In love with businesses

In love with businesses

Sanjay Kamlani, angel investor, serial entrepreneur and founder of Pangea3, the legal process outsourcing firm that he exited, says it is the process of building a business rather than a glamorous product offering that keeps him thrilled. Kamlani explains: “How do we grow our teams, how do we synchronise seamlessly between clients, employees and investors, how do we maintain a very high retention rate? – it is dealing with questions like these that energise me every single day.” That is the sole reason why he has slowed down his angel investment endeavors to pursue his next entrepreneurial stint

S. PREM KUMAR

I first interviewed Sanjay Kamlani in late 2011, when this magazine featured an article on Mumbai Angels, the angel investor group that has played (and continues to play) a crucial role in enabling India’s entrepreneurship ecosystem. Kamlani was then active as an angel investor, having exited two companies he had founded – OfficeTiger and Pangea3. Both these were outsourcing firms serving the U.S. market and several founders of Mumbai Angels’ portfolio companies would seek Kamlani’s expertise when setting up a U.S. sales office or while hiring in large numbers.

Kamlani, while still working on Pangea3, as a part of his agreement with Thomson Reuters (the company that acquired Pangea3), was an active angel investor constantly evaluating deals, mentoring, advising and often investing money in entrepreneurial teams. But, one fine day, he realised that the spark of entrepreneurship and running his own business was something he was missing. To be sure, Kamlani never ran companies that sold exciting products. Rather, his expertise was in building outsourcing organisations that scaled rapidly, the latest being Pangea3, a company that hired lawyers in India to work for legal firms in the West for a fraction of the cost. More importantly, the entrepreneur was an expert in building exitable businesses, ones that would give wonderful returns to the investors, employees and, of course, the founding teams as well.

Even as Kamlani made his bets on startups as an investor, he’s now back to being an entrepreneur full-time. He has founded Promoto, a company that aims to be a LinkedIn for the unorganised workforce in India. The idea is to build a digital profile for drivers, maids and cooks, among others, with details on who they worked for, at what salary levels, complete with the references from their bosses. Promoto’s features include visual resumes, security ratings and skill certifications, helping its members win the confidence of prospective employers and even people scouting around for matrimonial contacts! Additionally, the startup aims to provide its members with access to health insurance, training programs, banking and loan facilities, all with the goal of enhancing the economic stature of its members. After all, Kamlani has hit upon a glamorous product idea in a space that can have tremendous social impact as well.

For the inaugural edition of The Investor Questionnaire, S. Prem Kumar sat down for a quick chat with Kamlani on the sidelines of APEX ’14, the annual venture capital and entrepreneurship event, organised by Chennai-based Venture Intelligence, a leading information provider to the venture capital, private equity and M&A ecosystem in the country. This is a part of a 12-month series with some of the most exciting angel, venture capital and private equity investors in India.

Tell me about what happened behind the scenes during the Pangea3 exit. How did the multiple investor groups react?

Overall, we had three investors groups – the angel investors, the series-B group that joined in 2006 and Sequoia Capital that invested in 2007. By 2010, we had grown to a team of 600 professionals with a US $30 million revenue run rate and a 25 per cent EBIT. It was also a time when our competition was planning several big moves. They were raising huge amounts of money to invest in technology and also planning major forays into the U.S. and U.K. markets, probably through acquisitions. So, we had two options: one was to raise that kind of money and scale up rapidly, or, two, we could exit the company giving good returns to our investors. The investors who had come in earlier (the angel and series-B groups) were happy to see us exit, but Sequoia thought it’d be a good idea to explore an IPO and bring in even greater returns. Then we worked out the math (essentially evaluating risk vs. reward) and said if we meet a particular exit number (a particular valuation) we’d sell the company. It was a nuanced approach; we met the number, so we sold the company.

The investors who had come in earlier (the angel and series-B groups) were happy to see us exit, but Sequoia thought it’d be a good idea to explore an IPO and bring in even greater returns. Then we worked out the math (essentially evaluating risk vs. reward) and said if we meet a particular exit number (a particular valuation) we’d sell the company.

