The Vani Kola View on Early Stage Investments & Launch of IndoUS Fund II

Some call it the helicopter view. Seeing things from the top not because they perch themselves on top, but as they get deeply entrenched into the system, they get a wider sweep of the area under their coverage and that gives them the confidence and authority to take that helicopter view. Vani Kola’s investment philosophy seems to be working. As one of the funds that ventured into India post-2005, some of IndoUS investments have gone on to create a greater impact on the entrepreneurial space, giving birth to companies such as Snapdeal, Myntra and Via for example. With the launch of Fund II, keeping the basic investment philosophy in tact, IndoUS Venture Partners (Name change to be announced soon) aims to create companies that can create a global impact. Vani also believes that enabling great exits that will attract more entrepreneurs and investors into the system. We present the Vani Kola View for you – how she sees the investment space in India. Edited Excerpts:YS: Having seen early stage investments very closely in India since the past few years, what are the changes that you see in the way early stage investments are being done in India (especially in the last couple of years)?

Vani: Earlier, the venture capital community was interested in growth stage companies, a segment where highest returns could happen, whereas now there is an increasing focus on the early stage and even the seed stage companies. With the funding now available at the seed stage itself, I think the markets have dramatically changed in the entrepreneurs’ favor. A good entrepreneur with a good business plan can absolutely get funded today. There are a number of firms and partners that are focused on this space.

YS: You have an extremely diverse portfolio. What is your investment rationale?

Vani: India is a rapidly changing economy. The Indian consumer is a changing demographic right now and that will continue to be for the next decade or so. We look for new interesting business models, new services, and new scope for product innovation. This is going to happen because there is a change in consumer behavior and their perspectives on what they are looking to spend their discretionary wallets on. And, as we are early stage investors, we have to be a bit ahead of things; we have to be trend setters or trend spotters early enough. Our diverse portfolio comes from the fact that we are looking to invest in things early and the diversity comes from the changing consumer dynamics.

YS: Will we see any change in your investment strategy with the launch of Fund II?

Vani: Not with the investment strategy. Our investment strategy has always revolved around the emerging themes of India and to invest in them early. Our investment strategy has always been to look for entrepreneurs who have potential to become great business leaders and it has always been about spotting business models that can capture market share. So, we always look for those three things and that has not changed at all. However, there is a bit of skepticism about the Indian economy. There are issues in the last year that have happened in terms of access to capital, especially global capital that is available for India and with Fund II what we are pleased about is that we have a chance to do what we have always believed – that is to back early stage entrepreneurs. So, it is not a change in the investment strategy as much as continuing to look for emerging themes as we have done in the past.

YS: How was the experience raising funds around this time?

Vani: If you compare it with the scenario in 2005-06, all funds are finding it hard to raise money globally. Especially for India, it has become even more difficult. Most growth funds have been unable to raise money and among the early stage funds only a few funds have been able to raise money. So the number of firms that have been able to raise money and continue to actively participate in investing to some degree has shrunk. And, I think it comes from several factors including Indian regulatory environment and lack of clarity of the same. The lack of demonstrable exits from India has also negatively impacted investments. So compared to 2005, today global interest in India has definitely significantly reduced.

YS: For many marquee funds the focus has shifted from growth stage to early stage, how are LPs looking at this development?

Vani: They are looking at it as, “in early stage there is a chance to see value creation more rapidly.” In growth stage, unless the growth valuations change, there isn’t an opportunity for an investor to create attractive returns.

There may be value creation for the entrepreneur, and one thing that has been poorly understood is that – although there has to be value creation for the entrepreneur, they are the life fuel, but there also has to be a value creation for the investor. Unless both people are able to leverage and make significant returns, there is no opportunity to access the large global pools of capital.

YS: You have talked previously about start-up ecosystem evolving in India most definitely in the last two years, but what gaps do you think need to be addressed to give us equal footing in the global startup arena?

