Why PE funds are betting big on young entrepreneurs for their start-ups

By: and |
New Delhi | Updated: August 19, 2015 10:23:48 AM

If twenty somethings find they’re able to rustle up millions of dollars from venture capitalists for their start-ups, it’s because fund managers...

Investors have learnt that what twentysomething entrepreneurs lack in experience, they make up for with the fire in their bellies.Investors have learnt that what twentysomething entrepreneurs lack in experience, they make up for with the fire in their bellies.

If twentysomethings find they’re able to rustle up millions of dollars from venture capitalists for their start-ups, it’s because fund managers believe bankrolling young blood will pay off. Consider Ritesh Agarwal, the 21-year-old founder of budget hotel marketplace Oyo Rooms — he has managed to get $150 million already. Indeed, Ravi Gururaj, chairman of Nasscom’s software products council, estimates that in the last year alone, close to a hundred entrepreneurs under 30 would have won the confidence of angel investors or private equity firms. To be sure, many of them are graduates from the Indian Institutes of Technology but as Gururaj points out, they’re also
excellent at articulating their ideas.

While Agarwal raised no less than $100 million from Japanese marquee investor SoftBank a few weeks ago, another wunderkind, Shashank ND, the 28-year-old founder of the healthcare app Practo, has raised $90 million from a bunch of investors including Russian billionaire investor Yuri Milner.

And Aditya Rao, the promoter of the hyperlocal start-up LocalOye, barely 25, has raised $5 million in funding from Tiger Global management and Lightspeed Venture Partners.

Investors have learnt that what twentysomething entrepreneurs lack in experience, they make up for with the fire in their bellies.

Gr5

Also, it’s easier, they believe, for young minds to come up with innovative solutions. As Indian Angel Network partner B Hari explains, they understand both technology and consumers well and that’s key given the pace of changes. “From Google to Facebook to Ola, most of the disruption is caused by the young entrepreneurs,” Hari points out. Indian Angel Network’s members have invested in more than 20 start-ups whose founders were in their 20s.

Shailesh Vikram Singh, partner, Seedfund, a venture fund that invests in early-stage companies, told FE that investors always keep in mind the ability of the founders to run the company, giving that criterion as much consideration as the innovation and value creation. “You need mental stamina to go through the lean phases and senior people tend to fall through faster than the younger lot,” Shailesh observes.

It’s no surprise then that the portfolios of PE players such as SAIF Partners, Seedfund, Matrix Partners India, and Lightspeed Venture Partners have businesses whose founders are anywhere between 20 and 30 years old. For Hari of Indian Angel Network, it’s “the irrational and different way of looking at life” that attracts him towards youngsters. “That’s how they come up with innovative solutions to big problems. Sometimes, experience is a big disadvantage since seniors don’t always look at things with open eyes. It’s good to have a mind which is not conditioned,” he says.

Rao of LocalOye says it’s relatively easy for young entrepreneurs to go through the grind as they have much less to lose. “The entire ecosystem is built in such a way that more young people are taking that chance rather than the older lot,” he says.

While Oyo is now backed by Sequoia Capital, DSG Consumer Partners and Lightspeed Venture Partners, it wasn’t always easy going. Agarwal recalls it was was tough not only to convince investors but also to have people around you to trust your brand. “It was a challenge, especially because I was extremely young,” he told FE.

“It’s not like Ritesh had in-depth experience in hospitality and hotel reservation business. What it takes is a lot of urgency, execution on the ground and able to attract talent,” says Gururaj, of the Oyo Rooms founder. All the co-founders in Housing.com, as Gururaj points out, were in their 20s.The realty portal shot to fame when Japan’s SoftBank invested $90 million in it along with New York-based hedge fund Falcon Edge in December 2014.

Indeed, the Silicon Valley culture now seems to be all-pervading; some of the global funds that backed extremely young entrepreneurs who built companies such as Facebook and Snapchat are here. And start-ups such as Ola, Zomato and redBus began life when their founders were in their 20s. Practo’s Shashank has been approached by several global investors — including the $90 million it raised earlier this month from investors like Tencent, Sofina, Google Capital, Altimeter, Sequoia Capital, Matrix Partners and Milner, his firm has raised a total of $125 million so far.

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