Sarath Naru is the managing partner and founder of Ventureast, one of the first venture capital (VC) companies to be set up from the South. It has done very well. Naru works out of both Hyderabad and Chennai. We choose a Tuesday to meet in Chennai—as he usually leaves for Hyderabad every Wednesday—and decide to have lunch at the Taj Club House. It is serving south-western coastal food made famous by Karavalli, Bangalore’s award winning restaurant in the Taj Gateway. The iconic eatery has just turned 25 and its chef is visiting to make sure the food is authentic.
When the Andhra Pradesh Industrial Development Corporation Venture Capital Fund was being privatised, Naru and three of his friends managed to acquire it and that led to the establishment of Ventureast’s first fund. He tells me about it as we order starters. Fortunately for me, the menu has a good variety of vegetarian food as well. I ask for cashew fritters with fresh coriander and onion. Naru orders prawn roast with Kerala spices, one of Karavalli’s most famous dishes.
This was the first time when a government-promoted VC fund was privatised. The World Bank had chosen Andhra Pradesh as one of the entrepreneurial states to help set up a VC firm. However, the World Bank was not happy with the way the government ran the business, so the decision was taken to sell it to a suitable party.
An IIT Madras graduate, Naru has an MBA from the University of Chicago Booth School of Business. After working in the US for several years, he had returned to India. He and three of his friends decided to bid for it.
“There was a panel of eminent men from the public and private sector vetting the bidders. Among our competitors were big names such as Crisil, Videocon and Mahindra Finance. We made a presentation saying VC firms have to be entrepreneurial and run by owner-managers. We said we were good entrepreneurs and showed them the figures.” Naru and his partners sold their story successfully. They paid R21 lakh to acquire the company but were thrown a challenge. They were told the fund already had $6 million and they had to bring in $3 million in another six months or they will lose the company.
“We had no experience in raising money. We went on road-shows to five cities in the US. We addressed NRI doctors, family and friends, and managed to collect the $3 million needed.” SIDBI (Small Industries Development Bank of India) came in, which has since then invested in three more funds. LIC is another investor.
Naru decides to check out Karavalli mutton curry and I ask him to share with me raw mangoes cooked in chillies and coconut, and Kerala sambar. Apart from rice, there are appams and flaky Kerala parathas to go with the main course.
Ventureast was established in 1997. Since those days, Naru has directly invested in and overseen investments in more than 70 early-to-growth stage companies across technology, life-sciences, healthcare, consumer goods and infrastructure services sectors. The company has launched five funds. “We have worked with multiple stages of investing. Initially, it was seed-stage and incubation fund. We had an office inside IIT Madras and launched a $2 million fund for those enterprises which were being incubated there. We no longer do seed-stage funding.”
I ask Naru about his life-sciences fund. “It is India’s first life-sciences fund and was launched by us in 2004-05. There was already IT boom taking place. So we thought this may happen in life-sciences as well. We invest in early-stage companies in this field. Many others invest when the companies have scaled up a bit.”
Naru tells me that traditional life-sciences are extremely challenging to invest in. “Drug discovery does not depend on human effort alone. Once you discover a drug, clinical trials will prove to be a very complex process. Most importantly, you will have to find a global partner.”
He prefers to back medical devices where regulatory process is a little less complex. Ventureast has recently invested in US-headquartered DiabetOmics Inc, a growth-stage medical diagnostics company with India operations. It has raised its Series C round of funding worth $4 million from Ventureast to drive manufacturing and commercialisation in India.
Naru is of the opinion that there is a lot of promise and future in digital medical wearable devices. He also believes in the services side in healthcare. One of the companies he is investing in is Portea, a home healthcare company.
In 2008, Ventureast launched its Proactive Technology Fund. “These are exciting times. There is a huge shift taking place among entrepreneurs. A lot of youngsters are coming up with a lot of cool ideas. They think the VC has to be young to understand them. However, at the end of every mobile act, you have to connect with the real world. You have to think of things like back-end, supply chain and so on. If you take online furniture selling, one has to consider customisation. No two homes in India are alike. No two doors are the same size. That’s why a grey-haired VC can be of great help,” says Naru.
As we are pondering about ordering dessert, Naru tells me about an exciting technology-heavy company which wants to sell footwear online. Shoes are not as popular online as apparel is. There are problems such as proper fit, comfort and having to return and reorder. Now, pilots are being done by this enterprise which allows you to take three pictures of your foot to send to the website. It will tell you which brand and size will fit you! “I have checked out 14 companies around the world which are trying to do the same thing. These guys are way ahead.”
Although dodol, the jaggery sweet from Goa, looks tempting, we decide to skip dessert and enjoy a cup of filter coffee. Most of Naru’s investments, almost 90%, are made in the South.
“The quality of the new entrepreneurs, their bold business ideas, their communication skills have become very impressive over the years,” says Naru. His funds are structured for 10+1+1 years. “Good times come to those who wait. We have managed to generate returns as high as 45 times the investment. We are now on our third generation of funds. Our investors must be happy.”