To be a successful entrepreneur, one must be a good storyteller: Exfinity Venture Partners chief V Balakrishnan
V Balakrishnan, Chairman of Exfinity Venture Partners, reveals why startups were always going to be the next big thing out of India, why their VC firm decided to focus only on B2B startups, and why domestic investors made the cut instead of foreign capital.
Confidence, determination, creativity, discipline, work ethic, spirit, passion. An entrepreneur may have some or all of these qualities. But V Balakrishnan, Co-founder and Chairman of Bengaluru-based VC firm Exfinity Venture Partners, believes that there’s one trait common to successful startup founders: mastering the art of storytelling.
And Balakrishnan, or Bala, as he is popularly known, routinely looks for this before he and his team decide to back a new B2B tech company. In his own words: “In B2B, if you have to sell to an enterprise, one needs to be a good storyteller.”
Bala is an established figure in the information technology (IT) industry, having held the position of chief finance officer and board member at Infosys. Since then, he’s gone on to found Exfinity, which backs entrepreneurs with proven domain expertise and market know-how in areas such as mobility, cloud, software-defined hardware, IoT, analytics, AI, etc. The VC firm has, since inception in 2013, invested in around 16 startups.
The chairman always made his choices- unusual ones – and stood by them, be it joining Infosys, becoming a venture capitalist, or deciding to contest the Lok Sabha elections in 2014.
In the beginning
“Initially, I wanted to become a software engineer. But that did not happen and next best choice was chartered accountancy (CA),” Bala says. The fact that he liked mathematics and numbers helped, but the profession also attracted him because he could work on his own.
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In hindsight, things turned out well for Bala. “If you are software engineer and work in a company like Infosys, you will be one among two lakh engineers, but it is completely different when you are a CA,” he says. He started his career with Amco Batteries before joining Infosys.
That said, Bala did go on to join the IT company in 1991. At that time, it had revenues around $2 million and employed about 250 people. By the time he bid adieu to Infosys, the company had turned into a $8 billion giant with a market capitalisation of $40 billion and over two lakh employees.
His mother, however, he recalls, was worried that he was leaving a much larger company like Amco Batteries to join Infosys.
But Bala wasn’t worried. He had “some real highs at Infosys” like when the company went public in 1993 and became the first Indian entity to list on Nasdaq in 1999. He oversaw the company churning out its first billion dollars in revenues.
Lessons from Infosys for startups
He believes that his learnings at Infosys can serve as lessons to the startup community.
Bala recalls, “The IT industry took off after the 1991 economic reform and the whole idea was to scale up fast with a differentiating factor.”
The differentiation that Infosys brought to the table was to create and distribute wealth in a legal and ethical manner. The stock movement and dividend payment were stuff of lore for many ordinary shareholders of Infosys.
“Value does not come from earnings but from PE. Investors do not value our earnings, but how to have high PE. That will come when your investors trust you more,” Bala says.
For this, Infosys brought in a high degree of transparency and disclosure norms that met global standards. This also helped attract foreign investors as Infosys was one of the few Indian companies that met their standards.
Bala follows a simple, similar mantra: “Once you say the truth there is no need to remember that.”
Venturing into the startup world
After more than two decades at Infosys, Bala left Infosys in 2013 amid not-very-happy circumstances. Aged 49 then, he decided to venture into the startup world as it was too early to retire “despite being a multi-millionaire”. (Incidentally, Bala displays none of the trappings that money brings. He often drives a two-wheeler to office rather than take his chauffeur-driven car to escape Bengaluru’s infamous traffic.)
After thorough analysis, Bala decided that startups could be the next big thing from India after the IT industry.
The signs were clear. The IT industry had crossed more than $100 billion in revenues with high growth rates hitting a ceiling. This meant that good talent was looking for opportunities outside the sector. Secondly, a lot of capital started looking into the startup segment, and – last but not the least – even the government sensed that this could generate a lot of employment.
“We believed that this could be start of a good run for the startup ecosystem, though it was a bit early,” Bala says.
Exfinity Venture Partners was founded in 2013 as an “early-stage, frontier technology front that aimed to back companies driving innovation and business transformation across industries”. Other founding and general partners include T V Mohandas Pai, former board member of Infosys; Girish Paranjpe, former joint CEO of Wipro; and Deepak Ghaisas, former CEO of iflex.
