The area once dominated by Wall Street investment bankers are being increasingly invaded by another tribe - entrepreneurs.
MUMBAI: The venture capitalist’s (VC) profile is changing. The area once dominated by Wall Street investment bankers are being increasingly invaded by another tribe - entrepreneurs.
The latest example came on Saturday when R Ramaraj, co-founder and former Sify CEO, joined Sequoia Capital India.
His shift brought into sharper focus an issue that’s already under debate- who’s best suited to step into a VC’s shoes? One with a financial background or an entrepreneur?
The jury is still out on that, but the trend is getting stronger.
When Ashish Gupta, of Helion Venture Partners, did a Ramaraj in the 90s, the contours of that trend emerged. Gupta who co-founded junglee.com in 1996 sold it to Amazon.com for $230 million two years later.
Now, he is the managing director of Helion Venture Partners, an India-focused venture capital firm, which raised the first fund of $140 million in August 2006.
He has also had stints at Oracle Corporation and IBM. Another example is Sanjeev Aggarwal, co-managing director at Helion. Aggarwal was co-founder and chief executive officer of Daksh, a business process outsourcing outfit, which was taken over by IBM in 2004.
What the three are proving is that those from the industry are as well-equipped to don the mantle of a VC as anyone with a finance background.
Since information technology veterans (VC funding has typically gone into IT and related sectors) bring in industry expertise with them, they may be in a better position to evaluate companies that seek funding.
On the other hand, a pure investment background may sometimes hinder the investor in relating to the investee company’s journey as he may not be at a vantage point to understand the company’s evolution after the fund infusion.
Says Avnish Bajaj, co-founder and erstwhile CEO of India’s largest online marketplace, Bazee.com, which was sold to eBay in 2004: “Operat-ing guys do not necessarily make better investors.
The beta or the volatility of performance of entrepreneur-turned-VCs is very high. So the good ones are great, but there are a lot of bad ones, too. Mean-while, for people who grow up in an investing background, starting off as, say an associate in a venture firm, the beta is lower.”
Bajaj is currently managing director of Matrix Partners, which closed a $150 million India-dedicated venture fund in August 2006 that has made five investments so far.
He believes that entrepreneurs who have turned VCs sometimes tend to believe in their view of an opportunity and their vision of the world, rather than the people they are investing in.
“A person who has never had any operational experience would say that I’m not going to take any risks; I am backing the investee company. An entrepreneur-turned-VC would say I really believe in the opportunity and even if the person I’m backing cannot make it happen, I’ll get involved - and that’s very dangerous. A VC should help where he can, but not get too involved. That’s where most of them fail,” says Bajaj.
Alok Mittal, managing director of Canaan Partners is another industry veteran who is now in the VC space. He co-founded JobsAhead.com, a leading web-based recruitment business, which was sold to Monster.com in 2004.
“I think industry people turning VCs is a very healthy practice,” says Mittal. Mittal should know. He’s a founding member of Indian Angel Network, a band of successful entrepreneurs who have joined hands to fund start-ups in their individual capacities.
It has around 60 angels (members) now, with Jaithirth (Jerry) Rao, chairman of MphasiS, and Saurabh Srivastava, chairman of Infinity Technology Investment, being a couple of them.
“We’re a bunch of people who have been successful in what we’ve done, and now want to make it happen for people who have the right ideas, but need help to translate them into bigger businesses,” Srivastava said last week in an informal chat with journalists.
NEA-IndoUS Ventures, another VC firm that provides early and mid-stage funding to Indian companies, is headed by Silicon Valley entrepreneurs - Vani Kola and Vinod Dham.
While there’s no firm answer as to who makes the better investor - the investment professional or the entrepreneur — Bajaj’s Matrix Partners provides some clue.
“As far as my partner Rishi Navani and I are concerned, we have complementary experiences. He was an investor for 10 years; I was an entrepreneur. That works out very well, because if I’m going down the path too far, thinking like an entrepreneur, or he’s going too far down thinking like an investor, we can balance each other. If you ask our portfolio companies, they’d say they like that combination,” says Bajaj.
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