If We Don’t Find a Company in a Space, We Will Create it: Sudhir Sethi

[media-credit name="Snigdha Sengupta" align="alignnone" width="150"][/media-credit]Sudhir Sethi, founder, chairman and managing director, IDG Ventures India, has believed in Indian technology companies for as long as I can remember. He started his career as a venture capitalist with Walden International in 1998. That stint saw him seed MindTree, among other companies. At Bangalore-based IDG, which started investing from a $150 million India-dedicated fund in 2006, Sethi and his team have invested in ten companies so far. There is some talk that the firm may start raising a second fund in the latter half of 2010, but this could not be officially confirmed. Here are excerpts from a conversation that I had with Sethi a couple of weeks ago about what else is going on at the firm:

Define your investment strategy

We invest in young companies, four or five years old at best, with a disruptive technology or business model. The company must be based in India. It must have the potential to dominate the market in India and also the ability to go global at some point.

Are you satisfied with the way this strategy has played out so far?

We have invested in ten companies and are in the process of completing our eleventh investment. Over Rs 300 crore has been committed to our companies. We have adhered to our strategy of investing in early stage technology companies. The deal flow is healthy. We typically invest $1-5 million per company and we tend to be the first institutional (Series A) round. In 2010 we expect to invest in another 6-7 companies.

How do you break up your sector/segment focus?

We focus on seven broad sectors. One, software products and services, with a high focus on business intelligence and analytics, security and mobile applications (Manthan, Aujas, iViz). Two, engineering and manufacturing, which includes aerospace, automotive, industrial, aftermarket services and  robotics. ConnectM is an aftermarket service company. Three, energy and waste management. Again, ConnectM has a large practice in energy management where 1 million square feet of space is already being managed. 10 million square feet is targeted in the next 12 months. Four, healthcare/medical devices. Perfint, a minimally invasive medical device maker for biopsies is an example. Five, Internet, mobile value added services and e-commerce (Kreeda, Ozone, Apalya, Myntra, 3D Solid Compression). The last two, education and telecom-semiconductor-wireless are yet to see investments.

Technology companies, particularly in India, take longer to mature and deliver returns to investors. Many of your peers have diversified into broader sectors to spread their risk. Doesn’t the singular focus on technology constrain you?

There are a number of under-served sectors within the overall technology space, as stated earlier. Hence, we don’t see the need for investing outside out stated focus sectors. We invest in disruptive technology companies who have the potential to be global leaders from India. Within our portfolio companies such as 3D Solid Compression – read the June 2007 profile by Startupcentral – Apalya, iViz, Manthan and Perfint fit this bill. Also, investing in technology companies is not for everyone. We are extremely convinced that it can be done and we understand the risk.  If we don’t find a company in a space that we are convinced about, we will create it. It does take longer in India to create a technology company and you need patience. You also have to understand product pricing, positioning and marketing.

But there are challenges…

It is difficult, yes. Recruiting the right people in such companies is very tough. The skills required in product management and development are very different from services. In services, the customer tells you what to do. In products, you are ‘architecting’ and pricing it. It is difficult to find those skills in India now. So the solution is to treat India as one of your geographies and build global products.

How are portfolio companies faring in raising their next round of capital?

We just completed Series B in Manthan, with Fidelity as the lead investors. Perfint is raising a $9.6 million Series B. We’ve invited global value-add investors to participate. Also invited Series B participation from select investors in ConnectM.