In addition to the usual suspects – of a great team, big problem and large market – what makes you say yes to a deal? What makes you say no? 

You’re right. The usual suspects – especially the team – are the most crucial. To me, what is really a deal clincher is the ability of the whole team to have its hands wrapped around several aspects of the business; be it financials, customer acquisition and presentation, technical understanding or overall understanding of the industry they operate in. Fundamentally, the belief is if you don’t know how to run a business, you can’t build one. The founding team needs to have the ability to think through each and every aspect of business building. In the Mumbai Angels, however, I sometimes make investments based on gut and the fact that some one else from the group (who is an expert in the field) is willing to make a bet on the company.

Tell me about a time you got lucky as an angel investor. 

(Laughs). It happens all the time. As part of Mumbai Angels, I invested in this gaming company called Rolecule. The founding team certainly met all the criteria we spoke about above and I wanted exposure to gaming as a sector. But, I didn’t foresee some of the moves the team would make. Rolecule built an iPhone app that would enable the use of an iPhone as a motion controller. With the iPhone paired with an Apple TV, this Rolecule powered app enables gamers to play motion control games, just like what we do with Nintendo Wii. (Rolecule’s first game to use this technology was Motion Tennis that is sold in the App Store for US $7.99). Essentially, the technology enabled the Apple TV to become a gaming console. I’d say that was a lucky break and something that continues to have unbelievable potential.

Please take me through a pitch from an entrepreneur that was really, really good. 

That would be a pitch from the founders of this company called Karmic Lifesciences. I was taken aback by how much the company’s plans looked and felt similar to Pangea3. The company was into clinical process outsourcing for oncology, but they were winning customers for the same reason we were (at Pangea3); the level of professionalism they showed with all their stakeholders was similar to ours. Even while making the investment, I knew the company would not scale like a Rolecule Games potentially could. This was a services business just like the ones I had run, and I went ahead to make an investment as an angel.

How do you foresee the venture capital ecosystem evolving in India over the years? 

For starters, I believe there are going to be many more, successful exits. Often, when you focus too much on the ones that fail, you miss the big picture. I also think, VC firms are looking deeply at picking the right companies and supporting them based on their own expertise. For example, if one looks at funds like Matrix Partners and Nexus Venture Partners (which specialise in technology businesses) or Deepak Shahdadpuri’s DSG Consumer Products Fund (specialises in consumer products, especially food), all these are betting on specific areas where the partners have developed deep expertise. Maybe, we’ll see a lot more of that in India.

At a macro level, there are some people who’re negative about India as an investment opportunity. I’d say they’re missing obvious advantages of having a market with a billion people and more importantly mis-interpreting the purchasing power of these people. Obviously, this is not a fresh statement but I am reiterating this, as I believe a stronger consumer market is going to emerge in the future.

What is the key to build an “exit-able” company? Because, people often say don’t built a business to exit it; build one for the long-term. 

I think the key here is to not only build a core team but also a much larger team that is passionate about the business. An acquirer has to believe that the people in the organisation are going to take it forward after the founders leave. All employees at Pangea3 had good stock options; over time, they stayed with the company for a long-time, took up leadership positions; and essentially for us, building that team really allowed the exit. Of course, this is true in my particular scenario.

The other aspect that we looked at was what service lines do we focus on with clarity. We said ‘no’ to a lot of requests knowing that these wouldn’t become a core business in the future.

Tell me about your latest investment and why you invested in the company? 

I recently invested in a company called Canary, a smart home security system initially targeted at the U.S. market. The product looks really elegant, almost like a Bose speaker, one that you can place in a living room. Once you put the product in a room, the device learns patterns of sound, vibration, moisture and movement in the house (in that particular room). It alerts you on your iPhone or Android if there is anything unusual and at that time you can choose to see and listen to what is happening at home on your phone. This method of home security was something instantaneous, cost-effective and very simple for a user to use. While the launch is in the U.S. market, I believe this will be a wonderful product for India as well. I loved how the product was elegant, simple and so very well designed to be user friendly and consumer-centric.