When the Indian private equity and venture capital sphere witnessed a trickle of seasoned fund managers quitting their jobs to launch independent non-institutional funds, how could successful entrepreneurs stay away? Following in the footsteps of bigwigs such as NR Narayana Murthy and Azim Premji who donned the role of PE/VC investors, a new breed of young, first-generation, successful entrepreneurs are dabbling in the space with their own money.
Flush with funds, entrepreneurs like Naukri.com founder Sanjeev Bikhchandani, inverter-maker Luminous Power Technologies? Rakesh Malhotra and Aseem Chauhan of Amity University are the latest to have ventured into the venture capital field.
So what?s driving these biz kids to the structured investment genre? For Malhotra, launching a small and medium enterprise fund was an extension of his entrepreneurial persona. ?I?m a serial entrepreneur by training,? Malhotra quips. After having invested in a dozen businesses in 24 years, some that clicked and some that didn?t, Malhotra decided to fund other entrepreneurs. Having made R1,400 crore by selling 74% of his company?s stake to French energy giant Schneider Electric, Malhotra moved into the venture capitalism by launching Ncubate Capital Partners in late 2011 with a corpus of $40 million, of which about $30 million has been put by Malhotra himself.
?There is a huge appetite for businesses that are looking for early-stage investment and not too many funds are operating between the angel and venture stage,? he says.
He adds that early-stage investments require a very different skill set. ?We work as quasi-strategic investors who provide a fair amount of hand-holding and not just capital. We bring in value for small and medium enterprises, as we’ve been there and done that,? he says. Ncubate aims to raise another $150-200 million at a later stage. ?We will first invest the $40 million and with significant investments to show for, we will approach international LPs (limited partners, or people who invest in venture capital firms).?
Similar is the case with Naukri.com?s Bikhchandani. After scaling up parent company Info Edge to a market cap of over R3,200 crore, he is dabbling with VC endowments, investing out of Info Edge?s balance sheet. Bikhchandani is concentrating completely on the external investment wing of the company. Today, Info Edge as a strategic investor has invested in six web ventures, including Policybazaar.com and Zomato.com, with a total investment of over R100 crore. ?We see ourselves as strategic investors and therefore we like to stay in a company for as long as it takes. We’d like to put in a second and a third round,? he says. And is the VC model tested ground in India? ?Some VC investments fail, some succeed. Overall, VC funds have got positive rate of returns. There is a lot of money in India in the private market and it?s good for start-ups and entrepreneurs,? he says.
For Chauhan, scion of the Chauhan family best known for running educational institutions, starting and heading the VC wing for Amity University was a natural progression.
After having donned the role of the additional president, Amity Group of Institutions, Chauhan decided to take the VC route. ?The idea behind Amity Capital Ventures was to create employment generation rather than mere job seekers. Education and entrepreneurship go hand in hand and it has been an international trend with the likes of Silicon Valley and Stanford University leading the way,? he says.
The group first set up an innovation incubator but soon realised that availability of funds was the biggest challenge for start-ups. What followed soon was the VC fund with an initial corpus of R100 crore in mid-2011. A sector- and stage-agnostic fund, Amity Capital Ventures so far has made early-stage investments of R2 crore in nine businesses and are funding their incubating models.
After i-Gate bought out Patni Computer Systems in a $1.2-billion deal, Amit Patni floated a $75-million early stage fund, Nirvana Capital, in which Patni contributed a fifth of the corpus. He had pointed out that after having built a lot of businesses from scratch, he would rather look at venture capitalism, take a back seat, find the right promoter and back him.
Piramal Healthcare’s Ajay Piramal is also expected to float a second PE fund focused on healthcare and life sciences. In the first fund, IndiaVenture Fund 1, the Piramals had put in 8% of the seed money.
Experts point out that such a trend is positive for industry. Mayank Rastogi, partner, private equity and transaction advisory services, Ernst & Young, says that big groups such as Reliance, Tata, Mahindra, and Bajaj have already been doing large-scale structured investing, but with first-generation entrepreneurs, the segment is evolving. ?Interestingly, these entrepreneurs have made very successful exits in their business and VC/angel investments are turning out to be one of the big business opportunities for them,? he says. He adds that for the investee taking capital from an entrepreneur-turned-VC is far more attractive. ?Hands-on and practical experience of the entrepreneur-turned-VC is cardinal for the investee. Also, these established entrepreneurs are a big support in deal sourcing, which is critical for small and medium enterprises,? he says.