SAIF Partners evolving philosophy of investments: in conversation with Mukul Singhal

SAIF Partners India made three seed stage investments in the last three months – Appiterate, Toppr and TouchTalent. With the likes of MakeMyTrip, JustDial, MindTree in their portfolio, SAIF Partners India is generally known for writing larger cheque sizes for growth stage startups. The venture capital & private equity firm currently managing over US $1 billion of investments in India is now actively looking to make more investments at seed stage and will be announcing few more new investments soon.

To understand SAIF Partners evolving philosophy of investments - from large scale private equity to growth stage startups and now seed investments - we spoke with Mukul Singhal, Principal, SAIF Partners India. Mukul is devoting hundred percent of his time looking after the seed stage investments at SAIF Partners. Mukul has been active in the Indian venture capital space for close to a decade and is on board of PropTiger, Zovi, FirstCry and TV9.

Edited excerpts of our conversation with Mukul:

Exponential growth of Indian entrepreneurs and markets

If I compare my 2007-08 venture days and today, there is a phenomenal difference in quality of entrepreneurs. It is not an incremental shift but an exponential one. The increasing maturity of entrepreneurs has excited us to look at the seed stage investments. The entrepreneurs today are capable of creating large values and we want to be a part of this journey from early days. We didn’t see high quality engineering or product talent starting up or joining early stage businesses. The opportunity cost for them was very high. Doing a job was much more rewarding than choosing entrepreneurship.

Given a few successes we have seen in India, be it billion dollar IPOs of MakeMyTrip or JustDial or be it the traction and growth of Flipkart, all this has added a lot of value to the entrepreneurial ecosystem. Now people from premium institutes, big companies come out and start up.

Many students are trying out stuff while they are in college. They have a fail-quick-learn-quick approach and it really helps. By the time they actually hit a point where some business model works, they have already tried out many different things for more than 15-20 months. These guys start up and come to us after many iterative cycles and with a solid business model.

The markets have also started responding now. About 7-8 years ago this was not the case.

With the rapidly growing internet population and mobile growth, people can experiment quickly and at a cheaper cost. This is a luxury which was not available earlier.

Seed stage investments at SAIF Partners

We are a stage agnostic fund. We have written cheques from 300-400K to 30-40 million. We are gravitating towards early stage startups now. I spend 100% of my time in seed and early stage investments.

The motivations of investing in growth and early stage startups are very different. Growth stage investment lifecycle is different, the cheque sizes are larger and hence it takes more time to write those.

 We started making seed investments last year and it took us some time to answer all the questions from an investment making perspective such as what kind of businesses will we like to do, how do we support a large portfolio as our team is not very big etc.

Last year, we did only two investments. We were in a learning phase. Now we are very confident and for the last 6 months, we have been writing an average of one term sheet every month all for the seed stage.

We are very excited about consumer internet and mobile space. We are excited about great teams solving big consumer pain points. To top that, if businesses can get validated in small amounts of money, say a million or two million dollars, we would like to invest in such businesses at seed stage.

Startups solving the needs of large fragmented markets are very interesting to us. We are excited about working with startups which are providing a piece of technology to say real estate brokers or to auto dealers.

We are fairly strong in our consumer segment portfolio and are interested in consumer internet and mobile even going further.

SAIF Partners recent seed investments include Toppr, Appiterate and TouchTalent.

 Trends in seed funding segment

 Markets are becoming larger and teams are becoming stronger. The ability of teams to survive has increased.

Three, four years ago, teams were very much dependent on equity financing. Today, many teams coming to us are hitting revenues of 5-10 lakhs per month. They want financing but they will not shut down in 6 months if they don’t get it. Startups have become more iterative in nature. They keep trying till they hit their dream business model.

There is a lot of fragmentation happening in the seed stage investment sector too. The role of angels has increased a lot. Today, raising 40-50 lakhs is easy, even before entrepreneurs come for funding. The friends and family role has increased. Of course, there is a lot of liquidity and it is easy to raise 50 lakhs now than it was 4 -5 years ago.

Career in Venture Capital industry

 An investor’s life is not glamorous, though it might look so from an outside industry perspective.

I entered the VC industry at an Associate’s position and my entry was accidental. I had started an online DVD rental venture with one of my college friends. Our assumptions were not right, we thought we would close in 5-6 months if it doesn’t work. In the meanwhile, I was talking to Alok Mittal for funding and when we decided to shut shop I called Alok to keep him updated.

He was starting Canaan India that time and he asked me to join him. I did not know V of VC at that time. I was getting married, I wanted a job in Delhi and Canaan was in Delhi. Everybody on the team had great work experience and education. It was a great opportunity for me and I jumped in.

I still have a good equation with Alok and we had very good 3 years working together. Professionally, it made a lot of sense for me to shift to SAIF Partners. SAIF Partners had a very dedicated India focus, since the time of MakeMytrip and Justdial.

In my view, in the business of venture capital all that matters is the team. This is a very lonely career. Generally there are just 7-8 people in the firm and if 3 of them are travelling, you are sitting in office with just 4 people.

It is very important to like the team you are working with.

The biggest challenge in the VC industry which people don’t see is that the exit career options are really less. It is a long lifecycle industry. You make a mark in 15-20 years. If something goes wrong, the exit options for you are very less.

Many MBA students reach out to us with queries about how to enter the VC industry. It is their ultimate goal after completing education. My suggestion is that it is not for graduates fresh out of college.

If I could reset my birth clock and graduate in 2010 or later, I would start something of my own and get my hands dirty.

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