Inventus Capital Partners, a tech-focussed, early-stage venture-capital firm with presence in Silicon Valley and Bangalore, invests in India-centric ventures. It has invested in 13 companies so far through its $52 million fund and has begun the process of raising the next round of funds, of about $100 million. In this recent interview to Business Line ,, Mr Parag Dhol, Director, Inventus Advisory Services (India) Pvt Ltd, talks of the entrepreneurship scene in the country and the funding opportunities.

Excerpts from the interview:

Could you give us a perspective on the start-up scene in the country?

What we see happening is broad-based entrepreneurship. We are tech-focussed and early-stage, but the variation in the plans that we see is across the board. Our economy has been growing fast, but the friction pieces have been high or people have not optimised very well like it is in the advanced countries.

Some of the people we see are targeting 15 years of experience in the parallel industry, textiles for example, which is a very standard industry, but building solutions on top of ERP to solve those problems.

People have got their hands dirty on the tech side in the last 15-20 years, realised the underlying business problems and are solving them both for the domestic and international markets. The breath of entrepreneurship is exciting for us. Depth is still not there.

That depth would take a few more years to come, isn't it? Is that where the money is?

I think so. It is an evolution after all. It will take time. After a point of time the country also specialises in some areas, especially when you are serving international markets. That is what happened in Israel. It focussed heavily on security, for example. We will develop our own niches.

But I think the domestic part of the market is so big, it is now a $2 trillion economy, with its own set of problems to be solved. The domestic piece of it will remain diversified as a base. Money is to be made across the board. We don't believe that money is to be made only in the high technology end.

But this kind of entrepreneurship is still confined to the top cities?

That is broadly true. While we see a company in Chandigarh or Indore, they are exceptions to the rule. But what is happening is some of these guys, say, who are from Nashik and have lived in the US for 10-20 years, when they want to come back, between Pune and Nashik, they might choose Nashik. That might happen…a semiconductor company out of Belgaum that got funded by Indian Angel Network, it is beginning to happen, but is at its nascent stage.

Is it because of more opportunities in the bigger cities?

Availability of people is still an issue in small towns. In Bangalore, for all its ills, you can find the manpower. We have a company in Chennai, for example, and getting a good online marketing guy is proving to be a problem to solve than it would be in Bangalore. Similarly, we have a company in Pune which provides online marketing tools, paid search optimisation. It is finding it slightly more difficult than our Bangalore companies to recruit. Smaller the city, lesser the attraction for people.

What do you think is the biggest challenge for an entrepreneur?

The friction is still high in the system, in terms of whether it is the approvals required or whether there is a corruption element to it. Some of it is going away because with online registration of companies, you don't have to wait.

While the registration process has been smoothened, name approval takes for ever. Even basic things like setting up still takes a bit of time. In most advanced countries or even semi-advanced countries, you can do it in a day. India it is still not possible to do it in a day. Those are the government side challenges.

I would say that funding at an early stage still remains a question mark. It is becoming easier by the day, but it is still challenging to raise money. I think scaling is the next big issue. How big can it be?

Entrepreneurs identifying that opportunity which is large enough to interest a venture capitalist like us. Venture capitalist looks at making 10x the money within, say, five to seven years. Are entrepreneurs aligned with that goal as well as are the opportunities they are targeting large enough becomes a question for us.

Getting people, especially just below the founder level, attracting them to start-ups with the right attitude, and getting them used to a cost conscious culture are still challenges.

Could you tell us something about Inventus?

We are an early-stage, tech-focussed VC firm with presence in Bangalore and the Silicon Valley. We are an India-centric fund. We look to invest between Rs 3 crore and Rs 15 crore in the initial round, typically technology companies, technology being broadly defined as starting from semiconductors, embedded software, and software products and services to mobile value-added services and consumer Internet.

We have made 13 investments to date, seven in the US and six in India. One of which has exited as well; Sierra Atlantic was a US-India company which we exited. The company portfolio is shaping up nicely. We have a $52-million fund. We hope to make 18-19 investments in the fund

Which means you very soon start thinking of raising your next fund? Have you started working on it?

Yes, we have just started work on it. We are looking at a $100 million fund. We feel that this space, which is, investing somewhere between half a million dollars and $2 million, is under-served. We want to stick to that market and, broadly, the technology space.

Once the funds are committed, you get on board the company?

Yes, we are active investors. We contribute in whatever way possible…If he is looking at strategic inputs, changing the direction of his business, recruiting people, the next round of financing, strengthening his finance function or thinking about partnerships.

We have monthly board meetings, but we end up speaking with our entrepreneurs once a week or when a company matures, once in two weeks. It is a close relationship because we are tied at the hip. We succeed if they succeed. It is in our selfish interest to make them succeed.

Just as we choose an entrepreneur who we would like to invest in, the entrepreneur should also choose the VC on the kind of parameters you talked about.

How realistic are the valuation expectations of the entrepreneurs?

At an early stage, it is not a problem. In certain segments, e-commerce deals and travel to an extent, they have gone awry because lot of people are chasing it. But that is a small segment of the market. At the overall level, we don't find valuation to be an issue.

Of the 13 deals that we have done, we would have lost one deal on valuation concerns. Go to the private equity end of the market, those equations look different. There is a pressure to do the deal immediately.

When you cut cheques of more than $5 million in this country, the supply-demand equation looks radically different. That is why we want to stick to this space. This is very hard work, rolling up your sleeves and working hard with the companies for four, five or seven years only to see some of them fail, but this is what we believe in.

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