The focus on B2B
Exfinity decided on a key differentiator when they started: the team was clear that it would focus on B2B startups and not on the B2C or internet economy companies such as Flipkart, Snapdeal, Paytm etc.
Bala reveals why they wanted to focus on the B2B segment, which is now the flavour of the season, and not on B2C startups. “At that time there were lot of investments into B2C as investors felt that there were success stories outside and these could be replicated in India,” he says.
But Exfinity team also saw that B2C companies require a lot of capital, which could be provided only by foreign money. Secondly, it was a winner-take-all market and with the kind of valuation these startups were commanding, exits were going to take much longer (requiring multiple layers of capital). However, Bala feels that Flipkart’s $16 billion buyout by Walmart was more of an outlier.
“When one looks at investment opportunities from the risk-versus-reward perspective, we found that B2B companies were better as they required less capital and were much more stable,” he says.
It also helped that the entire founding team at Exfinity Venture Partners comprised people who had considerable experience of working with large technology companies.
“We had a good understanding of technology and even though it was a bit early, B2B was better bet,” Bala says.
Money from domestic capital
Money plays a critical role for any VC firm, but Exfinity chose to take a different path on this front as well. It decided to raise capital from domestic investors after they found that high net-worth individuals (HNIs) and family offices focused their investments in three main areas: gold, real estate, and equities.
“We told them that if you have Rs 100, take Rs 5 and put it in the startup ecosystem. You may lose all of it because it is risk capital but if one gets value, this valuation will be much higher in the medium to long term,” Bala says.
Exfinity has raised Rs 425 crore in two rounds of fund-raising, all from domestic investors.
What does Exfinity look for?
Given his experience of working in the technology industry, Bala clearly understands what is required from B2B startups: “deep tech expertise” to solve “core business problems”.
On the qualities he looks at before investing in any B2B startup, Bala goes back to his favourite storyteller theme.
“Our focus is mainly on the founder. In B2B, if you have to sell to an enterprise, one needs to be a good storyteller. Developing a product is one aspect, but to communicate that is the most important thing,” he avers.
This storytelling capability helps a founder to not only to raise money but proves very valuable in selling to an enterprise.
Bala believes that the conditions are right for B2B startups in India, especially in a place like Bengaluru.
“A talent pool is available and with the presence of global tech R&D companies, it is cost effective to develop a product. One can also test the product given the complex and dynamic Indian environment.”
However, he adds that the ultimate value generation for B2B startups will be outside of India, especially in developed economies like the US or Europe.
A long-term game
Exfinity follows the technology themes for investment, including artificial intelligence, augmented reality, virtual reality, Internet of Things (IoT), and cloud.
This VC firm has invested in around 16 companies, some of which have gone on to raise Series A and B funding rounds. On their investment philosophy, Bala says, “We will not get into the PowerPoint stage. Only when their product is ready, market-fit is given with some customers.”
The firm also knows the importance of being a patient investor. “We are not just giving money and waiting for success. We are active participants in their growth aspirations.”
This extends to mentorship, bringing those connects into the ecosystem, helping with the go-to-market strategy, and hiring good talent.
Bala gives an example of a startup they backed. Initially focused on the India market, it later pivoted to the US after hiring top sales talent for better growth prospects.
When asked about young entrepreneurs and how they take to mentorship, he says, “Ultimately it depends on the idea you bring to the table. These are young entrepreneurs; they may have a strong view on what they want to do, but if they think you are adding value, they will listen to you.”
According to Bala, the performance of Exfinity Venture Partners has been just like any other VC fund with “divisions of superior return, moderate outcome, and some laggards”.
He says he has no regrets on the investments made or misses he has had. “The first rule of any investment is to never judge yourself in hindsight. In life, you have to move on. Some will be bad; others will get you a return.”
Today, he feels justified about decisions made six years ago as B2B startups have now taken centre stage. He says he has seen a few changes among founders of B2B startups. “They are more global in their appeal and more flexible in terms of hiring outside talent, especially in operational roles like sales or execution,” he says.
Speaking about the way ahead, Bala says, “We are not fighting for the league table. The whole idea of starting this was to attract domestic capital to the startup ecosystem.”
In the end, as advice to aspiring entrepreneurs, he says: “If one has to do something extraordinary, which has not been done in the past, it is very important to narrate a story to generate interest. Entrepreneurs who do that will succeed.”
(Edited by Teja Lele Desai)