established teams, products and little bit of revenue. They need someone to take them to the next level.
How do exits look for you, considering that most investors are struggling to exit?
We give nine to ten years to a company. Exit happens because the companies can’t grow on their own or they are running out of steam. Most of the companies we have invested in are doing well, so there is no need to exit at present.
For us it has to be a real exit with either a strategic buyer or an initial public offering. A strategic buyer shows interest only if there is value in the company. It takes time and is a challenge. Industry has to grow and more funds have to come into India.