[YS Learn] Rapport played a key role in giving VenturEast an exit from biotech firm Richcore Lifesciences
A rapport between a company and an early-stage investor is more often than not what ensures the latter’s exit. Such has been the equation, nurtured for years, between Subramani Ramachandrappa, Chairman and Managing Director of Richcore Lifesciences Pvt. Ltd, and Sarath Naru, Managing Partner of venture capital firm VenturEast. And it has paid off.
In December 2020, Richcore was acquired by Laurus Labs, allowing early investor VenturEast to exit the Bengaluru-based biotech company founded in 2001. Laurus signed a definitive agreement to acquire 72.55 percent of Richcore’s shares from VenturEast and Eight Roads Ventures for Rs 246.67 crore.
The exit is a big win not only for VenturEast, but also for other early-stage investors in the Indian startup ecosystem. It should help bring more investment and belief in the market. It also highlights the fact that investment decisions are not made overnight.
For Sarath, it is a bet an early investor makes on an entrepreneur and the business sector in which he or she is starting up. “Nobody can predict the exit quantum or amount. So, it all depends on the type of entrepreneur you are looking to invest in,” he says.
With advanced research and development (R&D) and manufacturing facilities, Richcore makes products critical for biological drugs. It also helps global customers scale up their bioprocesses by providing contract research, development and manufacturing services.
A relationship built over time
Subramani was part of an entrepreneurship programme at the Indian School of Business in 2003 when he first met Sarath.
“In all my years of interacting with Sarath, there is one word that can describe him: maverick,” says Subramani. In that programme, Subramani recalls, his presentation—on a startup that used to make artificial flowers—was the last one, and Sarath asked how the product would play out in the real world.
“After the event, we had a brief interaction and Sarath said, ‘Why don’t we catch up more and speak?’ For the next few years, we kept meeting at events and had conversations. Sarath was in Chennai and I spent time with him to get a better understanding. These interactions helped me build a rapport,” says Subramani.
What were Sarath’s first impressions? At the time he was wary of students starting up immediately after college.
“I hadn’t looked at Subramani immediately; it was a different business and it was interesting, and he displayed tech acumen. I used to keep in touch with him,” says Sarath.
In 2001, Subramani started Richcore as a company working on environmental and climate change as well as biotech. In 2009, it pivoted to biotech. Later, when he was looking to raise money, the focus was on enzymes and biopharmaceuticals.
VenturEast made an investment in Richcore when it was operating out of a house. The initial fundraise was for infrastructure. The VC firm has since been part of multiple funding rounds and, together with Eight Roads Ventures, invested $5.4 million in the company.
But making an early-stage investment is a big risk. What convinced Sarath to do so? “By 2009 Subramani had also had experience backed with expertise,” says Sarath. “We engaged with them and different people on the team were able to discuss the idea and what could be done. The business proposition by then had merit.”
The VC firm was supposed to invest through the VenturEast Lifesciences Fund III, but since that was taking a little longer, the VenturEast tech fund was chosen instead.
“Also, Subramani had been persistent and done everything to maintain a healthy and good relationship and conversation,” says Sarath. “They had also built a rapport with the VenturEast team.”
Know your investor
“As an early-stage company it is important to have a clear understanding of who comes on board as an investor,” says Subramani, "As things are very fluid, other than just money, you need to make sure you have an anchored relationship with your investors. This doesn’t come on the term sheet; it comes with the investment they make as people. There are many questions. You question yourself and your board helps you find those answers.”
Subramani says the biggest plus was that VenturEast had a strong understanding of early-stage startups. There were different people at different times that he could reach out to when he felt stuck or experienced a problem.
“At the end of the day what pays is tenacity,” he says, “The confidence that a founder gets when an investor gives you the belief to go ahead despite all odds is very important for early-stage startups. We have pivoted our business to become a biopharma company and these shifts can be difficult for investors. But VenturEast was strong through it all.”
Besides, Subramani adds, Richcore is an asset-heavy business, meaning the team has had to maintain a bootstrapping nature. “When you spend on R&D, some of the research pans out and some don’t, so the investor has to be open to failures and be transparent with feedback,” he says.
Sarath explains that despite the portfolio approach that funds follow, investors need to give the right guidance to the company and see if it is learning from mistakes and moving forward. “It is also important to understand if the business is relevant at all times. Subramani was always pushing the envelope and understood what the market and consumer needs.”
This, he adds, also means pivoting at the right time, and the Richcore team was able to do that.
“While exits, investments and everything are part of the cycle, it also is very important to give the investor an exit,” says Sarath. “It is part of the journey. When you raise funding, you take it with a certain promise, and an exit is that.”
(Edited by Lena Saha)