New agenda: VCs are thinking small, and beyond IITs

It’s not very often that venture capitalists throw light on what interests them. In the panel discussion on VC opportunities in India, at the AVCJ private equity and venture capital forum 2012 held today in Mumbai, VCs from across the industry discussed both entry and exit opportunities in India.

VCs finally think small

Venture capitalists in India are increasingly taking notice of opportunities in early stage investing or pre- revenue stage. Not only are the number of angel investors and networks increasing in India but growth stage venture capital funds are also signing smaller cheques.

“None of us know what the next big thing is. Our model is to invest in multiple sectors and cut low cheques. And we make it a point to only co-invest with other partners, " said Pankaj Jain, venture partner at 500 Startups.

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While 500Startups works as an accelerator-fund model, some of the more established players in this space are also following suit.

[caption id=“attachment_549301” align=“alignleft” width=“380”]  Although e-commerce has been an investor favourite till now, VCs are exploring growth opportunities in various sectors. Reuters[/caption]

Helion Venture Partners, which invested in ticketing site Redbus is also exploring opportunities across sectors. “We have to go in early. We are exploring and identifying some sectors. We reach out to some companies through app stores, attend developer conferences and we are beginning to talk to companies even before they have a revenue model, " said Rahul Chandra, MD and co-founder, Helion Ventures.

Not about IIT

Venture capitalists today realise that making a business successful is as much about the right team as it is about the business idea. Today’s VCs also recognize the need to innovate to find entrepreneurs. " Today founders of companies are wearing tee shirts and jeans and hanging out in bars. So, we also hang out with them at bars, " said Jain.

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But a uniform thought that most VCs share is that It’s not about funding entrepreneurs who come bearing tags. Vani Kola of MD at Kalaari Capital for instance feels that although being an IIT graduate carries recognition, that does not mean that every IIT graduate is a great entrepreneur. “IITs do not create great entrepreneurs, but great engineers. In India, IITs don’t attach value in entrepreneurship,” she said.

Sectors of Interest

Although e-commerce has been an investor favourite till now, VCs are exploring growth opportunities in various sectors. 500 Startups for example focuses on internet-backed companies in tourism, jobs and the ecommerce space.For Bessemer Venture Partners, the focus is on cloud, and also healthcare.

Helion on the other hand is betting big on ancillary services to ecommerce such as delivery and payment.

Show me the exit

A venture capitalist comes in with one constant eye towards the exit. While it is established that the M&A scene in India for the startups is weak, there hasn’t been much deliberation on the alternatives.

Should VCs keep waiting for the up cycle or actively look for buyers internationally?

With most startups now developing global products, there is a new window opening for them to get acquired by companies across markets. Jain of 500 Startups is confident that the M&A scene in India will improve mainly because traction is becoming the new intellectual property. While Kola argues, that there isn’t much money in the local M&A game and both companies and funds should gun for international acquisitions.

Exits depend on a number of factors - macroeconomic environment, sectors and strategic investments. But VCs unanimously agree that it may not be advisable to go with exits in mind. “It’s hard to put value to exits while getting into sectors. Exits are also sector driven and one shouldn’t go with the exit size in mind,” said Chandra.