VCs from the past return from a long hiatus

MUMBAI: Keeping an old email address active was the key to Sandeep Singhal’s founding Nexus India Capital in late 2006, and following his passion all over again — of funding start-ups — and in his own words, “sharing the energy and passion of entrepreneurs”.

Singhal had been at this earlier, as part of eVentures, which he founded in 1999, along with Neeraj Bhargava (now CEO of business process outsourcing biggie WNS) and Rajesh Jog (later founder CEO of Vjive Networks, an out-of-home advertising medium).

But with the technology bust of 2000-2001, and his limited partners (investors) Softbank and News Corp deciding to cap funding to eVentures, Singhal was left with no option but to wind it up.

So post-2001, Singhal lay low, focusing on selling back some of the 15 companies in which eVentures had invested, shutting down some, and remaining on the board of a few others.

In 2002, he turned entrepreneur, co-founded Medusind Solutions, a healthcare outsourcing company, all along keeping his sandeep@eventures.co.in ID alive. “From the activity in my inbox, I could see that VC interest in India was very low in 2002 and 2003, but started gaining traction in 2004, and gained momentum in 2005,” said Singhal.

He slowly started expressing his interest to get back into the VC space, and through friends, connected with Naren Gupta in Silicon Valley.

“For about six months, we didn’t invest. We just surveyed the scene in India,” said Singhal. And when they were convinced by late 2006, they floated Nexus India Capital (along with Suvir Sujan, co-founder of Baazee.com), a fund focused on early stage capital.

Today, Nexus has a $100 million fund, and has made seven investments.
That’s Singhal’s story, and it runs almost parallel to the chronicles of a number of venture capitalists who had been wiped out during the tech meltdown, but now, with venture capital/private equity finding unprecedented traction in India, are slowly finding their way back in.

“I would say that India was not a destination of choice at that time. Only in the past two years has it become one,” said Sudhir Sethi, who is now founder and managing director of IDG Ventures India, and in the pre-tech bust days, led US-based VC fund Walden International’s India operations.

Back then, it was also irrational exuberance among VCs that drove funding. The unprecedented success of US VCs investing in technology start-ups there had made a strong case for replicating such models in India. So a bunch of investors, most of them recent returns to India after stints abroad in consulting or investment banking, decided to capitalise on the opportunity. They were a confident, almost complancent lot.

The Nasdaq’s climb to unprecedented levels also brought in a sense of smugness. Their blind belief in ‘internet’ saw these VCs pouring ridiculous sums to fund Indian start-ups that did not need so much money. But reality finally caught up when the Nasdaq crashed in September 2000, spelling the beginning of the tech rout, and the shakeout of the Indian VC.

Sethi’s story goes like this: In his four-year stint at Walden, he and his team invested in about 11-12 companies, but the focus of the firm on technology meant a near complete washout of the portfolio companies in 2000-2001.

Walden lost interest in India and shifted focus to China. Meanwhile, Sethi joined one of Walden’s portfolio companies, Infotech Enterprises, as its president and executive director.

However, he kept his interest in the VC space alive by serving on the investment committee of UTI Ventures, the advisory board of Westbridge Capital (now Sequoia Capital) and the board of advisors at the NS Raghavan Center for Entrepreneurship at IIM Bangalore in his four-year hiatus.

“We were very early in the game at that time,” reminisces Sethi, of the pre-2000 era, when there were less than 10 funds in India.

But towards late 2005, like Singhal, Sethi was also wanting to raise a fund. “Did I want to raise my own fund? Yes. But there is a time and place for everything,” he said. His break came when he met with IDG Ventures of the US, which wanted to start India operations. Sethi came on board as managing general partner in late 2006. And the rest, as they say, is history.

He roped in his former colleague, TC Meenakshisundaram, whose VC career had also been abruptly cut short when Walden exited India in 2002. Between 2002 and 2005, Meenakshisundaram served as CFO and president of corporate services at Venture Infotek, another of Walden’s investee companies.

In fact, the entire initial team at Walden is now back in the Indian VC space. Rahul Chandra, who was Walden’s first hire in 1996, is now director and investment advisor at Helion Venture Partners, an India-focused fund, which raised $140 million in August 2006.

But fortunately for Rahul, he was not one of those caught in India in the technology downturn. He left for Walden’s US office end of 1999, and stayed back till 2006.
Abhay Havaldar, who helped Draper International set up its fund in the mid-1990s, is another who lost his way in between, but found it back quickly.

After Draper, he set up Connect Capital in 2000 with a clutch of international backers, including Microsoft. But Connect floundered after the meltdown and failed to get further funding. But Havaldar got a break with General Atlantic in 2002, to set up its India office, and now serves as its managing director.

Then there’s Rajiv Sahney, who joined pan-European strategic investment company Antfactory’s India operations in early 2000. The ant - as employees of Antfactory are referred to - had to pack his bags after the technology meltdown. But by July 2004, Sahney was also back in the VC game:  to head the PE business of New Vernon Capital.

Singhal of Nexus does not call the deal-making frenzy in those tech boom days, a mistake. “All of us felt there was a need for venture capital at that time in India. The fact that some of the companies we invested in during that time have survived to tell the tale, is proof enough,” he said, citing some of eVentures’ erstwhile portfolio companies such as NetMagic and MakeMyTrip.

“We got caught on a global downwind that had nothing to do with India,” he added. On what’s different between then and now, he feels that limited partners (investors in a fund) are a lot more engaged these days and aware of what’s happening in India.

Limited partners may be more committed, but general partners (those who make the investments) like Singhal, with their hair a little greyer (or their pates a little balder?), and mistakes from the past fresh in their memories, may probably be better geared to play a second innings.