“The Only Questions That I Ask Myself Are Whether I Am Good At What I Do And If I Am Having Fun. Right Now Both of Them Seem Alright”
Gopal Srinivasan, MD of TVS Capital, has the knack of getting the message across. As a speaker, moderator of a panel, or in a conversation, he makes you think—think in the right direction. He is amply clear in his arguments and doesn’t mince words. His insights are a result of a deeper look at the issues rather than surface skimming. His ability to think clearly and summarize his mind are informed by his razor-sharp focus on the essentials of entrepreneurship and what it should do. As an investor, he thinks he should get the best deal and return maximum returns on investment.
In this interaction with YourStory on the sidelines of TiECON Chennai 2012 held on December 4, 2012, he speaks his mind and emphasizes on urgent need for more early-stage funding in India. He is strongly of the view that Indian capital can only fuel the nation’s growth and efforts are underway to general Indian capital to invest in Indian companies. He starts with consumer Internet and his view is devoid of hype (which is a bit flattening) that surrounds the space.
What do you think will happen to all the money going into early stage consumer Internet companies?
I think it will drastically reduce. A large amount of consumer Internet is like small-scale industry. The emphasis in the coming years will be on deeper and more fundamental technologies where there is some significant impact that it can provide, like deeper research in semantic search, or derivatives of big data analysis. Otherwise, the general consumer Internet companies which do event management and sends invitations are like the guy starting a restaurant. They will come and go. The deeper technologies are the way to go from an investment perspective.
What sectors according to you is seeing some massive activity in the startup space? How will technology be leveraged in these fields?
If you look at any angel fund, they'd get almost 200 to 300 applications a month. I see a lot of scope right now for health care and education. Take the average Indian who is nearing 45, whose daughter is, say a doctor, and son is an engineer; the areas that this outfit is most likely to be consumers in will be in the space of education and health care.
As far as how technology will be leveraged in this field, I think people have figured out very smart ways of using technology these days. Today for any kind of business to run, technology will be an integral part of it. It is going to be very difficult to get away from technology. If it is going to be a technology only company, it has to solve a very deep problem.
What drives your investment making decisions? What is your overall vision?
Having a great product is absolutely critical. Other factors may or may not be there, and we can help them out on that, but the product has to be phenomenal. Secondly, the management team should be equally passionate about the product and we'd like to share a good working relationship with them. Thirdly, there should be a shortage of the product in the next 4–5 years. If there isn't going to be a shortage, then there is no point in investing in the company.
Our vision is to make money. People have allocated money for us to return twice or thrice that amount. So we're very clear about what we want to do. But it is also very important that we do it in the most ethical and professional manner. I work for my investors. The only questions that I ask myself are whether I am good at what I do and if I am having fun. Right now both of them seem alright.
What is the most unconventional business that you have invested in?
We are not at all interested in anything unconventional; we want to make money. We are growth investors and we are all boring people with that respect to making exciting investments. Our job is, if you give me 1 rupee, after 4 or 5 years I will give you back 2.5 rupees. Multiplying an investor’s money thrills us.
What are your views on VCs and the foreign influx in the growth funds?
There is a lot of foreign supply in the growth funds, but if you're talking about early stage VCs, it is pretty weak. You can count the number of early stage VCs in India and the Rs. 5–10 crore cheque is a big problem. There are five to ten guys doing it right now, but we a need a lot more. As of 2011, there were at least three times more men and women with at least 15 years work experience and an engineering type degree than they were in 1991. Similarly, the number of companies needing that early stage funding is also a lot more and consequently we need at least 40 to 60 funds which are writing those Rs. 5–10 crore cheques. The growth funds are always there, watching for companies which are eligible, but there is a huge shortage in the early stage funding space.
What is the cause for this shortage and how can it be addressed?
Without a domestic long-term capital flow, you can do absolutely nothing to change this and today, there is no long-term domestic capital flow. Do you think some university professor sitting in California is worried about development of consumer Internet in India? We need more Indian capital funds and there is little or none as of now.
If you look at what America did to become one of the largest producers of oil, Wall Street created huge 20- to 30-year bonds to finance American oil companies and people took it. Today America is the number one producer of oil in the world. Only your own capital pools in the long term can solve your problems.
We have to work with pension funds, make stroke of the pen changes so that pension funds can invest in other areas. We must do something similar to what China did with the CIRC (Chinese Insurance Regulation Commission), which allowed 10% of the funds from the insurance pools to go to PE and VC funds. Such initiatives are already under way and it will take place in the next two years or so in India. That is the solution.