Sateesh Andra, venture partner at Draper Fisher Jurvetson (DFJ) India, founded Euclid Software and led product development and engineering in companies such as Wipro, Tsqware and LSI Logic, before turning venture capitalist last year. DFJ has invested in 11 companies here so far out of a $100 million India allocation from a $650 million global fund. The firm’s portfolio includes companies such as mGinger, Cleartrip, mChek, Reva and Seventymm. DFJ has so far been a somewhat cautious investor in India with a preference for co-investment deals. But this month it broke the pattern with its first solo investment in online education company Catura Systems. I chatted with Andra, who is based in Hyderabad, on the ‘phone last Saturday on what DFJ’s India moves here on. Edited excerpts:
How do you assess DFJ India’s performance in terms of your deal run so far?
Like many other good venture funds, we’ve done well. We’ve been investing in India for a long time. The Draper name is not new to India (William Draper’s Draper International has invested in companies such as Rediff and Geometric Software). Eventually exits and the value you create for portfolio companies will determine success. And we all know that in India there have not been many venture exits yet. So today if you were to apply a metric and measure success, particularly in the absence of exits, you look at which fund’s portfolio companies have raised follow-on funds. In that respect we have done well. Seventymm, in which we invested quite early ($2 million in 2005 with ePlanet Ventures) has just announced a round closure ($12.5 million led by NEA-IndoUS Ventures). Likewise, several other portfolio companies of ours will be announcing follow-on round closures throughout this year. That our portfolio companies are being able to raise follow-on funds from new investors is a decent benchmark in terms of our deal track record so far.
You did your first solo deal (Catura Systems) this month. Are you changing track from your earlier bias towards co-investment/syndicate deals in India?
To begin with, we were never averse to both approaches. Yes it is true that in a bunch of our deals we’ve had syndicate partners. Sometimes what happens is that we find the deal, do the due diligence and are ready to invest but getting in a partner also makes sense. So if it was a $6 million round, we’re okay to put in $3 million in the initial tranche. It is not that we could not invest $6 million. But if we believe that a partner investor can add value to the company, maybe from a domain expertise perspective, we are not averse to doing a syndicate deal. On the other hand, we could also be completely comfortable going solo, even upto $10 million. So it is really deal dependent.
You’re happy to continue to invest from the global corpus?
Yes. See one of the main reasons people like us is that we invest from a global corpus. The second reason is our strong domain expertise in areas such as consumer services, clean tech and healthcare. In China and India we’ve looked at other sectors, outside those three. And there’s a third reason people like us — our riskmaster approach. People perceive some of our deals as fairly risky deals but we’re willing to go in and do them. If we invest from a global corpus we are not limited in terms of what we can do.
Business plan contests are all the rage now. Do you see value in reviving the TiE DFJ India Venture Challenge? (The TiE DFJ India Venture Challenge in 2006 was among the first venture capital-promoted business plan contests in India. NCE Technologies and Vegayan Systems won the contest)
Yes there are tons of business plan contests now, too many. Wherever I go, I tell people, why don’t we talk and maybe have just four contests, one for each region — west, east, north and south. And maybe just one every quarter. Each region could focus on a theme. Say one could focus only on seed-stage plans while the next one could be for Series A stage companies. I’ve been involved with five TiE-ISB Connect events. There’s this plethora of business plan contests and my belief is that you have to organize and streamline all this to get real value out of them. The approach DFJ has taken in the US and, in fact, that’s what we did even with the DFJ India Challenge, is that the winner gets a cheque from us and this money is converted into equity when that particular company raises funding (Vegayan and NCE received $75,000 each). Our goal was to encourage entrepreneurship and say if you win this plan just go an execute on it. The TiE Canaan piece was done very well, I thought, because even if a company didn’t win it got access to a team of mentors for a couple of months to polish its idea.
The early stage deal market in India has been unusually busy in the last year. Any concerns?
One concern is, and we have seen this even in the US market, that every venture capital fund will have one investment in a popular space, such as security or virtualization or cloud computing or data centers. What happens, therefore, is that you have ten startups that have raised a healthy amount of money and they end up confusing customers. If only 2-3 startups were funded the chance for those startups to survive and grow is higher. But when you have 6-8 startups funded, all of them are going to run into each other and end up confusing the customer and confusing the market. There is a little bit of that syndrome in spaces like online travel, etc. in India. It happened a lot in the BPO space. The second concern is that there is tonnes of money right now in India but there is a huge gap in the very early stages, the less than $1 million space.
Finally, in terms of investment themes, anything specific that you would like to see more of in the deal market?
Well broadly, the Indian market offers a few buckets of opportunities. First, the better-faster-cheaper model. You take a global process, put up operations here and deliver the service offshore. Second, businesses that are betting on domestic growth. This would include infrastructure, hospitality, healthcare and other ancillaries. These business models don’t offer huge leverage from a venture investing point of view. Third, localization of some globally successful business model. Take for instance, online travel. The fourth bucket is game changing innovation, disruptive business models. These are the businesses that will create maximum value and therefore promise unusual returns. We would like to find businesses in that space.
Photo Courtesy: DFJ