“IN REALITY, WE’RE ASKING OURSELVES THE QUESTION: CAN WE MAKE MONEY?”

“IN REALITY, WE’RE ASKING OURSELVES THE QUESTION: CAN WE MAKE MONEY?”

Kumar Shiralagi has been part of the Indian venture capital space for almost a decade now. He’s seen India’s entrepreneurial ecosystem grow steadily over the years and, in this freewheeling chat, discusses with us the various elements that make up a thriving startup ecosystem.

What is missing in the Indian startup ecosystem and what do we need to bridge this gap?

The startup ecosystem in India has definitely evolved over the last 10 to 13 years. At a broad level, let us look at the various factors – both external and internal to a company – that shape up an ecosystem. Externally, factors include regulations, government’s role, infrastructure, legal frameworks and availability of funding, among others. Internally, in a startup, the issues are the same across the world – how do you sell your startup’s concept to a prospective employee, how do you convince your first few customers, how do you manage rapid growth and so on. From an India perspective, the external factors continue to be a problem. That has its own toll on entrepreneurship but we need to understand that we have no control over these factors and have to work around them.

From my own experience of leaving corporate life to become an entrepreneur, if nothing else, the accelerated learning and the thrill of addressing challenges with a dynamic team in itself is enough to take the plunge.

I recently heard a simple poem by late D.V. Gundappa (noted Kannada writer). He, very succinctly, talked about how any learning happens in four ways. He attributed 25 per cent to each of the following four factors to facilitate learning and hence, maturity to take place: one, mentoring or teaching; two, practice or sheer hard work; three, what you can learn from your peers facing similar issues currently; and four, the aspects we can learn only with time. I think this is completely applicable to the Indian startup ecosystem. We certainly have hardworking people, both as entrepreneurs and employees. We’re getting better in terms of mentorship and in learning from other entrepreneurs. It is certainly a good evolution story and we are in the middle of it. There is no point comparing our ecosystem with ecosystems in Silicon Valley or China, which have been there much longer. As time goes by, the Indian startup ecosystem will continue to improve and thrive. For now, we are happy with the progress we’re seeing but, of course, things could happen faster so we can showcase more success from India sooner.

How would you rate the deal flow in terms of quality and quantity, for a fund like IndoUS Venture Partners?

The companies funded by angel investing groups and those funded by family and friends feed into firms like ours. Particularly in the last five years, there are several angel investors across the country and as I said before, we’re seeing more and more quality entrepreneurs, who’re ready for venture capital funding. So, I’d say supply of deals is pretty good, but we’ll never complain if there is more supply. As more angel-stage funds and those who help startups, grow in India, entrepreneurship will grow.

Which sectors are you excited about?

As a fund, we’d like to see a little bit of technology used by companies we invest in. I’d say, these companies can operate in any sector, but the use of technology adds a barrier to entry and helps entrepreneurs sustain that advantage over some time. At times, technology allows them to scale more easily or contribute to profitability. Having said that, we’re interested in various technology and enabled plays – telecom and mobile value added services, knowledge process outsourcing, software, software products, e-commerce, clean tech, healthcare and education. At a broader level, we look for two trends: consumer-driven businesses that have a large market in India and two, the opportunity from cost arbitrage and offering services from India for global companies.

We definitely look for capital efficient businesses, as an early-stage fund we cannot look at capital-heavy segments. The partners in our fund have been entrepreneurs in the past, and one thing we also look at is whether we can be useful to the entrepreneur in that business.

What are your limited partners expecting from IndoUS Venture Partners?

The answer is simple – limited partners are interested in funds that can give them a good return on investment keeping in mind the India-centric risks and advantages. Any differentiation as a fund that allows generation of that return is attractive to them. The other important aspect is to look at whether they can continue to bet on the team to repeat successes. They don’t want a one-trick pony; a sustainable partnership between the limited partners and the fund managers is crucial. This is also important from a fund manager’s perspective to have long term supportive investors.

A clichéd question: what personality traits do you look for in the entrepreneurs you fund?

As an early stage venture capital investor, we look for aggressive go-getters, who can get things done. If something doesn’t work out, they look for alternatives. We’re looking for people, who’re endeavouring to grow their business at superb growth rates but in an ethical way.

In the Indian system, I think we can put entrepreneurs into two distinctly different buckets. One category is fairly conservative for whom failure is not an option. They’re focused on bottom line, dividends and cash-flow. The second category is looking to build businesses very quickly, a typical early stage entrepreneur anywhere on the globe, ones that’ll be far ahead of the rest in case of a success story, but the risks are high as well. As a typical venture investor, we mostly look at the second category. Having said that, the first category becomes interesting if the valuation is right in a reasonably-growing business. In reality, we’re asking ourselves the question: can we make money? The valuation at which we invest in the company becomes crucial. Not only do we want a good business to be built, but we want to build it faster and make a good return as an investor. This may sound like an oxymoron but there’s enough evidence that good entrepreneurs make this happen not too infrequently.

Some other crucial traits we look for in entrepreneurs include integrity, execution strength, clarity in thinking, ability to change the end goal based on market circumstances and the ability to stay nimble.

In addition to capital, where can IndoUS Venture Partners help a portfolio company?

Since we are an early stage investor, the needs of each company and our ability to help can be very different. In many cases, we act as the first port of call for a CEO. We can be his sounding board, but it is the CEO who is responsible for making decisions and running the business. To give you an example, one of our portfolio companies was recently looking to acquire a company bigger than itself. In such cases, the fund manager’s experience and inputs can certainly be useful.

In another case, a fund manager’s expertise can come in handy while convincing and hiring people. Sometimes, the person you’re hiring will be more experienced, more highly paid than the entrepreneur. Our CEOs also call us to brainstorm ideas and evaluate multiple options they have. In some cases, our own career experiences can be very valuable to them and help them make a decision more conclusively. As people with strong backgrounds in technology, we’re also able to help entrepreneurs with technology-related decision making. But we need to be clear – the final decision lies with the entrepreneur, we try to think along and ascertain the rationale in the decision making process.

What are your thoughts on salary levels of entrepreneurs running early-stage startups?

It completely depends on the stage at which the company is at and the ownership structure. We don’t want entrepreneurs to take a cut on their lifestyle, but, they have to win through building a great business, not by taking a big salary. We want them to succeed enormously and want our success to be tied to theirs.

Would you like to suggest a few ideas for the startup ecosystem in India?

There are several ideas from a regulatory perspective, but I am not going to talk about those here. At a broad level, I’d love to see more awareness about success stories of entrepreneurial ventures, more focus on lessons learnt from various experiences – both successes and failures. We also need to alleviate the stigma associated with failure in India.

There is one other thing. There’s a lot of great talent available in India and several working professionals do have the capability to become entrepreneurs. But most of these people are not even considering entrepreneurship as an option. If somehow, we can improve the catchment area and get more and more people to think entrepreneurial, it would be great for the ecosystem. From my own experience of leaving corporate life to become an entrepreneur, if nothing else, the accelerated learning and the thrill of addressing challenges with a dynamic team in itself is enough to jump. But if and when it becomes financially rewarding, you can only wonder why folks don’t do it sooner.


Kumar Shiralagi

Current Avatar: Managing Director, IndoUS Venture Partners
Past Avatar: Head, Intel Capital; India Co-founder and Chief Operating Officer, Lytek Corporation, Arizona
Education: MBA from Thunderbird, the American Graduate School of International Management; PhD and MS in Electrical Engineering from Arizona State University
Past and Current Boards: Sasken Communications, Tejas Networks, Sharekhan, Real Image, Attero, Microqual, CarZ, Basiz