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Mukul Singhal, SAIF Partners: “Every time we evaluate a startup, we ask ourselves if it makes sense to invest 20-30 million dollars on the team”

Team YS
8th Jun 2012
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It’s not often that you find yourself chatting with the vice president of the VC firm that backed blockbuster successes like MakeMyTrip, JustDial and One97. So, when we at YourStory got an opportunity to interview Mukul Singhal of SAIF Partners, we found that conversation flowed easily, with insights into the startup ecosystem being dispensed (and recorded) with glee. Prior to joining SAIF in 2010, Mukul worked at Canaan Partner. He is currently Vice President at SAIF. Mukul is a TiE Charter Member and actively participates in the Indian entrepreneurial ecosystem. He holds a B.Tech degree from IIT Kanpur and an MBA from the Indian School of Business, Hyderabad. Below are the excerpts from the chat:

Typically, what is the size of investment that SAIF Partners is comfortable with?

Well, we’re a sector and stage-agnostic fund. We’ve done growth stage and late stage investments, typically in the 10 to 20 million dollars range and we have put more than 200 million dollars out there. On the early stage side, we have done deals where the first cheque is somewhere in the 1 to 5 million dollars range and then, over the life of the company, we invest more. Companies like MakeMyTrip, JustDial and One97 have received early stage investments from us. So have FirstCry and Istream. So, if you are trend-spotting, you’ll see that these are classic technology-run companies where scalability and sector potential is high.

 Are there any sectors that specifically interest you?

At SAIF, I focus on early stage investments and by nature of that business, we typically focus on technology, media and platform-driven businesses.

 But SAIF Partners have been betting big on e-commerce. You have five e-commerce companies in your portfolio.

Yes, that’s right if you’re including MakeMyTrip and HomeShop18, which are now big companies. The young companies, which have seen investment from us in the last 12 – 18 months, are Zovi, FirstCry and Inkfruit.

 So, what are your views on the current state of the e-commerce industry? We hear a lot of buzz about how more than 25% of the transactions fail at the payment gateway level and how there are so many issues on the cash-on-delivery (COD) front, among other things. We’d love to hear your thoughts on this.

As a sector, e-commerce is growing in the country. As a business or as a product, consumers have adopted the business. There’s the hook of convenience or the hook of pricing or the hook of availability. It’s a case of different strokes for different folks. But consumers have accepted that it makes sense for them to buy online. So, e-commerce is doing well, in essence.

There are some players who are doing a good job while some have had problems with execution. But that’s a part of the game. In our country, the peripheral infrastructure is still evolving. So, there are challenges like deliveries, payments, COD, etc. Hence, the company which delivers on these fronts will succeed. It’s really that simple.

And yes, it is true that failures do happen in payment processing. I’ve seen companies where the failure rate is 30% and some where it is at 10%. It all really depends on the efficiency of your execution. Ten years ago, many retail companies had started because there was a boom in organized retail and we can see that some companies have shut down while others have executed well. It’s likely to be a similar story with e-commerce.

 If there’s something we love asking investors, it’s about how many plans they look at. What’s your score?

On a yearly basis, we look at about 1000 ‘serious’ plans. I wouldn’t know about the ‘non-serious’ plans at all, because the first interaction might not have even started. Somewhere, an interaction happens where somebody from our team does a call with the entrepreneur and understands their business; the chances of further meetings occurring depend on what stage the plan is in.

How many investments is SAIF Partners looking at, for 2012?

On an average, over the last 4 or 5 years, we do around 4-6 Series A funding rounds. We can do a couple of single stage deals where the conviction on the team and the business is very high. By single stage, I mean we’ll probably do a 1 million dollar deal. That’s not very typical of our fund. But we can do that occasionally.

In 2012, we’re seeing a lot of investments in cloud-based education businesses. What, according to you, is driving this trend?

There are 2 sectors which have not done well from a venture investment perspective, in spite of them having big offline markets. One is education and the second is healthcare. People spend a lot of money to educate their children and on their health. We also come across a lot of education and healthcare plans. I don’t think there’s a specific reason behind the rise. At times, there are regulatory issues and sometimes, the maturity of the offline market is an issue. But now, we see a lot of traction from the entrepreneurial community and I think, in the next 2 years, we should see some activity in those 2 sectors. Over the last 12 months, I’ve seen a few interesting startups in the healthcare sector and hopefully, some of these companies will mature and we’ll see investments into these businesses.

As an investor, what are the top 3 things you look at?

The top priority is, obviously, the team. The size of the market and the viability of the business to scale up and create a big outcome, are other priorities. We’ve invested in MakeMyTrip, JustDial and One97 and they’ve all gone on to become very big. MakeMyTrip went on to pull off a million dollar IPO and JustDial will go down that road as well. The one thing we’ve realized through these experiences is that if you have to try and achieve a big outcome, the team is very important. We also look at market size, scalability, etc. But at an early stage, all these parameters are not visible. The only thing that is visible is the team. So, that’s our first vote of call. Every time when we evaluate a startup, we ask ourselves if we can invest 20-30 million dollars on the team.

What are the major challenges that you see in early stage technology companies in India today?

Getting the right talent on board is the biggest challenge, irrespective of sector, type of business and capital availability. It doesn’t necessarily mean that if you have a lot of capital, then you’ll be able to attract the best talent; it really depends on many factors. “Can this team hire the right people?” has become an important question for us.

 This issue has come up multiple times. Is it just the ability of the team? In India, we haven’t had too many blockbuster exits. So, high quality people in big companies don’t seem to have created value for themselves and equity at early stage is not a very common thing. How do you think this can be fixed?

We definitely haven’t seen too many examples where employees have created value out of these exits. The exits are very small and we barely see them. So, I think some of these issues will get resolved with time as we see more exits and as we see more employees of big companies creating value and getting attracted.

To accelerate that process, we can do a few things. From a venture ecosystem perspective, we’ll have to try and be fair while deciding on the remuneration policies. We should not create bad examples because that hurts the entire ecosystem. At times, when the company is doing well, the investors and founders should consider if they can give some liquidity to employees who have done well.

What are the three pieces of advice that you’d give to entrepreneurs who are in the early stages of starting up?

Well, that’s a difficult question. But let me try to put this in perspective. After all the hoopla over e-commerce in the venture ecosystem last year, many people wanted to start a business because they thought they could make money quickly. I think that’s a very wrong motivation to startup. Money may or may not come. You must start when you have clear passion and conviction and when you understand the business. You shouldn’t start something just because some other people have started similar businesses and are making money. That’s a wrong motivation and I haven’t seen any success stories when that’s been the motivation. Also, when you’re starting a business, many people start exploring capital too early in their cycle. Before exploring capital, you should spend time on the ground. Validate the assumptions and hypotheses first. While doing that, you should bounce it off at least 2 to 3 people in the network who understand both investments and entrepreneurship. Starting a business one day and getting into meetings with 20 VCs the very next day, trying to raise 5 million dollars, just doesn’t make sense.

We at YourStory.in thank Mukul for his time & valuable insights. Do share with us your view on thoughts on this story by writing to us at feedback@yourstory.in

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