Being friends with entrepreneurs is the biggest value that VCs can provide: Pankaj Makkar of Bertelsmann India Investments

Pankaj Makkar started his career in 2003 as a Senior Manager at Astro, an investment company, where he was responsible for making strategic investments in India. A certified chartered accountant, the Indian startup space had always held his interest, and so, in 2011, after graduating from the Harvard Business School, Pankaj transferred from Bertelsmann, New York – a media services and education company - to India.

Back home, while still with Bertelsmann, he started working on developing businesses, and his earliest clients included companies such as publisher Penguin Random House, services company Arvato, customer experience business Majoral, and digital media group RTL. He also established the Bertelsmann Corporate Center in Noida 2013, and helped launch Bertelsmann India Investments, soon after.

After spending almost a decade at Bertelsmann India Investments, Pankaj now heads the corporate centre for Bertelsmann India, and is the Managing Director of Bertelsmann India Investments, which features startups such as Licious, Pepperfry, Treebo, Saavn, and Quikr in its portfolio. 

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When Bertelsmann India started its venture capital arm in 2013, many thought it would mostly focus on becoming a media-centric venture capital firm.

However, Pankaj said the general mandate at Bertelsmann Investments is to make an investment in anything digital, and anything education.

"We can do media, as well as services like BPO. Having said that, a lot of these companies fall under the ‘digital’ category. So that’s the mandate for us.”

When entering the market, Bertelsmann did not want to be a ‘me-too fund.’ While many funds focussed on early-stage investments, Bertelsmann focussed on the Series C and D-stage startups.

“For us, the idea is not to be sector-specific, but look at capabilities and understand if there are capabilities, which are very difficult to replicate, and that’s what we call a complex business,” he says.

Pankaj recently spoke to Siddhartha Ahluwalia on the 100X Entrepreneur podcast – a series featuring founders, venture capitalists, and angel investors – by Prime Venture Partners.

Exiting Saavn 

For Bertelsmann, a typical cheque size is between $5 million to $15 million, with $10 million being the average the first time it invests.

“Our total exposure to the company can be anywhere between $20 million, to $40 million in the lifetime of the company. Having said that, we obviously think about ownership, and we would like to have double-digit ownership – preferably 20 percent – in a company to start with, so that would be either exit at 20, 15 or 12 percent,” says Pankaj.

Online music streaming service platform Saavn, by Reliance Jio, has been the company’s biggest exit so far. 

“It was a very typical journey that any VC would go through with a good startup. We did see hyper-growth” Pankaj says.

Bertelsmann invested in Saavn’s Series B round, at a time when it had a lot of competition from other players.

More and more music streaming companies started cropping up after Saavn proved strong market traction for its services, and at that point, Bertelsmann realised it had to make sure the company was placed far ahead of its competitors if it wanted to have a fighting chance at dominating the industry.

“We were lucky to have found the right home for the company with Reliance Jio,” he says. 

In March 2018, Reliance Industries acquired a majority stake in Saavn to become JioSaavn, which was possibly the biggest transaction in the Indian music-streaming market at that point. The deal was valued at $1 billion.

Promoting growth

“I think it is important to realise that as a partner, we should choose areas to invest in where we can help our companies,” Pankaj says. 

As a ‘partner’ of startups, Bertelsmann focusses on not only spending time with the entrepreneurs and helping them think about life, but also assist its portfolio companies with human resources operations such as training and hiring.

“When companies are in a growth stage, they have to hire a significantly large number of people. If a team is about, let’s say, 100 to 150 people, by the time we invest in two to three years’ time, it goes to about 500 to 2000 people,” Pankaj says.

Consequently, and inevitably, the company culture goes for a toss, and Bertelsmann helps its companies think about that, he added.

The investment fund also helps its companies in sales and marketing, but the biggest value addition the investment firm provides is camaraderie, as well as companionship.

“Entrepreneurship is a very lonely journey. And within that, if you can make some friends and you can talk to each other in a very informal fashion, so that any inhibition or difficult situation that the entrepreneurs face, you’re able to talk about as friends – that I think would be the biggest value-add that any VC could provide,” Pankaj says.

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Adapting to the new normal

According to Pankaj, in order to survive the coronavirus pandemic and its subsequent effects, businesses – big or small – need to be agile, and adapt to the new reality. Just as other VCs, he says having a strong cash position, or at least conserving cash, is important right now.

“We want to make sure that we put our heads down, make sure that runways are strong, and we stay relevant for the times after COVID-19. At the same time, it does give us a good opportunity to not only fix our cost base but also think about a significant innovation that we can do to make sure that we continue to be the leader in the space that we operate in,” he says.

Some businesses, in fact, will perform even better that they did, pre-coronavirus. Citing the example of an online furniture retailer Pepperfry, Pankaj says a shift in consumer mindset towards online shopping – brought on by the lockdown period where people were forced to lean on ecommerce companies for essentials – could benefit several companies once the COVID-19 threat abates.

“The reason, of course, is that it is part of an online trend where people will spend less time looking at offline options but may go significantly towards online...benefitting companies like Pepperfry.”

Anything that does not promote physical contact with businesses will pick up after the lockdown, and their patronage will be ripe for the picking.