Vani: Most entrepreneurs think getting funding is the biggest challenge. When I was first funded, I was like oh, I have arrived and then it dawns that the real work has just now started! It is like you are out of high school, enter college and think you are done, but you are really not, it is just the beginning. I think sometimes entrepreneurs also look at fund-raising as the benchmark. Fund-raising is important because money is important to build your business, but that is not the real benchmark. The real benchmark is - what is the value creation that has been created from your products and services and how is that sustainable and at a scale, not at a small validation. And, that should be the singular focus of an entrepreneur, and secondly companies need continuous access to money and sometimes young entrepreneurs don’t realize that. Doesn’t matter even if you are a large company like GE or Tata or a smaller company like Snapdeal, you need continuous access to money to grow. And then, you have to work towards creating value for your shareholders.

YS: You have made very diverse investments over the last 6 years. Are there any personal favorites?

Vani: I don’t look at anything from the perspective of personal favorites. The truth is that all companies go through highs and lows, peaks and valleys, so a company could be doing everything right today, but three months down the line, they may take a small misstep and have huge issues that they need to deal with. Mistake could be because the market dried up, or could be because the product was introduced too prematurely, also because they lost a key team member or they miscalculated a product opportunity or they ignored competition way too much. Anything can happen and suddenly somebody who is a darling goes into the dumps, and we see this way too often. So you don’t celebrate way too soon, as they say, because it is a life-cycle. So to me it is not so much about companies, but about entrepreneurs who are willing to continuously learn and any true leader will realize very soon how little they know as compared to how much they need to know. It doesn’t matter what the stage of the company is – and this I believe is a life lesson no matter which field or which stage of life you are in. The more you advance, the more there has to be a growing realization of what is ahead and how much more to learn - so I think it makes it enjoyable to work with entrepreneurs who keep that aspect of learning fresh, because you get to see them grow on a daily basis. So I don’t think in terms of favorites, because some companies are doing well at this moment and some companies are not doing so well, but if I have to track that a year down the road, it may not be in the same distribution.

YS: How much time do you spend helping your portfolio companies?

Vani: I work very selectively with companies, so I don’t compartmentalize x number of hours for each company. It doesn’t work like that. I want to be in a situation where I can give them as much time as they want within reason. And, that again is a life cycle. I often find that in the beginning usually the first two years, they need a lot of time, and after that the kind of things that they need become more qualitative and less time intensive. They need less time but maybe more quality time in terms of what they focus on and so forth. Usually it is not a budgeted time that I give to companies, but it is really based on their needs, but often in the first two years they need a lot more time, not daily, but certainly every week but as they grow it is maybe couple of times a month.

YS: What are the top two things we can expect from your new fund?

Vani: I think what you will see from our new fund is that we are going to continue to take risks on people who are not yet proven and risks on markets that are not yet proven, but what we are looking for is people with deep passion for what they are doing and they have keen insights into the problems that they are trying to solve and have a deep understanding of the solutions that they create. We are looking for people who have the passion, depth and the focus to execute their convictions.

The second thing to expect from our fund is to help entrepreneurs figure out the next steps around exits. Mainly, because I think that it is very important for entrepreneurs to create stories that allow more entrepreneurs to come in. Google is a great story, Facebook is a great story, Apple is a great story; they have created something of significance and others want to follow in their footsteps. We want to do that in India, and still that is not yet proven here in India. We are looking for some global companies to be created out of India. We are looking for various different business models to emerge from India that is applicable because of the special approach that we have as Indians. So we are basically trying to invest in companies that are trying to put spotlight on India and put them on the global map.

YS: Finally, anything specific you want to share with our readers about Fund II launch event in Delhi on 28th of September?

Vani: We have a “meet and greet” open house and all information will soon be posted at YourStory.in. We exist because of the entrepreneurs’ willingness to take risks and build their dreams. And hence, they are welcome to come and attend the event the whole day, ask us any questions and give us advice.

We at YourStory.in thank Vani for her wise words, as always. To attend the launch event of IndoUS Fund II, click here ( invitations are limited, so do apply now! ).